by Laurent-Emmanuel Calvet, Martin Gonzales-Eiras, Paolo Sodini
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Suggested foundations for asset pricing and factor research and options and derivatives pricing. Specialist prerequisites vary by paper.
Interpret exposures, residuals and uncertainty in fitted coefficients.
Work with returns and recognise their empirical limitations.
Build replication and risk-neutral probabilities in a tractable model.
Distinguish pricing probabilities from physical forecasts.
Connect factor definitions to portfolio construction.
Distinguish exposure estimation from tests of expected returns.
Connect the pricing equation, closed-form value and implied volatility.
Connect diversification, common risk factors, investor views, and the properties of a risk measure.
Start in discrete time, move to Brownian motion, then read the original pricing argument and simulate it.