This book is intended as a textbook for asset pricing theory courses at the Ph.D. or Masters in Quantitative Finance level and as a reference for financial researchers. The first two parts of the book explain portfolio choice and asset pricing theory in single‐period, discrete‐time, and continuous‐time models. For valuation, the focus throughout is on stochastic discount factors and their properties. Traditional factor models, including the CAPM, are related to or derived from stochastic discount factors. A chapter on stochastic calculus provides the needed tools for analyzing continuous‐time models. A chapter on “ex‐plaining puzzles” and the last two parts of the book provide introductions to a number of current topics in asset pricing research, including rare disasters, long‐run risks, external and internal habits, real options, corporate financing options, asymmetric and incomplete information, heterogeneous beliefs, and non‐expected‐utility preferences. Each chapter includes a “Notes and References” section and exercises for students.