Contents
Chapter 1: Discount Rates and Returns
Geometric and Arithmetic Averages
Caveats to Return Extrapolation
Discounting Present Values of Cash Flow Streams
Internal Rate of Return and Yield to Maturity
Chapter 2: Fixed Income Securities
Infinite Cash Flow Streams (Perpetuities)
General Pricing Formulas for Finite Cash Flow Streams
Applications—Liability Discounting and Cash Matching
A Bond Portfolio Strategy (Optional)
Appendix 2.1: Solving Infinite and Finite Power Series
The Determination of Stock Prices
Extrapolating Multiples to Forecast Returns
Chapter 5: Portfolio Construction
Markowitz Portfolio Selection Criteria
Capital Market Line and the CAPM
Appendix 5.1: Statistical Review
Appendix 5.2: Risk-Adjusted Performance
Portfolio 1: Minimum Variance Portfolio (Fully Invested)
Portfolio 2: Minimum Variance Portfolios with Targeted Return
Portfolio 3: Minimum Variance Portfolios with No Short Sales
Portfolio 4: Minimum Variance Portfolios with Capped Allocations
Portfolio 5: Maximum Risk-Adjusted Return
The Efficient Frontier (Again)
Appendix 6.1: Matrix Operations
Chapter 7: Data and Applications
Analyzing Returns on a 10-Asset Portfolio
Changing the Investment Horizon Returns Frequency
Benchmarking to the Market Portfolio
Arbitrage Pricing Theory (APT)
Chapter 10: Active Portfolio Management
Active Portfolio Construction and Attribution Analysis
Maximum Likelihood Estimation (Optional)
Chapter 12: Monte Carlo Methods
Estimating the Hazards of Downside Risks
Chapter 14: Incorporating Subjective Views
An Example Using Black-Litterman
Chapter 15: Futures, Forwards, and Swaps
Institutional Detail and Futures Mechanics
The Relationship between Spot Prices and Forward (Futures) Prices
Chapter 16: Introduction to Options
Option Payoffs and Put-Call Parity
Chapter 17: Models of Stock Price Dynamics
Deriving the Parameters of the Binomial Lattice
Appendix 17.1: Derivation of Ito's Lemma
Chapter 18: Hedging Portfolio Risk
Basics of Pricing Interest Rate Derivatives
The Crash of the Housing Bubble
Chapter 21: Optimal Rebalancing
Trigger Strategies and No-Trade Regions
Optimal Rebalancing in a Static Optimization Model
The Comparative Statics of Transaction Costs