Asset Pricing: A Structural Theory and Its Applications

✍ Scribed by Bing Cheng, Howell Tong

• Publisher: World Scientific Publishing Company
• Year: 2008
• Tongue: English
• Leaves: 91
• Category: Library

✦ Synopsis

Modern asset pricing models play a central role in finance and economic theory and applications. This book introduces a structural theory to evaluate these asset pricing models and throws light on the existence of Equity Premium Puzzle. Based on the structural theory, some algebraic (valuation-preserving) operations are developed in asset spaces and pricing kernel spaces. This has a very important implication leading to practical guidance in portfolio management and asset allocation in the global financial industry. The book also covers topics, such as the role of over-confidence in asset pricing modeling, relationship of the portfolio insurance with option and consumption-based asset pricing models, etc.

Contents: Introduction to Modern Asset Pricing; A Structural Theory of Asset Pricing; Algebra of Stochastic Discount Factors; Investment and Consumption in a Multi-Period Framework.

✦ Table of Contents

Contents......Page 10
Preface......Page 6
List of Figures......Page 12
List of Tables......Page 14
1.1 A Brief History of Modern Asset Pricing Models......Page 16
1.2 The Equity PremiumPuzzle......Page 20
2.1 Construction of Continuous Linear Pricing Functionals......Page 28
2.2 The Structural Theory of Asset Pricing – Part I......Page 32
2.3 Is the Equity Premium Puzzle Really a Puzzle or not a Puzzle?......Page 37
2.4 Conclusions and Summary......Page 43
3.1 Symmetric Theoremof Asset Pricing......Page 46
3.2 Compounding Asset Pricing Models......Page 49
3.3 Compression of Asset Pricing Models......Page 56
3.4 Decomposition of Errors in Asset Pricing Models......Page 61
3.5.1 The data set and utility forms......Page 66
3.5.2 Three sources of pricing errors......Page 67
3.5.3 Decomposition of the pricing errors......Page 69
3.6 Conclusions......Page 70
4.1 Review of Merton’s Asset Pricing Model......Page 72
4.2.1 Martingale approach to the asset pricing model without consumption habit constraints......Page 75
4.2.2 Martingale approach to the asset pricing model with consumption habit......Page 76
4.3 Optimal Investment Behavior......Page 79
4.4 Conclusions......Page 84
Bibliography......Page 86
Index......Page 90