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