Prof Dong Lou, Prof Ian Martin, Prof Christopher Polk, Prof Dimitri Vayanos

This course is compulsory on the MRes/PhD in Finance. This course is available with permission as an outside option to students on other programmes where regulations permit.

This course is not capped; any eligible student that requests a place will be given one.

The course is divided into two parts relating to theoretical and empirical asset pricing. The theoretical half of the course covers dynamic models of frictionless markets, both in discrete and in continuous time, and models with frictions, such as asymmetric information, costs of search and market participation, leverage constraints and delegated asset management. Representative-agent models (with power, habit, and recursive preferences) and their application to the valuation of equities are covered. Next, no-arbitrage term-structure and option-pricing models are discussed. The class concludes with equilibrium and reduced-form models of currencies. The empirical half of the course is dedicated to an empirical evaluation of asset-pricing models as well as an overview of key stylized facts in the literature.

30 hours of lectures in the AT. 30 hours of lectures in the WT.

• John Campbell, 1999, Asset prices, consumption, and the business cycle, in J. B. Taylor and M. Woodford, Eds., Handbook of Macroeconomics, Volume 1C, Elsevier Science B.V

• John Campbell, 2017, Financial Decisions and Markets: A Course in Asset Pricing, Princeton University Press

• John Cochrane, 2004, Asset Pricing, Princeton University Press

• David Kreps, 2020, The Black-Scholes-Merton Model as an Idealization of Discrete-Time Economies, Econometric Society Monograph, Cambridge University Press.

• Andrei Shleifer, 2000, Inefficient Markets: An Introduction to Behavioral Finance, Clarendon Lectures in Economics, Oxford University Press.

• Kenneth Singleton, 2006, Empirical Dynamic Asset Pricing, Princeton University Press

Continuous assessment (100%).