Lecture Notes on Finance

Author(1): David Lando
Webpage: http://staff.cbs.dk/dlando/
Author(2): Rolf Poulsen
Webpage: http://www.math.ku.dk/~rolf/
Type: Study Notes
Level: Advanced MBA, MSc(Fin, Math. Fin)

The first chapter briefly describes the role of financial markets. The next chapter is about payment streams under certainty. You can read about zero coupon bonds, the term structure of interest rates, compounding, annuities, Internal Rate of Return (IRR), Net Present Value (NPV) and capital budgeting under certainty. The authors cover some bond important topics also such as duration, convexity and immunization. Arbitrage pricing in a single period model is covered in chapter 4 in which the authors describe the binomial model for option pricing. In the next chapter the discussion is about multi-period arbitrage pricing. The reader can find about conditional expectations, martingales and equivalent martingale measures. Chapter 6 is about option pricing and chapter 7 is about the Black and Scholes formula. The next chapter covers stochastic interest rates and chapter 9 is about portfolio theory. The authors develop the mathematics of mean variance portfolios (Markowitz portfolios) and the Capital Asset Pricing Model (CAPM). The topic of chapter 10 is factor models and the Arbitrage Pricing Theory (APT). In chapter 11 there is a switch to corporate finance. Firms' financial decisions are analyzed in a formal framework. You can read about the Modigliani-Miller results, the tax shield, bankruptchy costs and the financing project with positive NPV. The final chapter is about the Efficient Markets Hypothesis (EMH).

David Lando is professor at the Department of Finance, Copenhagen Business School and Rolf Poulsen is professor at the Department of Mathematical Sciences, University of Copenhagen

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Economics of Financial Risk Management

Author: Xiaodong Zhu
Webpage: http://homes.chass.utoronto.ca/~xzhu/

Type: Study Notes
Level: Advanced MBA, MSc(Fin, Math. Fin)

The first chapter discusses what is risk and what is risk management. There is a subsection with a brief history of Financial Innovation. Chapter 2 is about the Arrow-Debreu theory of financial markets. You can read about states of nature, contingent claims. An appendix at the end of the chapter, serves a short introduction to linear algebra. The author cover the pricing of options next as an application of Arrow-Debreu theory. Chapter 4 highlights the individual and social gains from the practice of risk management. In the following chapter, the author tries to answer why should firms manage risk. The next chapters deal with bonds and the pricing of forwards and swaps. Ito Calculus and the Black-Scholes formula follow. Chapter 9 is a brief discussion about Value at Risk. The topic of chapter 10 is credit risk and the author provides an introduction to credit default swaps pricing (CDS pricing). Next, the reader can find out how to use swaps to hedge interest rate risk. The final chapter teaches us how to use options to hedge uncertain price exposures.

Xiaodong Zhu is professor at the Department of Economics, University of Toronto

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Discount Rates

Author: John Cochrane
Type: Essay, Survey Article
Level: Advanced Undergraduate (Fin), MSc(Econ, Fin, Math. Fin), Ph.D.(Econ, Fin)

In this survey article (AFA Presidential Address) John Cochrane surveys stylized facts, theories and applications related to discount rate variation, return predictability and other topics from Financial Economics. He discusses how discount rate variation affects portfolio theory, cost of capital, capital structure and macroeconomics.

You can download John Cochrane's "Discount Rates" using the following link

Financial Markets and the Real Economy

Author: John Cochrane
Type: Survey Article, Chapter (Handbook)
Level: Advanced MBA, MSc(Econ, Fin), PhD(Econ, Fin)

This is a complete survey article (handbook chapter) on the link between Macroeconomics and Finance. John Cochrane presents an up-to-date review of consumption based asset pricing and deals with many related topics.

You can download John Cochrane's "Financial Markets and the Real Economy" using the following link

New Facts in Finance

Author: John Cochrane
Type: Essay, Article
Level: Advanced Undergraduate, MBA, MSc, Ph.D.

You can download John Cochrane's "New Facts in Finance" essay using the following link

An Introduction to Mathematical Analysis for Economic Theory and Econometrics

Authors: Dean Corbae, Max Stinchcombe and Juraj Zeman
Type: e-book (final manuscript)
Level: Advanced Undergraduate (Math), MSc(Math. Fin), Ph.D.(Econ, Fin)

A manuscript (final, 2008) by Dean Corbae, Max Stinchcombe, and Juraj Zeman. After chapter 1 which briefly deals with the concept of logic, the authors cover set theory in chapter 2. In chapter 3 introduces the "Space of Real Numbers". You can read about the basic properties of rationals, the concept of distance, Cauchy sequences, supremum and infimum and the commpleteness of the Real Numbers. You can also find applications to economics. Chapter 4 is devoted to Metric Spaces $R^l,$ $l=1,2,...$ The basic definitions of Metric Spaces are introduced. You can also read about normed vector spaces, compacteness, completeness, closure, convergence and separability. Continuous functions on $R^l$ and Lipschitz and uniform continuity are covered next. There are also some applications to economic concepts. Convex analysis in $R^l$ is the topic of chapter 5 where you can read about convexity, the dual space of $R^l$, concave and convex functions, and the Hahn-Banach theorem. There are also many related to economics and optimization concepts such as the Kuhn-Tucker Theorem, Lagrange multipliers and fixed point theorems. Metric spaces is the subject of chapter 6. In chapter 7 the authors cover measure spaces and probability. There you can find the necessary background if you want to study stochastic calculus and option pricing. Measurable sets, probabilities, random variables, limit theorems, and convergence are just a small subset of the content. Chapter 8 is a little more technical and covers the $L^p(\Omega,\mathcal{F},P)$ and $l^p$ spaces, $p\in[1,\infty]$. There are applications to game theory and optimization. Chapters 9, 10 and 11 cover more advanced and technical concepts that a phd student in mathematical economics may find useful.

You can download the file using the link below

Dynamic Asset Allocation

Author: Claus Munk
Type: Study Notes, Lecture Notes, e-book
Level: Advanced MSc(Fin),  MSc(Math Fin), Phd(Fin)

In chapter 1, Claus Munk introduces the reader to the concept of aaset allocation. Chapter 2 deals with Preferences, utility functions and risk aversion. The author covers one-period models and mean-variance analysis in chapter 3 and discrete-time multiperiod models in chapter 4. Chapter 5 is an introduction to continuous time modelling. Chapter 6 discusses asset allocation with constant investment opportunities and chapter 7 discusses stochastic investment opportunities. The martingale approach to solve the problem is developed next. Chapters 10 and 11 are about asset allocation with stochastic interest rates and stochastic risk premia respectively. The role of inflation risk is discussed next. The author has also included a section about labor income. Some special cases follow with a discussion about non-standard preferences to follow. An appendix on stochastic calculus can be serve as a crash course on the subject.

Claus Munk's Dynamic Asset Allocation can be found in the following link

Lecture Notes in Financial Econometrics

Author: Paul Söderlind
Type: Study Notes, Lecture Notes, e-book
Level: Advanced Undergraduate(Stat, Math, Fin, Econ), MBA, MSc, PhD

Paul Söderlind's lecture notes start with a review of statistics and least squares estimation. There is also a primer in matrix algebra. Chapter 3 deals with Index models and there is a subsection about principal component analysis. Next, the reader can find about testing the Capital Asset Pricing Model (CAPM) and multifactor models. The concepts of an Autoregression (AR) process, Moving Average (MA) process, Autoregression Moving Average ARMA(p,q) process and Vector Autoregrssive Process are presented in chapter 5. Chapter 6 is devoted to the interesting topic of predicting asset returns and chapter 7 is about maximum likelihood estimation (MLE). The concept of heteroscedasticity is developed next with reference in ARCH and GARCH models. Chapters 9,10 and 11 discuss about risk measures and return distributions. A brief coverage of option pricing follows. The topic of chapter 13 is event studies with a disussion about testing abnormal returns. The lecture notes conclude with kernel density estimation and regression.

Download Paul Söderlind's "Lecture Notes in Financial Econometrics" (MSc course) using the following link

Lecture Notes in Empirical Finance

Author: Paul Söderlind
Type: Study Notes, Lecture Notes, e-book
Level: Advanced MBA's, MSc(Math. Fin, Stat), PhD(Econ, Fin)

The lecture notes start with a brief introduction to Generalized Method of Moments (GMM), Maximum Likelihood Estimation (MLE) and the Newey-West Estimator. After a discussion about return distributions, chapter 3 deals with predicting asset returns. Chapter 4 covers volatility models such as ARCH, GARCH, GARCH-M and multivariate GARCH. Factor models are the topic of chapter 5. An appendix shows how to calculate the GMM estimator. The author discusses about the Consumption-based Asset Pricing Model (CCAPM; Lucas, 1978) and the related puzzles in chapter 6. Chapters 7 through 9 deal with interest rates and the reader can find topics such as the Expectations Hypothesis and affine yield curve models.

Download Paul Söderlind's "Lecture Notes in Empirical Finance" (PhD course) using the following link

Lecture Notes in Finance 2

Author: Paul Söderlind
Type: Study Notes, Lecture Notes, e-book
Level: Advanced MBA, MSc(Fin), Phd(Fin)

These lecture notes are the second part of "Lecture Notes in Finance by Paul Söderlind. You can find the firs part here.

These lecture notes start with interest rate calculations. Chapter 13 is about bond portfolios , duration and yield curve models. The next chapter discusses about basic option pricing and the put-call parity. The binomial option pricing model is covered next. The Black-Scholes model of option pricing is the topic of chapter 16 and trading volatility is the topix of chapter 17. The last chapter is a little more advanced and discusses about dynamic portfolio choice.

Download Paul Söderlind's "Lecture Notes in Finance 2" (MSc Course) using the following link