Investment Theory & Risk Management -- Contents -- Preface -- Acknowledgments -- CHAPTER 1: Discount Rates and Returns -- Estimating Returns -- Geometric and Arithmetic Averages -- Caveats to Return Extrapolation -- Discounting Present Values of Cash Flow Streams -- Internal Rate of Return and Yield to Maturity -- Real and Nominal Returns -- Summary -- CHAPTER 2: Fixed Income Securities -- Coupon-Bearing Bonds -- Infinite Cash Flow Streams (Perpetuities) -- General Pricing Formulas for Finite Cash Flow Streams -- Interest Rate Risk -- Analysis of Duration -- Interest Rate Risk Dynamics -- Immunization and Duration -- Applications-Liability Discounting and Cash Matching -- Pension Logic -- Risky Coupons -- Inflation Risk and TIPS -- A Bond Portfolio Strategy (Optional) -- Summary -- Appendix 2.1: Solving Infinite and Finite Power Series -- Reference -- CHAPTER 3: Term Structure -- Discounting Using Spot Rates -- Forward Rates -- NPV Revisited -- Short Rates -- The Bootstrap Method -- Duration Redux -- Summary -- CHAPTER 4: Equity -- The Determination of Stock Prices -- Discount Rates Redux -- Price and Dividend Multiples -- Extrapolating Multiples to Forecast Returns -- Pitfalls of Trend Analysis -- The Gordon Growth Model -- Sources of Return -- Summary -- References -- CHAPTER 5: Portfolio Construction -- Stochastic Returns and Risk -- Diversification -- The Efficient Frontier -- Markowitz Portfolio Selection Criteria -- Capital Market Line and the CAPM -- Performance Evaluation -- Summary -- Appendix 5.1: Statistical Review -- Appendix 5.2: Risk-Adjusted Performance -- Reference -- CHAPTER 6: Optimal Portfolios -- Portfolio 1: Minimum Variance Portfolio (Fully Invested) -- Portfolio 2: Minimum Variance Portfolios with Targeted Return -- Portfolio 3: Minimum Variance Portfolios with No Short Sales.

Portfolio 4: Minimum Variance Portfolios with Capped Allocations -- Portfolio 5: Maximum Risk-Adjusted Return -- Performance Attribution -- The Efficient Frontier (Again) -- Summary -- Appendix 6.1: Matrix Operations -- CHAPTER 7: Data and Applications -- Analyzing Returns on a 10-Asset Portfolio -- Performance Attribution -- Changing the Investment Horizon Returns Frequency -- Benchmarking to the Market Portfolio -- The Cost of Constraints -- A Bond Strategy -- Summary -- CHAPTER 8: Anomalies -- Deviations from the CAPM -- Behavioral Finance -- Summary -- References -- CHAPTER 9: Factor Models -- Arbitrage Pricing Theory (APT) -- Factor Selection -- Model Estimation -- Principal Components -- Applications and Examples -- Summary -- References -- CHAPTER 10: Active Portfolio Management -- Active Portfolio Construction and Attribution Analysis -- Performance Attribution -- Summary -- Appendix 10.1: Active Space -- CHAPTER 11: Risk -- The Failure of VaR -- Taxonomy of Risk -- Visualizing Risk -- Estimating Volatilities -- Maximum Likelihood Estimation (Optional) -- Credit Risk -- Adjusting for Leverage -- Adjusting for Illiquidity -- Other Risks -- Summary -- References -- CHAPTER 12: Monte Carlo Methods -- Example 12.1: Generating Random Numbers-Estimating II -- Example 12.2: Confirming the Central Limit Theorem -- Example 12.3: Credit Default Risk -- Non-Normal Distributions -- The Gaussian Copula -- Summary -- References -- CHAPTER 13: Systemic Risk -- Extreme Value Theory -- Estimating the Hazards of Downside Risks -- A Systemic Risk Indicator -- Summary -- References -- CHAPTER 14: Incorporating Subjective Views -- Methodological Concepts -- An Example Using Black-Litterman -- Active Space -- Risk Attribution -- Summary -- References -- CHAPTER 15: Futures, Forwards, and Swaps -- Institutional Detail and Futures Mechanics.

The Relationship between Spot Prices and Forward (Futures) Prices -- Hedging Basis Risk -- Hedging Portfolio Risk -- Futures Pricing -- Swaps -- Summary -- References -- CHAPTER 16: Introduction to Options -- Option Payoffs and Put-Call Parity -- Pricing European Call Options -- Pricing European Put Options -- Option Strategies -- Real Options -- Summary -- References -- CHAPTER 17: Models of Stock Price Dynamics -- Stock Price Dynamics -- Ito Processes -- Lognormal Stock Prices -- Deriving the Parameters of the Binomial Lattice -- Black-Scholes-Merton Model -- The Greek Letters -- Monte Carlo Methods -- Summary -- Appendix 17.1: Derivation of Ito's Lemma -- CHAPTER 18: Hedging Portfolio Risk -- Simple Hedging Strategies -- S&P 500 Index Puts -- Selling Volatility -- VIX Calls -- Liability-Driven Investment -- Summary -- References -- CHAPTER 19: Private Equity -- The Private Equity Model -- Return and Risk Methodology -- Summary -- Appendix 19.1: CAPM -- References -- CHAPTER 20: Structured Credit -- Securitization -- Credit Enhancement -- Basics of Pricing Interest Rate Derivatives -- Interest Rate Dynamics -- CMO Valuation -- The Crash of the Housing Bubble -- Summary -- Reference -- CHAPTER 21: Optimal Rebalancing -- Trigger Strategies and No-Trade Regions -- An Optimal Control Problem -- Implications -- Optimal Rebalancing in a Static Optimization Model -- The Comparative Statics of Transaction Costs -- Reference -- CHAPTER 22: Data Problems -- Covariance Estimation -- An Example -- Empirical Results -- Overlapping Observations -- Conclusions -- Appendix 22.1: Covariance Matrix Estimation -- References -- About the Author -- Index.