Risk Aversion and the Capital Asset Pricing Model - Financial Theory

Explore the concept of risk aversion and its impact on financial theory in this 1 hour 16 minute lecture from Yale University's Financial Theory course. Delve into the Bernoulli brothers' groundbreaking approach to representing risk aversion and their explanation of the St. Petersburg paradox. Examine the Capital Asset Pricing Model, a cornerstone of financial economics, and its derivation from quadratic utility functions. Investigate how risks that can't be hedged in aggregate affect prices and asset holdings in general equilibrium. Learn about the implications of risk in hedging and the importance of diversification in equilibrium. Gain insights into the foundations of modern mutual fund industry practices through this comprehensive exploration of risk and its role in financial decision-making.

- Chapter 1. Risk Aversion
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- Chapter 2. The Bernoulli Explanation of Risk
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- Chapter 3. Foundations of the Capital Asset Pricing Model
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- Chapter 4. Accounting for Risk in Prices and Asset Holdings in General Equilibrium
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- Chapter 5. Implications of Risk in Hedging
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- Chapter 6. Diversification in Equilibrium and Conclusion
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