Questions tagged [asset-pricing]

The branch of Finance that studies and models how specific assets (such as options, bonds and stocks) are priced.

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7
votes
1answer
206 views

Stock pricing with cross ownership

Cross-ownership is a phenomenon where companies own parts of other companies they do business with. An example: Two companies are now involved in the diamond operation, the mining group Anglo-...
11
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3answers
5k views

Log-linearization of Euler equation with an expectation term

There are a few online resources available to help with log-linearization (e.g., here or here). However, log-linearization where an expectation is involved is a little tricky because the log can't ...
6
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1answer
75 views

Is over-valuation of a start up genuinely detrimental to the start up's future?

I recently watched S02E01 of Silicon Valley. In it, having demonstrated a breakthrough algorithm, the guys are pursued by investors with increasing funding offers. However, the founder is warned ...
9
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2answers
732 views

Examples of Factors in the ICAPM

The intertemporal capital asset pricing model (ICAPM) is different from the CAPM in that in the ICAPM, utility is conditioned on some set of state variables. The ICAPM results in a multifactor pricing ...
5
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2answers
2k views

Financial Economics Textbooks

I have an interest in financial economics, and I plan to take the graduate sequence, however I did not take an undergraduate course in that field. I would really appreciate it if someone could ...
4
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1answer
922 views

Portfolio choice problem of a CARA investor with n risky assets

Ok, I am working on a problem that consists of the following: I am looking to solve the portfolio choice optimization problem (maximizing utility with a known utility function) in the case where all ...
8
votes
2answers
790 views

How is momentum justified as a common risk factor?

Momentum as a common risk factor? This question is partly a follow-up to another question found here. In this other question it was noted in momentum is difficult to explain as a common risk factor ...
2
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0answers
284 views

Calculating the optimal portfolio for an investor with quadratic utility

The problem is from Asset Pricing and Portfolio Theory by Back and can be found here. The relevant info from section 2.5 can be found here. Given that we have the Expected value and the variance of ...
8
votes
1answer
188 views

Pricing a European call option while absence of arbitrage is violated

Assume that we have a general one-period market model consisting of d+1 assets and N states. Using a replicating portfolio $\phi$, determine $\Pi(0;X)$, the price of a European call option, with ...
2
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0answers
23 views

Is there a widely accepted definition of “asset [price] inflation”?

A bit of googling found some conflicting ones... Capel and Houben (BIS) Asset inflation occurs when the prices of financial assets are rising even though they are already above their intrinsic or ...
1
vote
1answer
96 views

expected payoff of an American put option

I am reading about the American option and sources got me confused in the part where the American put option is considered on a non-dividend paying asset. I understand that the payoff of an American ...