This is a thoroughly updated edition of "Dynamic Asset Pricing
Theory," the standard text for doctoral students and researchers on
the theory of asset pricing and portfolio selection in multiperiod
settings under uncertainty. The asset pricing results are based on
the three increasingly restrictive assumptions: absence of
arbitrage, single-agent optimality, and equilibrium. These results
are unified with two key concepts, state prices and martingales.
Technicalities are given relatively little emphasis, so as to draw
connections between these concepts and to make plain the
similarities between discrete and continuous-time models.
Readers will be particularly intrigued by this latest edition's
most significant new feature: a chapter on corporate securities
that offers alternative approaches to the valuation of corporate
debt. Also, while much of the continuous-time portion of the theory
is based on Brownian motion, this third edition introduces
jumps--for example, those associated with Poisson arrivals--in
order to accommodate surprise events such as bond defaults.
Applications include term-structure models, derivative valuation,
and hedging methods. Numerical methods covered include Monte Carlo
simulation and finite-difference solutions for partial differential
equations. Each chapter provides extensive problem exercises and
notes to the literature. A system of appendixes reviews the
necessary mathematical concepts. And references have been updated
throughout. With this new edition, "Dynamic Asset Pricing Theory"
remains at the head of the field.
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