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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Lecture Notes on Finance

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