Asset Pricing and Portfolio Choice Theory by KERRY E. BACK

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About the Book

The 2nd Edition of Asset Pricing and Portfolio Choice Theory intelligently collected and presented concepts, overviews, and applications of asset pricing. This highly complex and rather technical book was written to provide asset pricing theory and courses for Ph.D., Masters, and other advanced practitioners in the field. Much, lessons about quantitative finance are laid out for the benefit of financial researchers and professionals as it is equipped with rigorous insights and calculations.

The primary parts meticulously explain asset pricing and portfolio choice theory through the utilization of frameworks, including single-time, discrete-time, and continuous-time models. The discussion centers on the stochastic discount factors which segue on their characteristics going to the topic of valuation. A separate section focuses on derivative securities, which encompasses necessary sub-topics including, term structures, options, and forward and futures. In line with this, corporate debt, real options, and irreversible investment are also sophisticatedly discussed and emphasized.

For those wanting to have an intensive study and acquire much information about concepts of asset pricing research, long-term risks, in and out habits, heterogeneous beliefs, and rare disasters, this technical book is equipped with such. And every chapter has extensive exercises to ensure knowledge acquisition. 

About the Author 

Kerry Back is the man behind Asset Pricing and Portfolio Choice Theory. He endeavors in many academic activities, and presently, he works as a Finance Professor at Rice University’s Jones Graduate School of Business. In line with this, he is also the current Economics Professor at the Rice University School of Social Sciences. He endeavors in researches with specialization in fields of investments and market landscapes.

Table of Contents 

Preface to the First Edition

Preface to the Second Edition

Asset Pricing and Portfolio Puzzles

 PART ONE: Single- Period Models 

  1. Utility and Risk Aversion
  2. Portfolio Choice
  3. Stochastic Discount Factors 
  4. Equilibrium and Efficiency 
  5. Mean-Variance Analysis
  6. Factor Models 
  7. Representative Investors 

PART TWO: Dynamic Models 

  1. Dynamic Securities Markets
  2. Dynamic Portfolio Choice
  3. Dynamic Asset Pricing
  4. Explaining Puzzles 
  5. Brownian Motion and Stochastic Calculus
  6. Continuous-Time Markets 
  7. Continuous-Time Portfolio Choice and Pricing
  8. Continuous- Time Topics

PART THREE: Derivative Securities

  1. Option Pricing 401
  2. Forwards, Futures, and More Option Pricing
  3. Term Structure Models
  4. Perpetual Options and the Leland Model
  5. Real Options and the q Theory  

PART FOUR: Beliefs, Information, Preferences

  1. Heterogenous Beliefs 
  2. Rational Expectations Equilibria 
  3. Learning 
  4. Information, Strategic Trading, and Liquidity 
  5. Alternative Preferences 


  1. Some Probability and Stochastic Process Theory