Advanced Asset Pricing – Fall 2021

Updated: about 17 hours ago
Deadline: 18 Nov 2021


Advanced Asset Pricing – Fall 2021

Assistant Professor Paul Whelan

Course coordinator
assistant Professor Paul Whelan

Participants are assumed to have a broad knowledge of finance theory at least at the level of mainstream finance texts such as “Investments” by Bodie, Kane, and Marcus, “Principles of Corporate Finance” by Brealey, Myers, and Allen, or “Financial Markets and Corporate Strategy” by Hillier, Grinblatt, and Titman. In particular, it is important that participants are acquainted with portfolio mathematics, the mean-variance analysis of optimal portfolio choice, the Capital Asset Pricing Model, the binomial and the Black-Scholes-Merton models of option pricing, and basic concepts and relations from bond markets. Furthermore, participants should have some familiarity with utility functions, basic statistics and probability theory, optimization problems, and vectors and matrices. Finally, participants are expected to have experience with continuous-time modeling using stochastic processes at a level used in many option pricing texts such as “Options, Futures, and Other Derivatives” by Hull.

To provide participants with a firm and rigorous knowledge and understanding of asset pricing models of finance. The course covers fundamental concepts, relations, and models but it also outlines some recent trends in the development of asset pricing models. Both discrete-time and continuous-time models are discussed. The course has a theoretical focus, but empirical studies and results are used for the evaluation of the theoretical models.

Course content
Introduction to multi-period financial modeling including stochastic processes; state-price deflators; preferences of individuals; optimal consumption and investment decisions of individuals; equilibrium in financial markets; basic consumption-based asset pricing; advanced consumption-based asset pricing models; factor models; the economics of the term structure of interest rates; derivatives pricing. A few additional topics may be added.

Teaching style
44 lectures including discussion of exercises and student presentations. Students have to pass a written assignment and participate in an oral in-class presentation before being allowed to take the final exam.

Lecture plan
Date Topic Literature
7 October Brief overview; Stochastics  Munk 2013, Ch. 1-2
14 October Portfolios, arbitrage, completeness
State prices 
Munk 2013, Ch. 3-4
21 October Individual preferences  Munk 2013, Ch. 5 + Munk 2019
28 October Individual optimality
Dynamic asset allocation
Munk 2013, Ch. 6
Munk 2017, Ch. 6-7, 10-11
4 November Household finance Munk 2020 
Cocco, Gomes, Maenhout 2005
Kraft, Munk, Wagner 2018
11 November Equilibrium
Munk 2013, Ch. 7-8
18 November Advanced consumption-based models  Munk 2013, Ch. 9
Campbell, Cochrane 1999
Bansal, Yaron 2004
Tsai, Wachter 2015
Munk 2019
25 November Factor models  Munk 2013, Ch. 10
2 December Term structure of interest rates  Munk 2013, Ch. 11
9 December Risk-adjusted probabilities; Derivatives Munk 2013, Ch. 12-13
16 December Options and the equity premium
Heterogeneous agents
Martin 2017
Longstaff, Wang 2012
Hong, Sraer 2016

Learning objectives
The students should obtain a solid knowledge of the key concepts, methods, theories, and models in classical and contemporary asset pricing research. They should be able to understand new asset pricing research papers and position such papers in the general asset pricing literature; to evaluate the empirical validity of mainstream asset pricing models; and to develop and analyze well-motivated minor extensions of mainstream asset pricing models.

The course ends with a final oral exam. The student draws a topic from a list of topics published at least two weeks before the exam. The student then has 20 minutes to prepare an oral presentation of the topic supported by calculations, illustrations, etc. on the white/black-board. The examination lasts 20 minutes including the time the examiner needs to determine the grade and communicate it to the student. The examination begins with the student giving the prepared presentation in front of the examiner for 10-15 minutes, possibly interrupted by clarifying questions by the examiner. Towards the end of the exam, the examiner might have supplementary questions related or unrelated to the topic of the presentation.


Start date

End date




Course Literature
Main text:
Munk, C., 2013. Financial Asset Pricing Theory, Oxford University Press. (585 pages)
Additional reading (subject to change):
Bansal, R., Yaron, A., 2000. Risks for the long run: A potential resolution of asset pricing puzzles. Journal of Finance 59, 1481-1509.
Campbell, J. Y., Cochrane, J. H., 1999. By force of habit: A consumption-based explanation of aggregate stock market behavior. Journal of Political Economy 107, 205-251.
Cocco, J., Gomes, F., Maenhout, P., 2005. Consumption and portfolio choice over the life cycle. Review of Financial Studies 18, 491-533.
Hong, H., Sraer, D. A., 2016. Speculative betas. Journal of Finance 71, 2095-2144.
Kraft, H., Munk, C., Wagner, S., 2018. Housing habits and their implications for life-cycle consumption and investment. Review of Finance 22, 1737-1762.
Longstaff, F. A., Wang, J., 2012. Asset pricing and the credit market. Review of Financial Studies 25,
Martin, I., 2017. What is the expected return on the market? Quarterly Journal of Economics 132,
Munk, C., 2017. Dynamic asset allocation. Lecture notes, Copenhagen Business School.
Munk, C., 2019. Recursive utility in financial economics. Lecture notes, Copenhagen Business School.
Munk, C., 2020. A mean-variance benchmark for household portfolios over the life cycle, Journal of Banking and Finance, forthcoming.
Tsai, J., Wachter, J. A., 2015. Disaster risk and its implications for asset pricing. Annual Review of
Financial Economics 7, 219-252.

DKK 9,750

Minimum number of participants

Maximum number of participants


Thursdays weeks 40-50  from 9:00 - 13:00
Solbjerg Plads 3, room SP D4.20
Solbjerg Plads 3, room SPD2:45 week 44 / 4 November 
17 December

Contact information
Contact information
Bente S. Ramovic
Tel: +45 3815 3138

Registration deadline

Please note that your registration is binding after the registration deadline
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