Asset Pricing and Portfolio Choice Theory

This book is intended as a textbook for Ph.D. students in finance and as a reference book for academics. It is written at an introductory level but includes detailed proofs and calculations as section appendices. It covers the classical results on single-period, discrete-time, andcontinuous-time models. It also treats various proposed explanations for the equity premium and risk-free rate puzzles: persistent heterogeneous idiosyncratic risks, internal habits, external habits, and recursive utility. Most of the book assumes rational behavior, but two topics important forbehavioral finance are covered: heterogeneous beliefs and non-expected-utility preferences. There are also chapters on asymmetric information and production models. The book includes numerous exercises designed to provide practice with the concepts and also to introduce additional results. Eachchapter concludes with a notes and references section that supplies references to additional developments in the field.

Kerry Back is a co-editor of Finance & Stochastics, an associate editor of the Journal of Finance, and a former editor of the Review of Financial Studies. He has received various research and teaching awards, including a Batterymarch Fellowship, and is the author of A Course in Derivative Securities: Introduction to Theory and Computation (Springer) as well as numerous journal articles in finance, economics, and mathematics.