Chapter 2: Time Value of Money
- Simple vs compound interest
- From compound interest to continuous compounding
- Formulas for PV and FV of an annuity
- Amortization (payment towards interest and principal)
- PV and FV of Bonds
- Stock valuation (DDM)
Chapter 3: Portfolio Theory
- 2-securities: finding the global minimum variance portfolio using 1variable calculus
- Cases for ρ = 0, ρ = ±1
- N-securities: finding the global minimum variance portfolio using Lagrange
- Understanding matrices V and H, quantities A, B, and C
Chapter 4: Capital Market Theory
- Understanding CML and SML lines
- Finding the sharp ratio and equation of the CML
- Deriving weight and risk-return of the Market Portfolio
- Deriving the formula for the Beta
Chapter 5: Binomial Tree Models
- Understanding the definition of a general binomial tree
- Deriving formulas for u_n, d_n, and p_n for the CRR tree
- From Binomial Tree to the Lognormal Model
Chapter 6: Stochastic Calculus
- Definition of SBM and GBM
- Intuition behind SBM: the symmetric random walk
- Properties of SBM in relation to the random walk
- Properties of the Lognormal Model for security prices
- Definition of the stochastic integral
- Using Ito’s formula in simple cases
Chapter 7&8: Derivatives and the BSM Model
- Terminal payoff diagrams for Call and Put
- Put- []Call parity
- Binomial tree model for call options
- From Binomial tree model to the BSM formula
- Deriving the BSM PDE
- Understanding the BSM formula for Call and Put