This lecture covers the theory and applications of asset pricing, discussing topics such as equilibrium and Pareto optimality, inelastic markets, mean-variance analysis, Hilbert spaces, factor models, and the Capital Asset Pricing Model. It delves into the concepts of market efficiency, pricing kernels, state prices, Hansen-Jagannathan bounds, and the implications of the absence of arbitrage. The lecture also explores the relationship between risk and return, the efficient frontier, and the conditions for the market portfolio to be efficient.