Overview
The course is a rigorous, quantitative analysis of consumption based asset pricing models. After carefully reviewing the basics of the representative consumer framework in a closed economy, we will be interested in understanding the way in which prices are determined in general equilibrium and the way in which leading theories perform when it comes to international asset pricing. Since a special attention will be devoted to developing the tools for solving recursive dynamic problems in theory and practice, basic knowledge of Matlab or Fortran is a prerequisite for this class.Meeting time and venue
Class meets on Fridays from 2.30pm to 5.30pm in class 4106.Textbooks
The recommended textbooks for this class are: "Recursive Macroeconomic Theory" by Lars Ljungqvist and Thomas Sargent, 2th edition. We will abbreviate it as RMT below.
 "Applied Computational Economics and Finance", by Mario Miranda and Paul Fackler. We will refer to it as COMP below.
 "Robustness" by Lars Peter Hansen and Thomas J. Sargent. We will refer to it as HS below.
Course Outline
 Class 1 (1/11) This class meets in room 4125
 Class 2 (1/18) This class meets in room 4106 from 9.30am to 12.30pm
 Topic: Consumption Based Asset Pricing with a representative consumer (cont'd)
 Readings: RMT, chapter 13

Matlab Programs: Hansen and Jagannathan bound [
matlab ]
 Class 3 (1/25)
 Topic: Consumption based asset pricing with multiple consumers: equilibrium with complete markets.
 Readings: RMT, chapter 8
 Class 4 (2/1)
 Class 5 (2/8)
 Topic: Asset Pricing with recursive preferences
 Slides: two states example [pdf]

Matlab Programs
 Hansen and Jagannathan bound with recursive preferences [
matlab ]  Bansal and Yaron's baseline calibration [
matlab ]  Campbell and Shiller approximation of p/d ratio [
matlab ]  Polynomial Approximation of p/d ratio [
matlab ]  Piecewise Linear Approximation of p/d ratio [
matlab ]  Polynomial vs Piecewise: motivational example [
matlab ]
 Hansen and Jagannathan bound with recursive preferences [
 Readings:
 Anskwer key to homework #2 [pdf]
 Class 6 (2/15)
 Topic: International Asset Pricing with recursive preferences

Readings:
 "International Risk Sharing is better than you think, or exchange rates are too smooth", by Michael Brandt, John Cochrane, and Pedro SantaClara Journal of Monetary Economics, 2006, vol.53, pp.671698. [pdf]
 "Risks for the longrun and the real exchange rate", by Riccardo Colacito and Mariano Croce, Journal of Political Economy, 2011. [pdf]
 Class 7 (2/22): Final Exam