Asset Pricing: This course is an introductory survey of graduate-level academic asset pricing. We will focus on building the intuition and deep understanding of how the theory works, how to use it, and how to connect it to empirical facts.
Are you curious about quantitative academic finance? Have you considered graduate study in finance? Are you working in an investment bank, money-management firm or hedge fund and you want to understand models better? Would you like to know what buzzwords like beta, risk premium, risk-neutral price, arbitrage, and discount factor mean? This class is for you.We will see how one basic idea, price equals expected discounted payoff, unites everything – models that describe stocks, bonds, options, real investments, discrete time, continuous time, asset pricing, portfolio theory, and so forth.
We’ll start with the underlying consumption-based model, and we’ll preview the classic issues in finance. We’ll think about asset pricing in a simple economic equilibrium. Then, we’ll take a step back and study contingent claims and the theorems showing the existence of a discount factor (the m in p=E(mx)). We’ll explore the mean-variance frontier and expected return vs. beta models and factor structures. A brief tour of current facts and puzzles follows. Then, off to study options and the Black-Scholes formula, bond pricing models and facts. We will close with modern portfolio theory.
The math in real finance is not actually that hard. Understanding how to use the equations, and see what they really mean about the world… that’s hard, and that’s what I hope will be uniquely rewarding about this class.
Asset Pricing Course Syllabus
Week 0: dz, dt and all that. A Quick Introduction to Continuous Time Stochastic Models
Week 1: Introduction and Overview, Challenging Facts and Basic Consumption-Based Model
Week 3: State-Space Representation, Risk Sharing, Aggregation, Existence of a Discount Factor
Week 4: Mean-Variance Frontier, Beta Representations, Conditioning Information
Week 5: Factor Pricing Models, Value Premium, the Fama-French model
Week 6: Options and Bonds, Relative Pricing in Action, Term Structure Definitions
Week 7: Term Structure Models
Week 8: Portfolio Theory
Asset Pricing Recommended Background
This course uses concepts from finance, undergraduate applied mathematics, advanced undergraduate / beginning graduate level economics, and time-series econometrics. Students should be able to use single and multivariable calculus, simple differential equations, matrix algebra, and basic statistics. They should be able to program simple simulations in a matrix programming language like Matlab, Octave, R, Python, etc. Students should have some background in economics, including utility functions and maximization, and have worked with basic time-series econometrics, such as AR(1) models.
Asset Pricing In-course Textbooks
As a student enrolled in this course, you will have free access to selected chapters and content for the duration of the course. All chapters were selected by the instructor specifically for this course. You will be able to access the Coursera edition of the e-textbook via an e-reader in the class site hosted by Chegg. If you click on “Buy this book”, you will be able to purchase the full version of the textbook, rather than the limited chapter selection in the Coursera edition. This initiative is made possible by Coursera’s collaboration with textbook publishers and Chegg.
Author: Cochrane, John H.
Publisher: Princeton University Press
Asset Pricing Suggested Readings
The Preface and Chapter 1 of Asset Pricing (Princeton University Press) give a good feel for the class, the range of topics, and the mathematical level. The first two weeks of the class will be based on Chapter 1.
Course Format
• Reading assignments for each week, deriving the theory in detail and also giving intuition and applications.
• Short lecture videos, emphasizing intuition and interpretation of the results rather than algebraic drudgery. The videos will incorporate integrated quiz questions.
• Quizzes and weekly problem sets.
• Forum discussions and regular Google hangouts.
• A final exam.
FAQ
Will I earn a Statement of Accomplishment for this course? Yes, we plan to offer a Statement of Accomplishment to those students who complete the course at a satisfactory level.
Will I need to purchase anything to succeed in this course? We are trying to negotiate the availability of all class materials online for free. Some of the readings will require a free myJSTOR account (see jstor.org for more information).
What resources will I need for this class? Time, a computer with a good internet connection, some programming language, and curiosity.
Do I need to be a finance professional to benefit from this class? No. The course is directed at doing and understanding academic research as much as understanding the underpinnings of industry models.
Do I need a background in finance? You should know what a stock and bond are, but an extensive knowledge of finance is not necessary. Those who bring previous experience will enjoy seeing familiar concepts united and brought to a deeper level.
I’m a professor of finance at the University of Chicago Booth School of business. I’ve been at the University of Chicago my entire professional life, since getting my PhD from the University of California at Berkeley in 1986.
John H. Cochrane
AQR Capital Management Distinguished Service Professor of Finance
Booth School of Business
The University of Chicago
I’m a professor of finance at the University of Chicago Booth School of business. I’ve been at the University of Chicago my entire professional life, since getting my PhD from the University of California at Berkeley in 1986.
I do research in asset pricing and monetary economics. You can find my full professional bio here, and a detailed cv here. My website is the best place to find out about me or to find anything I’ve written. I also write the “Grumpy Economist” blog which you might find entertaining, and which often touches on financial issues related to this class. In my free time (?) I fly gliders and windsurf.
