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Introduction | |
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Cash Flows | |
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Investments and Markets | |
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Typical Investment Problems | |
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Organization of the Book | |
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Deterministic Cash Flow Streams | |
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The Basic Theory of Interest | |
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Principal and Interest | |
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Present Value | |
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Present and Future Values of Streams | |
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Internal Rate of Return | |
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Evaluation Criteria | |
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Applications and Extensions | |
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Summary | |
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Exercises | |
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Fixed-Income Securities | |
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The Market for Future Cash | |
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Value Formulas | |
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Bond Details | |
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Yield | |
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Duration | |
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Immunization | |
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Convexity | |
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Summary | |
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Exercises | |
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The Term Structure of Interest Rates | |
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The Yield Curve | |
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The Term Structure | |
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Forward Rates | |
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Term Structure Explanations | |
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Expectation Dynamics | |
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Running Present Value | |
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Floating Rate Bonds | |
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Duration | |
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Immunization | |
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Summary | |
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Exercises | |
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Applied Interest Rate Analysis | |
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Capital Budgeting | |
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Optimal Portfolios | |
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Dynamic Cash Flow Processes | |
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Optimal Management | |
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The Harmony Theorem | |
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Valuation of a Firm | |
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Summary | |
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Exercises | |
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Single-Period Random Cash Flows | |
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Mean-Variance Portfolio Theory | |
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Asset Return | |
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Random Variables | |
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Random Returns | |
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Portfolio Mean and Variance | |
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The Feasible Set | |
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The Markowitz Model | |
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The Two-Fund Theorem | |
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Inclusion of a Risk-Free Asset | |
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The One-Fund Theorem | |
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Summary | |
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Exercises | |
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The Capital Asset Pricing Model | |
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Market Equilibrium | |
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The Capital Market Line | |
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The Pricing Model | |
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The Security Market Line | |
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Investment Implications | |
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Performance Evaluation | |
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CAPM as a Pricing Formula | |
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Project Choice | |
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Summary | |
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Exercises | |
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Models and Data | |
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Introduction | |
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Factor Models | |
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The CAPM as a Factor Model | |
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Arbitrage Pricing Theory | |
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Data and Statistics | |
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Estimation of Other Parameters | |
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Tilting Away from Equilibrium | |
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A Multiperiod Fallacy | |
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Summary | |
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Exercises | |
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General Principles | |
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Introduction | |
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Utility Functions | |
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Risk Aversion | |
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Specification of Utility Functions | |
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Utility Functions and the Mean-Variance Criterion | |
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Linear Pricing | |
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Portfolio Choice | |
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Log-Optimal Pricing | |
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Finite State Models | |
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Risk-Neutral Pricing | |
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Pricing Alternatives | |
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Summary | |
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Exercises | |
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Derivative Securities | |
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Forwards, Futures, and Swaps | |
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Introduction | |
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Forward Contracts | |
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Forward Prices | |
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The Value of a Forward Contract | |
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Swaps | |
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Basics of Futures Contracts | |
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Futures Prices | |
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Relation to Expected Spot Price | |
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The Perfect Hedge | |
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The Minimum-Variance Hedge | |
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Optimal Hedging | |
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Hedging Nonlinear Risk | |
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Summary | |
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Exercises | |
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Models of Asset Dynamics | |
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Binominal Lattice Model | |
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The Additive Model | |
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The Multiplicative Model | |
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Typical Parameter Values | |
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Lognormal Random Variables | |
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Random Walks and Wiener Processes | |
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A Stock Price Process | |
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Ito's Lemma | |
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Binomial Lattice Revisited | |
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Summary | |
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Exercises | |
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References | |
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Basic Options Theory | |
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Option Concepts | |
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The Nature of Option Value | |
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Option Combinations and Put-Call Parity | |
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Early Exercise | |
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Single-Period Binomial Options Theory | |
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Multiperiod Options | |
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More General Binomial Problems | |
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Evaluating Real Investment Opportunities | |
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General Risk-Neutral Pricing | |
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Summary | |
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Exercises | |
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References | |
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Additional Options Topics | |
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Introduction | |
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The Black-Scholes Equation | |
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Call Option Formula | |
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Risk-Neutral Valuation | |
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Delta | |
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Replication, Synthetic Options, and Portfolio Insurance/st | |
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Computational Methods | |
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Exotic Options | |
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Storage Costs and Dividends | |
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Martingale Pricing | |
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Summary | |
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Exercises | |
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References | |
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Interest Rate Derivatives | |
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Examples of Interest-Rate Derivatives | |
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The Need for a Theory | |
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The Binomial Approach | |
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Pricing Applications | |
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Leveling and Adjustable-Rate Loans | |
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The Forward Equation | |
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Matching the Term Structure | |
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Immunization | |
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Collateralized Mortgage Obligations | |
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Models of Interest Rate Dynamics | |
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Continuous-Time Solutions | |
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Summary | |
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Exercises | |
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References | |
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General Cash Flow Streams | |
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Optimal Portfolio Growth | |
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The Investment Wheel | |
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The Log Utility Approach to Growth | |
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Properties of the Log-Optimal Strategy | |
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Alternative Approaches | |
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Continuous-Time Growth | |
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The Feasible Region | |
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The Log-Optimal Pricing Formula | |
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Log-Optimal Pricing and the Black-Scholes Equation | |
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Summary | |
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Exercises | |
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References | |
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General Investment Evaluation | |
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Multiperiod Securities | |
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Risk-Neutral Pricing | |
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Optimal Pricing | |
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The Double Lattice | |
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Pricing in a Double Lattice | |
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Investments with Private Uncertainty | |
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Buying Price Analysis | |
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Continuous-Time Evaluation | |
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Summary | |
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Exercises | |
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References | |
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Basic Probability Theory | |
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General Concepts | |
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Normal Random Variables | |
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Lognormal Random Variables | |
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Calculus and Optimization | |
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Functions | |
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Differential Calculus | |
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Optimization | |