 Finance and Derivatives: Theory and Practice
ISBN: 978-0-470-01433-2
Paperback
220 pages
December 2005
US $65.00
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Foreword.
Acknowledgements.
1. Interest rate.
1.1 Measuring time.
1.2 Interest rate.
1.3 Discounting.
Exercises.
Solutions.
2. Investment decision criteria.
2.1 Rate of return; time of return.
2.2 Net present value.
2.3 Internal rate of return.
2.4 Other investment criteria.
Further reading.
Exercises.
Solutions.
3. Bonds.
3.1 Financial markets.
3.2 Bonds.
3.3 Yield.
3.4 Zero-coupon yield curve; arbitrage price.
Further reading.
Exercises.
Solutions.
4. Derivatives.
4.1 Introduction.
4.2 Forward contracts.
4.3 ‘Plain vanilla’ options.
Exercises.
Solutions.
5. Portfolio theory.
5.1 Summary of portfolio valuation.
5.2 Risk and return.
5.3 Gains of diversification; portfolio optimization.
5.4 Capital Asset Pricing Model.
Further reading.
Exercises.
Solutions.
6. Binomial model.
6.1 Introduction.
6.2 Binomial trees
Further reading.
Exercises.
Solutions.
7. Lognormal model.
7.1 Lognormal model.
7.2 Closed-form formulas.
7.3 Monte-Carlo method.
Further reading.
Exercises.
Solutions.
8. Dynamic hedging.
8.1 Introduction.
8.2 Delta-hedging.
8.3 Other risk parameters: the Greek letters.
Further reading.
Exercises.
Solutions.
9. Models for asset prices in continuous time.
9.1 Continuously compounded interest rate.
9.2 Introduction to models for the behaviour of asset prices in continuous time.
9.3 Introduction to stochastic processes.
9.4 Introduction to stochastic calculus.
References and further reading.
Exercises.
Solutions.
10. The Black–Scholes model.
10.1 The Black–Scholes partial differential equation.
10.2 Black–Scholes formulas.
10.3 Volatility.
References and further reading.
Exercises.
Solutions.
Appendix A: Probability review.
Appendix B: Calculus review.
Appendix C: Finance formulas.
Index.
