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.
