Asset Pricing: Risk-Neutral Measure and State Prices

This lecture covers the concept of risk-neutral measure, state prices, stochastic discount factor, and pricing kernel in asset pricing. It discusses the separation of convex sets, linear functionals, Riesz Representation theorem, and the fundamental theorem. The lecture also explores utility functions, risk aversion, Arrow-Pratt measures, and typical utility functions like quadratic, logarithmic, and constant relative risk-aversion. The Ross Recovery Theorem, Kreps-Porteus-Epstein-Zin Utility, and Consumption Euler Equations are explained. The lecture concludes with the discussion on recursive utility and the separation of risk-aversion from the elasticity of intertemporal substitution.