An Introduction to Financial Markets: A Quantitative Approach
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1 Financial Markets: Functions, Institutions, and Traded Assets
1.1 What is the purpose of finance?
1.2.2 Assets vs. securities
1.3 Market participants and their roles
1.3.1 Commercial vs. investment banks
1.3.2 Investment funds and insurance companies
""1.3.3 Dealers and brokers""""1.3.4 Hedgers, speculators, and arbitrageurs""; ""1.4 Market structure and trading strategies""; ""1.4.1 Primary and secondary markets""; ""1.4.2 Over-the-counter vs. exchange-traded derivatives""; ""1.4.3 Auction mechanisms and the limit order book""; ""1.4.4 Buying on margin and leverage""; ""1.4.5 Short-selling""; ""1.5 Market indexes""; ""Problems""; ""Further reading""; ""Bibliography""; ""2 Basic Problems in Quantitative Finance""; ""2.1 Portfolio optimization""; ""2.1.1 Static portfolio optimization: Meanâ#x80;#x93;variance efficiency""
""2.1.2 Dynamic decision-making under uncertainty: A stylized consumptionâ#x80;#x93;saving model""""2.2 Risk measurement and management""; ""2.2.1 Sensitivity of asset prices to underlying risk factors""; ""2.2.2 Risk measures in a non-normal world: Value-atrisk""; ""2.2.3 Riskmanagement: Introductory hedging examples""; ""2.2.4 Financial vs. nonfinancial risk factors""; ""2.3 The no-arbitrage principle in asset pricing""; ""2.3.1 Why do we need asset pricing models?""; ""2.3.2 Arbitrage strategies""; ""2.3.3 Pricing by no-arbitrage""; ""2.3.4 Option pricing in a binomial model""
2.3.5 The limitations of the no-arbitrage principle2.4 The mathematics of arbitrage
2.4.1 Linearity of the pricing functional and law of one price
2.4.2 Dominant strategies
2.4.3 No-arbitrage principle and risk-neutral measures
S2.1 Multiobjective optimization
S2.2 Summary of LP duality
Part II Fixed-income assets
3 Elementary Theory of Interest Rates
3.1 The time value of money: Shifting money forward in time
3.1.1 Simple vs. compounded rates
3.1.2 Quoted vs. effective rates: Compounding frequencies3.2 The time value of money: Shifting money backward in time
3.2.1 Discount factors and pricing a zero-coupon bond
3.2.2 Discount factors vs. interest rates
3.3 Nominal vs. real interest rates
3.4 The term structure of interest rates
3.5 Elementary bond pricing
3.5.1 Pricing coupon-bearing bonds
3.5.2 Frombond prices to term structures, and vice versa
3.5.3 What is a risk-free rate, anyway?
3.5.6 Pricing floating rate bonds
