+612 9045 4394
Dynamic Asset Pricing Theory : Third Edition - Darrell Duffie

Dynamic Asset Pricing Theory

Third Edition

Hardcover Published: 1st October 2001
ISBN: 9780691090221
Number Of Pages: 488

Share This Book:


or 4 easy payments of $22.88 with Learn more
Ships in 7 to 10 business days

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.

Industry Reviews

"This is an important addition to the set of text/reference books on asset pricing theory. It will, if it has not already, become the standard text for the second Ph.D. course in security markets. Its treatment of contingent claim valuation, in particular, is unrivaled in its breadth and coherence."--Journal of Economic Literature

Prefacep. xiii
Discrete-Time Modelsp. 1
Introduction to State Pricingp. 3
Arbitrage and State Pricesp. 3
Risk-Neutral Probabilitiesp. 4
Optimality and Asset Pricingp. 5
Efficiency and Complete Marketsp. 8
Optimality and Representative Agentsp. 8
State-Price Beta Modelsp. 11
Exercisesp. 12
Notesp. 17
The Basic Multiperiod Modelp. 21
Uncertaintyp. 21
Security Marketsp. 22
Arbitrage, State Prices, and Martingalesp. 22
Individual Agent Optimalityp. 24
Equilibrium and Pareto Optimalityp. 26
Equilibrium Asset Pricingp. 27
Arbitrage and Martingale Measuresp. 28
Valuation of Redundant Securitiesp. 30
American Exercise Policies and Valuationp. 31
Is Early Exercise Optimal?p. 35
Exercisesp. 37
Notesp. 45
The Dynamic Programming Approachp. 49
The Bellman Approachp. 49
First-Order Bellman Conditionsp. 50
Markov Uncertaintyp. 51
Markov Asset Pricingp. 52
Security Pricing by Markov Controlp. 52
Markov Arbitrage-Free Valuationp. 55
Early Exercise and Optimal Stoppingp. 56
Exercisesp. 58
Notesp. 63
The Infinite-Horizon Settingp. 65
Markov Dynamic Programmingp. 65
Dynamic Programming and Equilibriump. 69
Arbitrage and State Pricesp. 70
Optimality and State Pricesp. 71
Method-of-Moments Estimationp. 73
Exercisesp. 76
Notesp. 78
Continuous-Time Modelsp. 81
The Black-Scholes Modelp. 83
Trading Gains for Brownian Pricesp. 83
Martingale Trading Gainsp. 85
Ito Prices and Gainsp. 86
Ito's Formulap. 87
The Black-Scholes Option-Pricing Formulap. 88
Black-Scholes Formula: First Tryp. 90
The PDE for Arbitrage-Free Pricesp. 92
The Feynman-Kac Solutionp. 93
The Multidimensional Casep. 94
Exercisesp. 97
Notesp. 100
State Prices and Equivalent Martingale Measuresp. 101
Arbitragep. 101
Numeraire Invariancep. 102
State Prices and Doubling Strategiesp. 103
Expected Rates of Returnp. 106
Equivalent Martingale Measuresp. 108
State Prices and Martingale Measuresp. 110
Girsanov and Market Prices of Riskp. 111
Black-Scholes Againp. 115
Complete Marketsp. 116
Redundant Security Pricingp. 119
Martingale Measures from No Arbitragep. 120
Arbitrage Pricing with Dividendsp. 123
Lumpy Dividends and Term Structuresp. 125
Martingale Measures, Infinite Horizonp. 127
Exercisesp. 128
Notesp. 131
Term-Structure Modelsp. 135
The Term Structurep. 136
One-Factor Term-Structure Modelsp. 137
The Gaussian Single-Factor Modelsp. 139
The Cox-Ingersoll-Ross Modelp. 141
The Affine Single-Factor Modelsp. 142
Term-Structure Derivativesp. 144
The Fundamental Solutionp. 146
Multifactor Modelsp. 148
Affine Term-Structure Modelsp. 149
The HJM Model of Forward Ratesp. 151
Markovian Yield Curves and SPDEsp. 154
Exercisesp. 155
Notesp. 161
Derivative Pricingp. 167
Martingale Measures in a Black Boxp. 167
Forward Pricesp. 169
Futures and Continuous Resettlementp. 171
Arbitrage-Free Futures Pricesp. 172
Stochastic Volatilityp. 174
Option Valuation by Transform Analysisp. 178
American Security Valuationp. 182
American Exercise Boundariesp. 186
Lookback Optionsp. 189
Exercisesp. 191
Notesp. 196
Portfolio and Consumption Choicep. 203
Stochastic Controlp. 203
Merton's Problemp. 206
Solution to Merton's Problemp. 209
The Infinite-Horizon Casep. 213
The Martingale Formulationp. 214
Martingale Solutionp. 217
A Generalizationp. 220
The Utility-Gradient Approachp. 221
Exercisesp. 224
Notesp. 232
Equilibriump. 235
The Primitivesp. 235
Security-Spot Market Equilibriump. 236
Arrow-Debreu Equilibriump. 237
Implementing Arrow-Debreu Equilibriump. 238
Real Security Pricesp. 240
Optimality with Additive Utilityp. 241
Equilibrium with Additive Utilityp. 243
The Consumption-Based CAPMp. 245
The CIR Term Structurep. 246
The CCAPM in Incomplete Marketsp. 249
Exercisesp. 251
Notesp. 255
Corporate Securitiesp. 259
The Black-Scholes-Merton Modelp. 259
Endogenous Default Timingp. 262
Example: Brownian Dividend Growthp. 264
Taxes and Bankruptcy Costsp. 268
Endogenous Capital Structurep. 269
Technology Choicep. 271
Other Market Imperfectionsp. 272
Intensity-Based Modeling of Defaultp. 274
Risk-Neutral Intensity Processp. 277
Zero-Recovery Bond Pricingp. 278
Pricing with Recovery at Defaultp. 280
Default-Adjusted Short Ratep. 281
Exercisesp. 282
Notesp. 288
Numerical Methodsp. 293
Central Limit Theoremsp. 293
Binomial to Black-Scholesp. 294
Binomial Convergence for Unbounded Derivative Payoffsp. 297
Discretization of Asset Price Processesp. 297
Monte Carlo Simulationp. 299
Efficient SDE Simulationp. 300
Applying Feynman-Kacp. 302
Finite-Difference Methodsp. 302
Term-Structure Examplep. 306
Finite-Difference Algorithms with Early Exercise Optionsp. 309
The Numerical Solution of State Pricesp. 310
Numerical Solution of the Pricing Semi-Groupp. 313
Fitting the Initial Term Structurep. 314
Exercisesp. 316
Notesp. 317
Appendixesp. 321
Finite-State Probabilityp. 323
Separating Hyperplanes and Optimalityp. 326
Probabilityp. 329
Stochastic Integrationp. 334
SDE, PDE, and Feynman-Kacp. 340
Ito's Formula with Jumpsp. 347
Utility Gradientsp. 351
Ito's Formula for Complex Functionsp. 355
Counting Processesp. 357
Finite-Difference Codep. 363
Bibliographyp. 373
Symbol Glossaryp. 445
Author Indexp. 447
Subject Indexp. 457
Table of Contents provided by Syndetics. All Rights Reserved.

ISBN: 9780691090221
ISBN-10: 069109022X
Series: Princeton Series in Finance
Audience: Tertiary; University or College
Format: Hardcover
Language: English
Number Of Pages: 488
Published: 1st October 2001
Country of Publication: US
Dimensions (cm): 24.5 x 16.3  x 3.8
Weight (kg): 0.87
Edition Number: 3
Edition Type: Revised

This product is categorised by