Illuminating asset pricing theory

Finance Professor Costis Skiadas' new book explores the evolution of the field

By Sandra Guy

	Costis Skiadas Photo © Evanston Photographic Studios

Professor Costis Skiadas is already working on the next edition of his new book about asset pricing because there's just so much to say.

It took Skiadas nearly a decade to compile his doctoral textbook and research monograph, Asset Pricing Theory, which covers state-of-the-art ideas about the workings of competitive financial markets. The book was published in February by Princeton University Press.

Skiadas, the Harold L. Stuart Professor of Finance and chairman of the Kellogg School's Finance Department, felt compelled to consolidate in an elegant, efficient, yet in-depth volume his 16 years of doctoral-level teaching about asset pricing theory, and to offer his own insights.

His book addresses basic questions about competitive financial markets: How does trade facilitate the smoothing of consumption over time and the sharing of risks? What is the relationship between risk and return in competitive markets? How are options and other derivative securities priced and hedged? What are the principles for best deciding how much to save and where to invest one's savings? 

Through the prism of his own two decades of research on the subject, Skiadas systematically takes the reader through ideas that have conceptually revolutionized finance since the 1950s.

Skiadas uses mathematical concepts in his book that have fascinated him since his undergraduate days studying control theory at the department of electrical engineering at Imperial College in London. His curiosity about how these ideas apply to management and economics led him to pursue graduate studies at Stanford University, where he transitioned from electrical engineering to operations research, and finally to finance.

Skiadas admits he is compulsive about putting his thoughts in writing and organizing years and years of revised notes. And he wants to make an impact. "It's a way for me to take the most impressionable crowd — our PhD students — and have some impact on their view of this field," he says. "These are the people whose research and teaching will shape our understanding of finance in years to come."