CFRM 540: Investment Science I

This course covers the following selected topics in the foundations of investment science:

  • Basic Theory of Interest Rates: compounding, present value, internal rate of return
  • Fixed Income Securities: bonds, value formulas, yield, duration, convexity
  • Term Structure of Interest Rates: discount factors, forward rates, short rates
  • Utility Functions: basic properties, quadratic and power utility, risk aversion measures
  • Introduction to risk measures: standard deviation, value-at-risk, expected shortfall, coherent risk measures
  • Introduction to portfolio theory: expected utility maximization principle and mean-variance portfolio optimization, CAPM
Eric Zivot
E. Zivot and R.D. Martin (2014). Introduction to Computationa Finance. *Chapters will be available online (required). D.G. Luenberger (2013). Investment Science, 2nd edition. Oxford University Press (highly recommended).
Mathematics, probability/statistics, and R programming at the level of CFRM 460, 461, 463. Familiarity with material from ECON 424/CFRM 462, Introduction to Computational Finance and Financial Econometrics, is recommended. Available for free on; see the materials at: