An Intuitive Introduction to Finance and Derivatives: Concepts, Terminology and Models

Description

This book gives a self-contained, intuitive overview of some of the most important topics of finance, such as investment risk, market pricing and market efficiency, arbitrage, hedging, and the pricing and application of financial derivatives. It provides a first-principles introduction to the relevant material and concepts, emphasising intuition. Financial terminology, and the understanding implicit therein, is carefully introduced. The books starts with finance in the most general terms, and gradually specialises to investment theory and then derivatives. This book is tailor-made for readers new to finance, such as graduate students entering or interested in finance, or financial practitioners moving to a more quantitative role. Preface Contents 1 Preliminaries 1.1 What Is Finance? 1.2 Returns and Interest Rates Literature Notes References 2 Risk and Expected Utility 2.1 Risk Measures 2.2 Utility and the Expected Utility Hypothesis Literature Notes References 3 Market Pricing and Market Efficiency 3.1 The Efficient-Market Hypothesis 3.2 Implications Literature Notes References 4 Modern Portfolio Theory Literature Notes References 5 Asset Pricing 5.1 The CAPM 5.2 Factor Models Literature Notes References 6 Introduction to Derivatives 6.1 Forward Contracts 6.2 Options Literature Notes References 7 Arbitrage- and Model-Free Pricing Methods 7.1 Arbitrage 7.2 Pricing and Hedging Forwards 7.3 Model-Free Option Analysis Literature Notes References 8 Modelling, Pricing, and Hedging 8.1 The One-Period Binomial Model 8.2 The Black–Scholes–Merton Model 8.3 Beyond Black–Scholes–Merton Literature Notes References