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Nematrian Reference Library

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Book cover "Dynamic Asset Pricing Theory is a text-book 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. For simplicity, all continuous-time models are based on Brownian motion. Examples include the Black-Scholes option-pricing model, Lucas’s single-agen Markov asset pricing model, Merton’s problem of optimal portfolio and consumption choice in a continuous-time setting, the Harrison-Kreps theory of equivalent martingale measures, Breeden’s consumption based capital asset pricing model, and the term-structure of Cox, Ingersoll, and Ross. Numerical solution techniques include “binomial” methods, Monte Carlo simulation, and finite-difference methods for solving partial differential equations. Each chapter provides extensive problem exercises and notes to the literature."

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