Details
- Comprehensive and unified presentation of modern asset pricing theory. Ideal main textbook for courses where the required readings often consists of a long list of research articles with varying focus, notation, and writing style
- Covers recent developments in asset pricing research. These state-of-the-art models are likely to be the basis of future practical applications and of future theoretical advances
- A balanced presentation that offers both formal mathematical modelling and economic intuition and understanding
- Each chapter includes a set of exercises making it easy for readers to test their knowledge
- Divided into chapters according to economic concepts and theories. This enables the reader to take the intuition and simplicity from one-period and discrete-time settings to a more mathematically demanding continuous-time setting
Financial Asset Pricing Theory offers a comprehensive overview of the classic and the current research in theoretical asset pricing. Asset pricing is developed around the concept of a state-price deflator which relates the price of any asset to its future (risky) dividends and thus incorporates how to adjust for both time and risk in asset valuation. The willingness of any utility-maximizing investor to shift consumption over time defines a state-price deflator which provides a link between optimal consumption and asset prices that leads to the Consumption-based Capital Asset Pricing Model (CCAPM). A simple version of the CCAPM cannot explain various stylized asset pricing facts, but these asset pricing 'puzzles' can be resolved by a number of recent extensions involving habit formation, recursive utility, multiple consumption goods, and long-run consumption risks. Other valuation techniques and modelling approaches (such as factor models, term structure models, risk-neutral valuation, and option pricing models) are explained and related to state-price deflators.
The book will serve as a textbook for an advanced course in theoretical financial economics in a PhD or a quantitative Master of Science program. It will also be a useful reference book for researchers and finance professionals. The presentation in the book balances formal mathematical modelling and economic intuition and understanding. Both discrete-time and continuous-time models are covered. The necessary concepts and techniques concerning stochastic processes are carefully explained in a separate chapter so that only limited previous exposure to dynamic finance models is required.
Readership: First and second year PhD students in finance and economics, researchers, and finance professionals.
Preface
1: Introduction and Overview
2: Uncertainty, Information, and Stochastic Processes
3: Portfolios, Arbitrage, and Market Completeness
4: State Prices
5: Preferences
6: Individual Optimality
7: Market Equilibrium
8: Basic Consumption-Based Asset Pricing
9: Advanced Consumption-Based Asset Pricing
10: Factor Models
11: The Economics of the Term Structure of Interest Rates
12: Risk-Adjusted Probabilities
13: Derivatives
Appendix A. A Review of Basic Probability Concepts
Appendix B. Results on the Lognormal Distribution
Appendix C. Results from Linear Algebra
Claus Munk holds a PhD in economics (1997) and an MSc in Mathematics-Economics (1993) from the University of Southern Denmark, and has held various academic positions at both the University of Southern Denmark and Aarhus University. His primary research areas are asset allocation, general asset pricing theory, financial derivatives, and the application of numerical methods in finance. His research has been published in journals such as Journal of Financial Economics, Management Science, Journal of Economic Theory, Journal of Banking and Finance, European Finance Review, and Journal of Economic Dynamics and Control. He is also the author of the book 'Fixed Income Modelling' that was published by Oxford University Press in 2011.
"This monograph provides a consistent and comprehensive presentation of the classical asset pricing paradigm, from the basics of the theory to the latest developments in the field. The reader's task is simplified by the consistent notation and the integrated conceptual framework that is employed; his technical facility improved by the extensive proofs of the main results that are offered; and his curiosity piqued by the extensive references to the empirical literature. The expert will find it a convenient reference and the student will find it an invaluable guide." - Michael J. Brennan, Professor of Finance at Anderson School, University of California Los Angeles, at Manchester Business School, and at King Abdulaziz University, Jeddah
"Munk takes a completely fresh and well organized approach to communicating the key concepts and techniques of modern asset pricing theory. His treatment is clear, accessible, rigorously unified around the notion of state pricing, and encompasses the latest model specifications. He has set the new standard for doctoral-level courses on this subject." - Darrell Duffie, Dean Witter Distinguished Professor of Finance, at the Graduate School of Business, Stanford University
"Financial Asset Pricing Theory is a rigorous, yet eminently accessible, textbook at the frontier of modern asset pricing theory with applications in portfolio management, the term structure of interest rates, and derivatives, and a nice selection of problem sets. Claus Munks textbook is my top choice as a comprehensive and intuitive textbook for an introductory or advanced PhD course on asset pricing theory." - George M. Constantinides, Leo Melamed Professor of Finance, The University of Chicago, Booth School of Business
