TY - BOOK TI - Asset pricing for dynamic economies SN - 9780521875851 U1 - 332.6 PY - 2008/// CY - New York PB - Cambridge University Press N1 - 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 ER -