| |
| |
| Preface | |
| |
| |
| |
| The Setting: Markets, Models, Interest Rates, Utility Maximization, Risk | |
| |
| |
| |
| Financial Markets | |
| |
| |
| |
| Bonds | |
| |
| |
| |
| Stocks | |
| |
| |
| |
| Derivatives | |
| |
| |
| |
| Organization of Financial Markets | |
| |
| |
| |
| Margins | |
| |
| |
| |
| Transaction Costs | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| Further Readings | |
| |
| |
| |
| Interest Rates | |
| |
| |
| |
| Computation of Interest Rates | |
| |
| |
| |
| Present Value | |
| |
| |
| |
| Term Structure of Interest Rates and Forward Rates | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| Further Readings | |
| |
| |
| |
| Models of Securities Prices in Financial Markets | |
| |
| |
| |
| Single-Period Models | |
| |
| |
| |
| Multiperiod Models | |
| |
| |
| |
| Continuous-Time Models | |
| |
| |
| |
| Modeling Interest Rates | |
| |
| |
| |
| Nominal Rates and Real Rates | |
| |
| |
| |
| Arbitrage and Market Completeness | |
| |
| |
| |
| Appendix | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| Further Readings | |
| |
| |
| |
| Optimal Consumption/Portfolio Strategies | |
| |
| |
| |
| Preference Relations and Utility Functions | |
| |
| |
| |
| Discrete-Time Utility Maximization | |
| |
| |
| |
| Utility Maximization in Continuous Time | |
| |
| |
| |
| Duality/Martingale Approach to Utility Maximization | |
| |
| |
| |
| Transaction Costs | |
| |
| |
| |
| Incomplete and Asymmetric Information | |
| |
| |
| |
| Appendix: Proof of Dynamic Programming Principle | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| Further Readings | |
| |
| |
| |
| Risk | |
| |
| |
| |
| Risk versus Return: Mean-Variance Analysis | |
| |
| |
| |
| VaR: Value at Risk | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| Further Readings | |
| |
| |
| |
| Pricing and Hedging of Derivative Securities | |
| |
| |
| |
| Arbitrage and Risk-Neutral Pricing | |
| |
| |
| |
| Arbitrage Relationships for Call and Put Options; Put-Call Parity | |
| |
| |
| |
| Arbitrage Pricing of Forwards and Futures | |
| |
| |
| |
| Risk-Neutral Pricing | |
| |
| |
| |
| Appendix | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| Further Readings | |
| |
| |
| |
| Option Pricing | |
| |
| |
| |
| Option Pricing in the Binomial Model | |
| |
| |
| |
| Option Pricing in the Merton-Black-Scholes Model | |
| |
| |
| |
| Pricing American Options | |
| |
| |
| |
| Options on Dividend-Paying Securities | |
| |
| |
| |
| Other Types of Options | |
| |
| |
| |
| Pricing in the Presence of Several Random Variables | |
| |
| |
| |
| Merton's Jump-Diffusion Model* | |
| |
| |
| |
| Estimation of Variance and ARCH/GARCH Models | |
| |
| |
| |
| Appendix: Derivation of the Black-Scholes Formula | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| Further Readings | |
| |
| |
| |
| Fixed-Income Market Models and Derivatives | |
| |
| |
| |
| Discrete-Time Interest-Rate Modeling | |
| |
| |
| |
| Interest-Rate Models in Continuous Time | |
| |
| |
| |
| Swaps, Caps, and Floors | |
| |
| |
| |
| Credit/Default Risk | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| Further Readings | |
| |
| |
| |
| Hedging | |
| |
| |
| |
| Hedging with Futures | |
| |
| |
| |
| Portfolios of Options as Trading Strategies | |
| |
| |
| |
| Hedging Options Positions; Delta Hedging | |
| |
| |
| |
| Perfect Hedging in a Multivariable Continuous-Time Model | |
| |
| |
| |
| Hedging in Incomplete Markets | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| Further Readings | |
| |
| |
| |
| Bond Hedging | |
| |
| |
| |
| Duration | |
| |
| |
| |
| Immunization | |
| |
| |
| |
| Convexity | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| Further Readings | |
| |
| |
| |
| Numerical Methods | |
| |
| |
| |
| Binomial Tree Methods | |
| |
| |
| |
| Monte Carlo Simulation | |
| |
| |
| |
| Numerical Solutions of PDEs; Finite-Difference Methods | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| Further Readings | |
| |
| |
| |
| Equilibrium Models | |
| |
| |
| |
| Equilibrium Fundamentals | |
| |
| |
| |
| Concept of Equilibrium | |
| |
| |
| |
| Single-Agent and Multiagent Equilibrium | |
| |
| |
| |
| Pure Exchange Equilibrium | |
| |
| |
| |
| Existence of Equilibrium | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| Further Readings | |
| |
| |
| |
| CAPM | |
| |
| |
| |
| Basic CAPM | |
| |
| |
| |
| Economic Interpretations | |
| |
| |
| |
| Alternative Derivation of the CAPM* | |
| |
| |
| |
| Continuous-Time, Intertemporal CAPM* | |
| |
| |
| |
| Consumption CAPM* | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| Further Readings | |
| |
| |
| |
| Multifactor Models | |
| |
| |
| |
| Discrete-Time Multifactor Models | |
| |
| |
| |
| Arbitrage Pricing Theory (APT) | |
| |
| |
| |
| Multifactor Models in Continuous Time* | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| Further Readings | |
| |
| |
| |
| Other Pure Exchange Equilibria | |
| |
| |
| |
| Term-Structure Equilibria | |
| |
| |
| |
| Informational Equilibria | |
| |
| |
| |
| Equilibrium with Heterogeneous Agents | |
| |
| |
| |
| International Equilibrium; Equilibrium with Two Prices | |
| |
| |
| Summary | |
| |
| |
| Problems | |
| |
| |
| Further Readings | |
| |
| |
| |
| Appendix: Probability Theory Essentials | |
| |
| |
| |
| Discrete Random Variables | |
| |
| |
| |
| Continuous Random Variables | |
| |
| |
| |
| Several Random Variables | |
| |
| |
| |
| Normal Random Variables | |
| |
| |
| |
| Properties of Conditional Expectations | |
| |
| |
| |
| Martingale Definition | |
| |
| |
| |
| Random Walk and Brownian Motion | |
| |
| |
| References | |
| |
| |
| Index | |