| |
| |
| List of figures | |
| |
| |
| Preface | |
| |
| |
| |
| Asset markets and asset prices | |
| |
| |
| |
| Capital markets | |
| |
| |
| |
| Asset price determination: an introduction | |
| |
| |
| |
| The role of expectations | |
| |
| |
| |
| Performance risk, margins and short-selling | |
| |
| |
| |
| Arbitrage | |
| |
| |
| |
| The role of time | |
| |
| |
| |
| Asset market efficiency | |
| |
| |
| |
| Summary | |
| |
| |
| |
| Averages and indexes of stock prices | |
| |
| |
| |
| Real rates of return | |
| |
| |
| |
| Continuous compounding and the force of interest | |
| |
| |
| References | |
| |
| |
| |
| Asset market microstructure | |
| |
| |
| |
| Financial markets: functions and participants | |
| |
| |
| |
| Trading mechanisms | |
| |
| |
| |
| Industrial organization of financial markets | |
| |
| |
| |
| Trading and asset prices in a call market | |
| |
| |
| |
| Bid-ask spreads: inventory-based models | |
| |
| |
| |
| Bid-ask spreads: information-based models | |
| |
| |
| |
| Summary | |
| |
| |
| References | |
| |
| |
| |
| Predictability of prices and market efficiency | |
| |
| |
| |
| Using the past to predict the future | |
| |
| |
| |
| Informational efficiency | |
| |
| |
| |
| Patterns of information | |
| |
| |
| |
| Asset market anomalies | |
| |
| |
| |
| Event studies | |
| |
| |
| |
| Summary | |
| |
| |
| |
| The law of iterated expectations and martingales | |
| |
| |
| References | |
| |
| |
| |
| Decision making under uncertainty | |
| |
| |
| |
| The state-preference approach | |
| |
| |
| |
| The expected utility hypothesis | |
| |
| |
| |
| Behavioural alternatives to the EUH | |
| |
| |
| |
| The mean-variance model | |
| |
| |
| |
| Summary | |
| |
| |
| |
| Useful notation | |
| |
| |
| |
| Derivation of the FVR | |
| |
| |
| |
| Implications of complete asset markets | |
| |
| |
| |
| Quadratic von Neumann-Morgenstern utility | |
| |
| |
| |
| The FVR in the mean-variance model | |
| |
| |
| References | |
| |
| |
| |
| Portfolio selection: the mean-variance model | |
| |
| |
| |
| Mean-variance analysis: concepts and notation | |
| |
| |
| |
| Portfolio frontier: two risky assets | |
| |
| |
| |
| Portfolio frontier: many risky assets and no risk-free asset | |
| |
| |
| |
| Portfolio frontier: many risky assets with a risk-free asset | |
| |
| |
| |
| Optimal portfolio selection in the mean-variance model | |
| |
| |
| |
| Summary | |
| |
| |
| |
| Numerical example: two risky assets | |
| |
| |
| |
| Variance minimization: risky assets only | |
| |
| |
| |
| Variance minimization with a risk-free asset | |
| |
| |
| |
| Derivation of [Delta sigma subscript P] = [beta subscript jP sigma subscript P Delta]a[subscript j] | |
| |
| |
| |
| The optimal portfolio with a single risky asset | |
| |
| |
| References | |
| |
| |
| |
| The capital asset pricing model | |
| |
| |
| |
| Assumptions of the CAPM | |
| |
| |
| |
| Asset market equilibrium | |
| |
| |
| |
| The characteristic line and the market model | |
| |
| |
| |
| The security market line | |
| |
| |
| |
| Risk premia and diversification | |
| |
| |
| |
| Extensions | |
| |
| |
| |
| Summary | |
| |
| |
| |
| The CAPM in terms of asset prices | |
| |
| |
| |
| Linear dependence of [epsilon subscript j] in the CAPM | |
| |
| |
| |
| The CAPM when all assets are risky | |
| |
| |
| References | |
| |
| |
| |
| Arbitrage | |
| |
| |
| |
| Arbitrage in theory and practice | |
| |
| |
| |
| Arbitrage in an uncertain world | |
| |
| |
| |
| State prices and the risk-neutral valuation relationship | |
| |
| |
| |
| Summary | |
| |
| |
| |
| Implications of the arbitrage principle | |
| |
| |
| References | |
| |
| |
| |
| Factor models and the arbitrage pricing theory | |
| |
| |
| |
| Factor models | |
| |
| |
| |
| APT | |
| |
| |
| |
| Predictions of the APT | |
| |
| |
| |
| Summary | |
| |
| |
| |
| The APT in a multifactor model | |
| |
| |
| |
| The APT in an exact single-factor model | |
| |
| |
| References | |
| |
| |
| |
| Empirical appraisal of the CAPM and APT | |
| |
| |
| |
| The CAPM | |
| |
| |
| |
| Tests of the CAPM: time series | |
| |
| |
| |
| Tests of the CAPM: cross-sections | |
| |
| |
| |
| Sharpe ratios and Roll's criticism | |
| |
| |
| |
| Multiple-factor models and the APT | |
| |
| |
| |
| Summary | |
| |
| |
| |
| The Black CAPM in terms of excess returns | |
| |
| |
| References | |
| |
| |
| |
| Present value relationships and price variability | |
| |
| |
| |
| Net present value | |
| |
| |
| |
| Asset price volatility | |
| |
| |
| |
| Behavioural finance, noise trading and models of dividend growth | |
| |
| |
| |
| Extreme asset price fluctuations | |
| |
| |
| |
| Summary | |
| |
| |
| |
| Present values in continuous time | |
| |
| |
| |
| Infinitely lived assets: constant growth | |
| |
| |
| |
| The RNVR with multiple time periods | |
| |
| |
| References | |
| |
| |
| |
| Intertemporal choice and the equity premium puzzle | |
| |
| |
| |
| Consumption and investment in a two-period world with certainty | |
| |
| |
| |
| Uncertainty, multiple assets and long time horizons | |
| |
| |
| |
| Lifetime portfolio selection | |
| |
| |
| |
| The equity premium puzzle and the risk-free rate puzzle | |
| |
| |
| |
| Intertemporal capital asset pricing models | |
| |
| |
| |
| Summary | |
| |
| |
| |
| Intertemporal consumption and portfolio selection | |
| |
| |
| |
| Simplifying the FVR | |
| |
| |
| |
| The consumption CAPM | |
| |
| |
| References | |
| |
| |
| |
| Bond markets and fixed-interest securities | |
| |
| |
| |
| What defines a bond? | |
| |
| |
| |
| Zero-coupon bonds | |
| |
| |
| |
| Coupon-paying bonds | |
| |
| |
| |
| Bond valuation | |
| |
| |
| |
| Risks in bond portfolios | |
| |
| |
| |
| Immunization of bond portfolios | |
| |
| |
| |
| Summary | |
| |
| |
| |
| Some algebra of bond yields | |
| |
| |
| References | |
| |
| |
| |
| Term structure of interest rates | |
| |
| |
| |
| Yield curves | |
| |
| |
| |
| Index-linked bonds | |
| |
| |
| |
| Implicit forward rates | |
| |
| |
| |
| The expectations hypothesis of the term structure | |
| |
| |
| |
| Allowing for risk preferences in the term structure | |
| |
| |
| |
| Arbitrage and the term structure | |
| |
| |
| |
| Summary | |
| |
| |
| |
| The expectations hypothesis with explicit uncertainty | |
| |
| |
| |
| Risk aversion and bond portfolios | |
| |
| |
| References | |
| |
| |
| |
| Futures markets I: fundamentals | |
| |
| |
| |
| Forward contracts and futures contracts | |
| |
| |
| |
| The operation of futures markets | |
| |
| |
| |
| Arbitrage between spot and forward prices | |
| |
| |
| |
| Arbitrage in foreign exchange markets | |
| |
| |
| |
| Repo markets | |
| |
| |
| |
| Summary and conclusion | |
| |
| |
| |
| Forward and futures prices | |
| |
| |
| |
| Revaluation of a forward contract | |
| |
| |
| References | |
| |
| |
| |
| Futures markets II: speculation and hedging | |
| |
| |
| |
| Speculation | |
| |
| |
| |
| Hedging strategies | |
| |
| |
| |
| Optimal hedging | |
| |
| |
| |
| Theories of futures prices | |
| |
| |
| |
| Manipulation of futures markets | |
| |
| |
| |
| Summary | |
| |
| |
| |
| Futures investment as portfolio selection | |
| |
| |
| |
| Derivation of h | |
| |
| |
| References | |
| |
| |
| |
| Futures markets III: applications | |
| |
| |
| |
| Weather futures | |
| |
| |
| |
| Financial futures contracts | |
| |
| |
| |
| Short-term interest rate futures | |
| |
| |
| |
| Long-term interest rate, or bond, futures | |
| |
| |
| |
| Stock index futures | |
| |
| |
| |
| The fall of Barings Bank | |
| |
| |
| |
| Summary | |
| |
| |
| References | |
| |
| |
| |
| Swap contracts and swap markets | |
| |
| |
| |
| Swap agreements: the fundamentals | |
| |
| |
| |
| Why do swaps occur? | |
| |
| |
| |
| Risks associated with swaps | |
| |
| |
| |
| Valuation of swaps | |
| |
| |
| |
| Metallgesellschaft: a case study | |
| |
| |
| |
| Summary | |
| |
| |
| References | |
| |
| |
| |
| Options markets I: fundamentals | |
| |
| |
| |
| Call options and put options | |
| |
| |
| |
| Varieties of options | |
| |
| |
| |
| Option-like assets | |
| |
| |
| |
| Upper and lower bounds for option prices | |
| |
| |
| |
| Put-call parity for European options | |
| |
| |
| |
| The Modigliani-Miller theorem | |
| |
| |
| |
| Summary | |
| |
| |
| |
| Lower bound for a European call option premium | |
| |
| |
| |
| Lower bound for a European put option premium | |
| |
| |
| |
| Put-call parity for European options | |
| |
| |
| |
| The Modigliani-Miller theorem: a proof | |
| |
| |
| References | |
| |
| |
| |
| Options markets II: price determination | |
| |
| |
| |
| The fundamentals of option price models | |
| |
| |
| |
| A two-state option-pricing model | |
| |
| |
| |
| The Black-Scholes model | |
| |
| |
| |
| Contingent claims analysis | |
| |
| |
| |
| Summary | |
| |
| |
| References | |
| |
| |
| |
| Options markets III: applications | |
| |
| |
| |
| Stock index options | |
| |
| |
| |
| Options on futures contracts | |
| |
| |
| |
| Interest rate options | |
| |
| |
| |
| Options and portfolio risks | |
| |
| |
| |
| Portfolio insurance | |
| |
| |
| |
| Combinations and spreads | |
| |
| |
| |
| Summary | |
| |
| |
| |
| Put-call parity for European options on futures | |
| |
| |
| References | |
| |
| |
| Subject index | |