Introduction to Finance

Course Content

Introduction:

  • Roles played by financial markets
  • Main classes of financial assets

Investment Decisions under Certainty:

  • Cash Flows
  • Discounting
  • NPV
  • Capital Budgeting
  • NPV vs. other criteria

Risk and Diversification:

  • Basic Set-up
  • Risk of an individual asset vs. risk of the entire portfolio
  • Diversification: the symmetric case

Investment decisions under certainty:

  • Mean variance preferences
  • Efficient frontier: the general case
  • Analytical characterization

Capital Asset Pricing Model:

  • The market portfolio
  • The CAPM formula
  • Linear regressions and beta estimation
  • Jensen's alpha
  • Tests of the CAPM and asset pricing anomalies
  • Market efficiency

Fixed Income Securities:

  • Institutional features
  • Definitions
  • Informational content of the term structure
  • Arbitrage pricing
  • Interest rate risk
  • Duration
  • Portfolio immunization

Forwards and Futures:

  • Payoffs
  • Institutions
  • Basic arbitrage relationships

Introduction to Options:

  • Payoffs of vanilla options
  • Some more basic arbitrage relationships

Derivatives