Theoretical Foundations of Asset Pricing

This text provides an advanced introduction to the modeling of competitive financial markets, encompassing arbitrage and equilibrium pricing of financial contracts, as well as optimal lifetime consumption and portfolio choice. Notable features include its coverage of recursive utility in discrete and continuous time and several results not previously available in book form. Each chapter concludes with a set of exercises, with solutions available to verified instructors. Ideal as a graduate-level course text, this book can also serve as a valuable reference for researchers and finance industry practitioners. Readers with a finance focus can use the text to build analytical foundations for a significant component of the economics of financial markets, while readers with a mathematics focus will find a well-motivated introduction to basic tools of stochastic analysis and convex analysis.

• Succinctly presents the theory of competitive asset pricing and optimal consumption-portfolio choice, using some state-of-the-art arguments not currently found in book form
• Provides a self-contained introduction to the associated mathematical methodology in stochastic analysis and optimization theory, including continuous-time methods
• Two appendices offer mini courses on additive utility theory and risk aversion, and on the functional analytic approach to optimization, based on convexity arguments