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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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 ...
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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 ...
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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-...
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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 ...
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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 ...
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Are options a form of insurance?
In my economics classes we have studied some really rudimentary concepts about insurance. I'm not really sure what qualifies as insurance to be honest.
I was wondering if options are considered a ...
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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 ...
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Log-normality assumption in consumption based asset pricing
Consider a very basic discrete time representative consumer maximization problem with CRRA utility. There exist a risky asset with time $t$ price $p_t$ that pays time $t+1$ dividend $d_{t+1}$ , and a ...
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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 ...
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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 ...
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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 ...
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Nonseparable utility across states of nature: an intuitive example
I am new to nonseparable utility across states of nature as found in some macro-financial models (discussed in this YouTube video lecture by John Cochrane). I do not find the notion intuitive. Could ...
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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 ...
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Continuation value versus utility in asset pricing
Is there a difference between continuation value ($V_t$) and utility ($U_t$) except for a possible scaling / difference in units? My question refers to the consumption-based asset pricing literature.
...
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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 ...
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Can an In the Money Put Option's price $>$ its Strike Price?
The screenshot below suggests thatan ITM put option's price can't overstep its strike price? Why or why not?
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Why do people think a stock should have a certain price based on the company's revenue?
Stock investment comes part and parcel with discussions about quarterly earnings, P/E ratios, and a host of other considerations designed to measure the "intrinsic value" of a stock and ...