Asset pricing for dynamic economies/ Altug,Sumru

I BASIC CONCEPTS
1 Complete contingent claims
A one-period model
Contingent claims equilibrium
Computing the equilibrium
Pareto optimal allocations
Security market equilibrium
Definition
Attaining a CCE by an SME
The Pareto optimum and the representative consumer
Conclusions
Exercises
2 Arbitrage and asset valuation
Absence of arbitrage: some definitions
The law of one price
Arbitrage opportunities
Existence of a state-price vector
Risk-free asset
Risk-neutral pricing
The stochastic discount factor
. Binomial security markets
An economy with two dares
A multi-period economy
Conclusions
Exercises
3 Expected utility
Expected utility preferences
Some definitions
Risk aversion
One-period expected utility analysis
The risk premium
Measures of risk aversion
Risk aversion in a portfolio choice problem
Measures of increasing risk
Conclusions
Exercises
4 CAPM and APT
The capital asset-pricing model
The discount factor
Expected utility' maximization
Alternative derivations
Arbitrage pricing theory
Conclusions
Exercises
5 Consumption and saving
A deterministic economy
5.1.1. Properties of the saving function
5.1.2. Optimal consumption over time
Portfolio choice under uncertainty
A more general problem
5.3.1. Precautionary saving
Conclusions
Exercises
II RECURSIVE MODELS
6 Dynamic programming
A deterministic growth problem
Guess-and-verify
. Finite horizon economies
Mathematical preliminaries
Markov processes
Vector space methods
Contraction mapping theorem
A consumption-saving problem under uncertainty
Exercises
7 Intertemporal risk sharing
Multi-period contingent claims
Aggregate uncertainty
Central planning problem
Sequential trading
Implications for pricing assets
Idiosyncratic endowment risk
Notation
The economy
Complete contingent claims
Dynamic programming
Risk sharing with idiosyncratic and aggregate risk
7.3.1. First-best solution
Conclusions
Exercises
8 Consumption and asset pricing
The consumption-based CAPM
Recursive competitive equilibrium
Asset-pricing functions
Risk prcmia
Volatility bounds for interiemporal MRSs
The "equity premium puzzle"
Pricing alternative assets
Discount bonds and the yield curve
Pricing derivative instruments
The Biack-Scholes options pricing formula
A growing economy
8.3.1. Cointegration in asset-pricing relations
Conclusions
Exercises
9 Non-separable preferences
Non-time-additive preferences
Habit persistence and consumption durability
A more general specification
A recursive framework
Pricing durable consumption goods
Asset-pricing relations
y., .V. Log-linear asset-pricing formulas
Non-expected utility
" " " Recursive preferences under certainty
The role of temporal lotteries
Properties of non-expected utility preferences
Optimal consumption and portfolio choices
Tests of asset-pricing relations
A model with an external habit
Conclusions
Exercises
10 Economies with production
Recursive competitive equilibrium with production
Households own the capital stock
Households lease capital to firms
Extensions
Economies with distortions
The role of expectations
Solving models with production
A parametric model
The stationary distribution
Financial structure of a firm
rhc irrelevance of debt versus equity financing
riie equitv price and the equiti' premium
limpirical implications
Taxes and the debt-equity ratio
(Conclusions
Appendix: The invariant distribution
F.xercises
11 Investment
The neoclassical model of investment
L. [ be Q theory adjustment-cost model of investment
The Q theory of investment
Adjustment costs
"The social planners problem
The market economy
Asset-pricing relations
It Irreversible itivestment
A model with partial irreversibility and expandabilit)'
A model of irreversible investment
,,.4. An asscl-pricing model with irtcvcrsible investment
The model
The social planner's problem
The competitive equilibrium
The value of the firm and Q
The relation among stock returns, investment, and J
Conclusions
Fxercises
12 Business cycles
Business cycle facts
Shocks and propagation mechanisms
Real business c7clc models
An RBC model
A model with indivisible labor supply
Other "puzzles
Solving business cycle models
Quadratic approximation
Business cycle empirics
Dynamic factor analysis
Ml. and GMM estimation approaches
A New Keyncsian critique
inclusions
Exercises
„„HErA.V AND ,NTE.NATK,N.A MODEtS
„ Models with cash-in-advance constraints
^ -Fvd is the root of ail money
The basic cash-in-advance model
Solution for velocity
Kmpirica! results
Inflation risk and the inflation premium
Velocity shock
Inflation and interest rates
Transactiofis services model
Growing economies
Money and real activit)'
Consumption-leisure choices
Business c)'clc implications
Conclusions
Exercises
14 International asset markets
A two-country model
International monetary model
The terms of trade and the exchange rate
Pricing alternative assets
Variants of the basic mode!
Non-traded goods
Exchange rates and international capital flows
Conclusions
Exercises
IV MODELS WITH MARKET INCOMPLETENESS
15 Asset pricing with frictions
The role oTidiosyncratic risk for asset pricing
Transactions costs
15.2.1. A model with bid-ask spreads
Volatility bounds with frictions
Conclusions
Exercises
16 Borrowing constraints
Idiosyncratic risk and borrowing constraints
The basic model
Restrictions on markets
Pure insurance economy
Pure credit model
Asset span
16.2. Townsend turnpike model
Description of the model
Borrowing-constrained households
Borrowing constraints as netting schemes
Liquidity-constrained households
Debt-constrained economies
Conclusions
Exercises
Overlapping generarions models
I he environment
Primitives
Aiitarkv in the absence of an outside asset
The stochastic overlapping generations model
Central planning problem
Mqual-treatment Pareto-optimal solution
(amipetiiive equilibrium
Deterministic economy
Fiat money
The stochastic economy
Kquirv pricing in a growing economy
Risk premia
(Capital accumulation and social security
Social security
Cionclusions
Fxercises