Frontmatter Page iv Monday, March 8, 2004 10:06 AM
iv ContentsTrading Locations 45
Stock Market Indicators 46
Trading Arrangements 48
Bonds 51
Maturity 51
Par Value 52
Coupon Rate 52
Provisions for Paying off Bonds 55
Options Granted to Bondholders 56
Futures and Forward Contracts 57
Futures versus Forward Contracts 58
Risk and Return Characteristics of Futures Contracts 59
Pricing of Futures Contracts 59
The Role of Futures in Financial Markets 63
Options 64
Risk-Return for Options 66
The Option Price 66
Swaps 69
Caps and Floors 70
Summary 71
CHAPTER 3
Milestones in Financial Modeling and Investment Management 75
The Precursors: Pareto, Walras, and the Lausanne School 76
Price Diffusion: Bachelier 78
The Ruin Problem in Insurance: Lundberg 80
The Principles of Investment: Markowitz 81
Understanding Value: Modigliani and Miller 83
Modigliani-Miller Irrelevance Theorems and the
Absence of Arbitrage 84
Efficient Markets: Fama and Samuelson 85
Capital Asset Pricing Model: Sharpe, Lintner, and Mossin 86
The Multifactor CAPM: Merton 87
Arbitrage Pricing Theory: Ross 88
Arbitrage, Hedging, and Option Theory:
Black, Scholes, and Merton 89
Summary 90
CHAPTER 4
Principles of Calculus 91
Sets and Set Operations 93
Proper Subsets 93
Empty Sets 95
Union of Sets 95
Intersection of Sets 95
Elementary Properties of Sets 96
Distances and Quantities 96
n-tuples 97
Distance 98