Finance Theory and Asset Pricing [Paperback]

Finance Theory and Asset Pricing provides a concise guide to financial asset pricing theory for economists. Assuming a basic knowledge of graduate microeconomic theory, it explores the fundamental ideas that underlie competitive financial asset pricing models with symmetric information. Using finite dimensional techniques, this book avoids sophisticated mathematics and exploits economic theory to clarify the essential structure of recent research in asset pricing. In particular, it explores arbitrage pricing models with and without diversification, Martingale pricing methods and representative agent pricing models; discusses these ideas in two-date and multi-date models; and provides a range of examples from the literature. This second edition includes a new section dealing with more advanced multi-period models. In particular it considers discrete factor structure models that mimic recent continuous time models of interest rates, money, and nominal rates and exchange rates. Additional sections sketch extensions to real options and transaction costs.

Introduction
1. A Brief History of Finance Theory
Part I: The One Period Model
2. Two Date Models: Complete Markets
3. Incomplete Markets with Production
4. Arbitrage and Asset Pricing: Induced Preference Approach
5. Martingale Pricing Methods
6. Representative Consumers
7. Diversification and Asset Pricing
Part II: The Basic Multiperiod Model
8. Multiperiod Asset Pricing: Complete Markets
9. General Asset Pricing in Complete Markets
10. Multiperiod Asset Pricing: Incomplete Asset Markets
Part III: The General Multiperiod Model
11. The General Model and Asset Price Characterization
12. Arbitrage and Discounting Formulae
13. Pareto Optimality
14. Orthonormal Bases, Factor Pricing, and Multi-Beta Asset Pricing
15. Idiosyncrasies that are Irrelevant for Security Pricing
16. Discrete Stochastic Integrals and Mul³±