Type of Credit: Required
Credit(s)
Number of Students
Over the past two decades, the continuous-time model has proved to be a valuable tool in the
development of finance. Although continuous-time framework is mathematically more complex,
it however provides more detailed theoretical solutions than can otherwise be obtained from its
discrete-time counterpart. This course covers theories of asset pricing that are the foundation of
current theoretical and empirical research in financial economics.
能力項目說明
This course is designed to cover asset pricing theories in a continuous time setting. In the
first part, this course will analyze models of individual consumption and portfolio choice and their
implications for equilibrium asset prices. In the second part, the course will introduce contingent
claims valuation techniques based on the principle of absence of arbitrage. After taking this course,
students are expected to become familiar with all of the major theories and techniques of asset
valuations field.
| 教學週次Course Week | 彈性補充教學週次Flexible Supplemental Instruction Week | 彈性補充教學類別Flexible Supplemental Instruction Type |
|---|---|---|
• Topic 1: Course Introduction
• Topic 2: Consumption-Saving Decisions (Chapter 4)
• Topic 3: Market Completeness, Arbitrage, and State Pricing (Chapter 4)
• Topic 4: Multi-period Model of Consumption and Portfolio Choice (Chapter 5)
• Topic 5: Multi-period Market Equilibrium (Chapter 6)
• Topic 6: Basics of Derivative Pricing (Chapter 7)
• Topic 7: Essentials of Diffusion Processes and Ito’s Lemma (Chapter 8)
• Topic 8: Dynamic Hedging and PDE Valuation (Chapter 9)
• Topic 9: Arbitrage, Martingales, and Pricing Kernels (Chapter10)
• Topic 10: Continuous-Time Dynamic Programming (Chapter 12)
• Topic 11: The Martingale Approach to Consumption and Portfolio Choice (Chapter 12)
• Topic 12: Equilibrium Asset Returns (Chapter 13)
• Topic 13: Intertemporal Capital Asset Pricing Model (Chapter 13)
There are three components to the final grade of the course:
• Problem sets (20%): Problem sets are handed out nearly every week, and will be due in the
class in the following week. Late assignment will not be accepted.
• Class participation (30%): Students are required to read assigned papers before coming to
class. Each student will be asked to present one paper every week or every two weeks .
• Final Examination (50%): There will be a final exam. The exam will be scheduled in the
regular exam period. The exam are open-book, and no make-up exam is permitted.
The main textbook for this course is:
• Pennacchi, George. Theory of asset pricing. Boston: Pearson/ Addison -Wesley, 2008.
In addition to the required readings from the textbooks, some key papers for each topic of the
course will be assigned as supplementary readings in class.