This course is an introduction to the mathematical, statistical and financial foundations of investment science. Learning of the theoretical concepts will be re-enforced through use of R computing exercises. The material is similar in scope to an MBA level investments course, but at a significantly higher quantitative level. Topics include:

- Basic Theory of Interest Rates (compounding, present value, internal rate of return)
- Fixed Income Securities (bonds, value formulas, yield, duration, convexity, immunization)
- Term Structure of Interest Rates (discount factors, forward rates, short rates)
- Mean-Variance Portfolio Theory (efficient frontiers, quadratic utility, benchmark tracking)
- Factor Models (CAPM, linear regression and prediction, multi-factor models, APT)
- General Principles (expected utility maximization, coherent and tail risk measures)
- Futures and Forwards (futures and forward prices, margin, hedging with futures)
- Options Part 1: (option payoffs, trading strategies, binomial models, risk neutral pricing)
- Options Part 2: (Ito process and lemma, GBM, Black-Scholes, hedging, implied volatility)

Instructor:

Eric Zivot

Textbooks:

To be determined

Software:

R and R Finance Packages

Prerequisites:

Coursework in multivariate calculus, linear algebra, and one-dimensional optimization at the level of CFRM 460, and probability and statistics at the level of CFRM 461, or permission of instructor. Familiarity with the material in CFRM 462 is desirable.

Credits:

4