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Daucus carrota

Daucus carrota. Professor André Farber Solvay Business School Université Libre de Bruxelles. Theory of asset pricing under certainty. 1930. Fisher Theory of Interest. Williams Theory of Investment Value. 1940. 1950. Hirshleifer Theory of Optimal Investment Decisions. 1960.

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Daucus carrota

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  1. Daucus carrota Professor André Farber Solvay Business School Université Libre de Bruxelles

  2. Theory of asset pricing under certainty 1930 FisherTheory of Interest WilliamsTheory of Investment Value 1940 1950 HirshleiferTheory of Optimal Investment Decisions 1960 Daucus carota

  3. Theory of asset pricing under uncertainty 1950 ArrowState prices MarkowitzPortfolio theory 1960 Arrow DebreuGeneral equilibrium Sharpe LintnerCAPM 1970 Black Scholes MertonOPM RossAPT LucasAsset Prices RossRisk neutral pricing VasiceckTerm structure Harrison KrepsMartingales Cox Ross RubinsteinBinomial OPM 1980 1990 Cochrane – Campbell: p = E(MX) 2000 Daucus carota

  4. Three views of asset pricing General equilibrium Mean variance efficiency Beta pricing Stochastic discount factors Factor model+No arbitrage Risk-neutral pricing State priceslinear pricing rule Complete marketsNo arbitrage (NA)Law of one price (LOOP) Adapted from Cochrane Figure 6.1 Daucus carota

  5. Review: valuing uncertain cash flows CAPMSharpeLintner Mean Variance Pricing APT Ross State prices Law of one price No arbitrage opportunities Risk neutralpricing Daucus carota

  6. Data Market Project Investment = 30m Daucus carota

  7. Market portfolio - statistics Expected return: rM= 9.35% Market risk premium rM – rf= 4.35% Variance Price of covariance risk Daucus carota

  8. 2. Project Expected cash flow Covariance with mkt port. Certainty equivalent: Daucus carota

  9. Details of previous calculations Daucus carota

  10. 3. Net Present Value of the project. Sun 35 -7.90% Rain 45 18.41% PV (Payoff) NPV = 38 – 30 = +8 >0 Expected return = 2.62% Beta Daucus carota

  11. 4. State prices valuation Daucus carota

  12. 5. Risk neutral pricing Daucus carota

  13. John CampbellAsset Pricing at the MilleniumJournal of Finance 55,4 (Aug. 2000) Daucus carota

  14. Stochastic Discount Factors Stochastic discount factor Daucus carota

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