Asset Pricing and Portfolio Choice Theory (Financial Management Association Survey and Synthesis Series)
In Asset Pricing and Portfolio Choice Theory, Kerry E. Back at last offers what is at once a welcoming introduction to and a comprehensive overview of asset pricing. Useful as a textbook for graduate students in finance, with extensive exercises and a solutions manual available for professors, the book will also serve as an essential reference for scholars and professionals, as it includes detailed proofs and calculations as section appendices.
Topics covered include the classical results on single-period, discrete-time, and continuous-time models, as well as various proposed explanations for the equity premium and risk-free rate puzzles and chapters on heterogeneous beliefs, asymmetric information, non-expected utility preferences, and production models. The book includes numerous exercises designed to provide practice with the concepts and to introduce additional results. Each chapter concludes with a notes and references section that supplies pathways to additional developments in the field.
Probably the best PhD level Asset Pricing book out there.
By Bachelier ""1004"" - May 2, 2012
I am in the EDHEC PhD program, and we are using this book, instead of Merton's ConTimeFin, or Cochrane for our course Continuous Time Financial Economics.
Kerry Back's clarity is the main utility here. He does spend a *lot* of time on the binomial model (discrete time) before extending it to ConTime, but this grounding helps in the intuition.
Probably the best pedagogic layout of Ito's formula I've ever encountered, and this thoroughly covers Black Scholes, and asset pricing through Heleyete Geman's final extension.
Back's work benefits from all previous work in computational and continuous time finance in that more (not all) of the mathematical notation is standardized.
However, some of his choices for superscripts and subscripts strike you as odd, particularly if you've come from an MSF that emphasizes, say, John Hull's notation (most), or an MSFE (Carnagie Mellon) that emphasizes Merton's notation. Those coming to a PhD in Finance from... read more
Much better than Cochrane
By Finance PhD - May 3, 2011
I'm a PhD student in finance at a top 10 US business school and must say I completely disagree with yamie2005. I find Kerry's book to be very well written, and its organization is much more logical than Cochrane's. I have a background in math and stats, and find Kerry's writing style to be very clear and concise (as opposed to Cochrane). However, I can see why students with a less rigorous background may prefer Cochrane. Kerry doesn't cover the same topics as Cochrane: Cochrane covers asset pricing theory in Part I of his book (chap 1-9), empirical asset pricing in Part II (chap 10-16), bonds and options in Part III (chap 17-19) and finishes with an empirical survey in Part IV (chap 20-21). I do like Cochrane's chapters on empirical asset pricing a lot, but find his writing style for the theory parts to be lengthy and not rigorous enough. Kerry focuses only on asset pricing theory (including some chapters on continuous time), and does this in much more detail than Cochrane - the two... read more
Best Asset Pricing Book
By Rama Malladi - April 26, 2013
Having gone through four financial economics classes at the PhD level and numerous other books (Cochrane, Ingersoll, Duffie, Pennachhi), I have found this to be the best book.
First, it is not cryptic. You understand what the flow is, where we came from and where we are going next, and why are we going there. This may sound simple and obvious, but it is not, especially when you follow the other books.
Chapters 1-11 go through the introductory/foundational concepts such as RRA, SDF, Welfare theorems, Arrow-Debreu securities, Arbitrage, Euler equations, Dynamic programming, Bellman Equations, Representative agent, complete and incomplete markets, habit models, equity premium puzzle etc., in detail.
Chapters 12-22 go through continuous time concepts, Ito's process, Radon-Nikodym derivatives, Beta pricing, HJ bounds, Change of numeraire, CAPM, ICAPM, Option pricing models without solving PDEs, Deep dive into option pricing using SDF and change of measure... read more
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