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Somewhat useful reading for Lecture 2

posted Jan 21, 2012, 10:06 AM by Jim Dolmas   [ updated Jan 21, 2012, 9:33 PM ]
Next class, we'll finish up the CAPM, then do some basic theory in the more modern approach to asset pricing---stochastic discount factors, state prices, and risk neutral probabilities. The first chapter of Stephen Ross's Neoclassical Finance treats some of these ideas. You can find a PDF of it here:  http://press.princeton.edu/chapters/s7834.pdf . It doesn't cover everything we're going to talk about, but it does cover the Fundamental Theorem of Finance, which will be a big part of Wednesday's lecture.

I'll try to have some lecture notes up by Tuesday.

UPDATE: It turns out that Dybvig and Ross's chapter on "Arbitrage, State Prices and Portfolio Theory" from the Handbook of the Economics of Finance is also available online, here: http://dybfin.wustl.edu/research/papers/arbetc7.pdf
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