State Space Geometry of Asset Pricing: An Introduction
22 Pages Posted: 26 Aug 2015 Last revised: 9 Mar 2016
Date Written: March 8, 2016
This note is aimed at familiarizing the reader with state space geometry, a useful tool in teaching asset pricing concepts. Building on the analogy between expectation and dot product, I visualize basic notions using Euclidean geometry in 2D and 3D. Numerical examples are given such that the reader could easily follow the explanations.
Keywords: asset pricing, state space geometry, projection
JEL Classification: G12
Suggested Citation: Suggested Citation