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Asset Pricing and Portfolio Choice Theory Hardcover – Jan. 17 2017

by Kerry E. Back (Author)

9 ratings

Part of: Financial Management Association Survey and Synthesis (26 books)

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In the 2nd edition of Asset Pricing and Portfolio Choice Theory, Kerry E. Back offers a concise yet comprehensive introduction to and overview of asset pricing. Intended as a textbook for asset pricing theory courses at the Ph.D. or Masters in Quantitative Finance level with extensive exercises and a solutions manual available for professors, the book is also an essential reference for financial researchers and professionals, as it includes detailed proofs and calculations as section appendices. The first two parts of the book explain portfolio choice and asset pricing theory in single-period, discrete-time, and continuous-time models. For valuation, the focus throughout is on stochastic discount factors and their properties. A section on derivative securities covers the usual derivatives (options, forwards and futures, and term structure models) and also applications of perpetual options to corporate debt, real options, and optimal irreversible investment. A chapter on "explaining puzzles" and the last part of the book provide introductions to a number of additional current topics in asset pricing research, including rare disasters, long-run risks, external and internal habits, asymmetric and incomplete information, heterogeneous beliefs, and non-expected-utility preferences. Each chapter includes a "Notes and References" section providing additional pathways to the literature. Each chapter also includes extensive exercises.

Print length

712 pages
Language

English
Publisher

Oxford University Press
Publication date

Jan. 17 2017
Dimensions

23.62 x 15.75 x 3.81 cm
ISBN-10

0190241144
ISBN-13

978-0190241148
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Review

Kerry Back has created a masterful introduction to asset pricing and portfolio choice. The coverage of topics is comprehensive, starting in a single-period setting and then moving naturally to dynamic models in both discrete and continuous time. The numerous challenging exercises are yet another
big strength. In short, an impressive achievement.

-- Robert F. Stambaugh, Miller Anderson & Sherrerd Professor of Finance, The Wharton School, University of Pennsylvania

Kerry Back offers us a rigorous, but accessible treatment of the asset pricing theory concepts that every doctoral student in finance should learn. A distinguished scholar in the field provides a presentation that is clear yet concise.

-- Eduardo Schwartz, California Chair in Real Estate and Land Economics, UCLA Anderson School of Management

In Asset Pricing and Portfolio Choice Theory Kerry Back has given us a comprehensive, rigorous and at the same time elegant and self-contained treatment of the important developments in this vast literature. It will be useful to graduate students and advanced undergraduate students in economics,
finance, financial engineering, and management science as well as interested practitioners.

-- Ravi Jagannathan, Chicago Mercantile Exchange/John F. Sandner Professor of Finance and a Co-Director of the Financial Institutions and Markets Research Center, Kellogg School of Management, Northwestern University

About the Author

Kerry Back is the J. Howard Creekmore Professor of Finance at Rice University's Jones Graduate School of Business and a Professor of Economics in the Rice University School of Social Sciences. He previously served on the faculties of Northwestern University, Indiana University, Washington University in St. Louis, and Texas A&M University. At Washington University in St. Louis, he served as the Associate Dean for Academic Affairs of the Olin School of Business and was named a University Distinguished Faculty Member. He received faculty research awards at Texas A&M and at Rice University. Currently, he teaches introductory and advanced asset pricing theory to PhD students in the Jones School and in the Department of Economics. His research interests are in the areas of investments and market design, and he has served as an editor of the Review of Financial Studies, a co-editor of Finance & Stochastics, and an associate editor of the Journal of Finance and other journals.

Product details

Publisher ‏ : ‎ Oxford University Press; 2 edition (Jan. 17 2017)
Language ‏ : ‎ English
Hardcover ‏ : ‎ 712 pages
ISBN-10 ‏ : ‎ 0190241144
ISBN-13 ‏ : ‎ 978-0190241148
Item weight ‏ : ‎ 1.18 kg
Dimensions ‏ : ‎ 23.62 x 15.75 x 3.81 cm

Best Sellers Rank: #86,107 in Books (See Top 100 in Books)
- #8 in Pricing
- #8 in Pricing Management
- #56 in Investment Portfolio Management

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Wulin W Suo

Four Stars

Reviewed in Canada on February 26, 2018

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exactly what expected

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Bachelier

The best textbook for Financial Economics or an Asset Pricing course at the Ph.D-level that there is. Highly recomended.

Reviewed in the United States on November 20, 2017

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This is a welcome second edition following an excellent first edition.
But the most important question for Professors of Ph.D. in Finance or Applied Mathematical Finance and the students should ask is: Why Kerry E. Back’s Asset Pricing and Portfolio Choice Theory instead of Merton's Continues Time Finance, or Cochrane for Financial Economics. Or Shreve and George Pennachi’s Asset Pricing Theory?
Kerry Back's clarity is the main utility here. He does spend a *lot* of time on the binomial model (discrete time) (Chapters 1 through 11, and then 18 through 22 for Options, etc.) before extending it to Continuous Time, but this grounding helps in the intuition. Merton’s weakness is it leaps (too quickly) into (rigorous, mathematical) Continuous Time. To be clear, the discrete time explains optimization over a one-period framework, with one consumption good and a selection of risky investments, so at the end of the period there is only wealth maximization for consumption. In a continuous time model, at each moment consumption and investment are rebalancing, and wealth maximization (could, theoretically) continue to infinity.
New to this edition are extensive (hooray!) correction of the previous edition’s typos. To be fair, professor Back’s website always had a (regularly updated) errata sheet (www.kerryback.net/APErrata.pdf).

Also new to this edition are welcome extensions of both pricing and preferences under skewness and kurtosis (both of observed and expected return choice sets), Jensen’s alpha and performance evaluation, Campbell-Schiller linearization and log-linearization, outlier disasters (n=large moment outliers), long-run risks, jump processes (better than just hand-waving over Poisson distributions, I might add), the Lealand Captial Structure model, q theory, Filtering (i.e. “learning”), the Glosten-Milgrom model (I’d never heard of it), Glosten model of limit order markets, and auctions (see the Numberphile videos on YouTube for more fun on the maths of auctions).

But on the basics that it is imperative to be rock-ribbed and knowledgeable of, Back is excellent. For example, this is probably the best pedagogic layout of Ito's formula I have ever encountered, and this thoroughly covers Black Scholes, and asset pricing through Heleyete Geman's final extension.

Back's work benefits from all previous work in computational and continuous time finance in that more (not all) of the mathematical notation is standardized.

However, some of his choices for superscripts and subscripts strike you as odd, particularly if you've come from an MSF that emphasizes, say, John Hull's notation (most), or an MSFE (Carnegie Mellon) that emphasizes Merton's notation. Those coming to a PhD in Finance from Engineering or pure or applied Math will face a new, but slope familiar curve with comprehending the notation.

So the admonition in Financial Mathematics that you really have to pay attention to the author's sometimes idiosyncratic choices for mathematical notation remains, but Kerry Back has (to his credit) extensively used that which is agreed upon or in general consensus in this volume, so it is in fact easier to read (n relationship to other books) than say, Merton or Oksendal.

And so here a word on difficulty. This is not Oksendal. This is not Shreve and Karatzas. Those would be more appropriate for a PhD in Financial Mathematics, not a PhD in Finance.

So in short, this is a great, clear, readable, and understandable Finance PhD level treatment of asset pricing that is a good choice for a variety of courses on discrete and continuous time asset pricing and financial economics. Some may argue it is too light for a Financial Mathematics PhD, but a solid basic or supplemental text, but this edition strengthens from the first and it fast becoming the go-to text in the field.

10 people found this helpful

Taychang Wang

Great book on asset pricing

Reviewed in the United States on December 22, 2018

Verified Purchase

I am really amazed by the clear and intelligent reasoning of the book and I enjoy reading the book very much.

Amazon Customer

Five Stars

Reviewed in the United States on March 27, 2017

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nice book~

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