Preface vii Fifth Edition Changes vii Ready-To-Build Spreadsheets vii What Is Unique About This Book xi Conventions Used In This Book xii Craig's Challenge xiv Excel(R) Modeling Books xiv Suggestions for Faculty Members xiv Acknowledgements xv About The Author xvi PART 1 BONDS / FIXED INCOME SECURITIES 1 Chapter 1 Bond Pricing 1 1.1 Annual Payments 1 1.2 EAR, APR, and Foreign Currencies 2 1.3 Duration and Convexity 7 1.4 Price Sensitivity 9 1.5 Immunization 11 1.6 System of Five Bond Variables 17 Problems 18 Chapter 2 The Yield Curve 21 2.1 Obtaining It From Treasury Bills and Strips 21 2.2 Using It To Price A Coupon Bond 22 2.3 Using It To Determine Forward Rates 23 Problems 24 Chapter 3 Affine Yield Curve Models 25 3.1 US Yield Curve Dynamics 25 3.2 The Vasicek Model 30 3.3 The Cox-Ingersoll-Ross Model 32 Problems 34 PART 2 PORTFOLIO MANAGEMENT 35 Chapter 4 Portfolio Optimization 35 4.1 Two Risky Assets and a Riskfree Asset 35 4.2 Descriptive Statistics 38 4.3 Many Risky Assets and a Riskfree Asset 42 4.4 Any Number of Risky Assets 52 Problems 57 Chapter 5 Constrained Portfolio Optimization 58 5.1 No Short Sales, No Borrowing, and Other Constraints 58 5.2 Any Number of Risky Assets 68 Problems 77 Chapter 6 Portfolio Performance 78 6.1 Evaluation Measures 78 Problems 80 Chapter 7 Portfolio Diversification Lowers Risk 81 7.1 Basics 81 7.2 International 82 Problems 84 PART 3 SECURITY ANALYSIS 85 Chapter 8 Stock Valuation 85 8.1 Dividend Discount Model 85 Problems 86 Chapter 9 Du Pont System Of Ratio Analysis 87 9.1 Basics 87 Problems 88 PART 4 STOCKS 89 Chapter 10 Asset Pricing 89 10.1 Static CAPM Using Fama-MacBeth Method 89 10.2 APT or Intertemporal CAPM Using Fama-McBeth Method 93 Problems 98 Chapter 11 Market Microstructure 100 11.1 National Best Bid and Offer (NBBO) 100 11.2 Transaction Cost By Exchange Using TAQ Data 100 11.3 Limit Order Book Vs. Call Market 106 11.4 Transaction Cost Measures 108 11.5 Transaction Cost Components 110 11.6 Probability of Informed Trading (PIN) 111 Problems 113 Chapter 12 Life-Cycle Financial Planning 114 12.1 Taxable Vs. Traditional Vs. Roth Savings 114 12.2 Basic Life-Cycle Planning 115 12.3 Full-Scale Life-Cycle Planning 118 Problems 125 PART 5 INTERNATIONAL INVESTMENTS 126 Chapter 13 International Parity 126 13.1 System of Four Parity Conditions 126 13.2 Estimating Future Exchange Rates 128 Problems 129 Chapter 14 Swaps 130 14.1 Valuation of Interest Rate Swaps 130 14.2 Valuation of Currency Swaps 132 Problems 133 PART 6 OPTIONS, FUTURES, AND OTHER DERIVATIVES 135 Chapter 15 Option Payoffs and Profits 135 15.1 Basics 135 Problems 136 Chapter 16 Option Trading Strategies 137 16.1 Two Assets 137 16.2 Four Assets 140 Problems 143 Chapter 17 Put-Call Parity 146 17.1 Basics 146 17.2 Payoff Diagram 146 Problems 148 Chapter 18 Binomial Option Pricing 149 18.1 Estimating Volatility 149 18.2 Single Period 150 18.3 Multi-Period 153 18.4 Risk Neutral 157 18.5 Average of N and N-1 160 18.6 Convergence to Normal 162 18.7 American With Discrete Dividends 164 18.8 Full-Scale 168 Problems 173 Chapter 19 Black-Scholes Option Pricing 175 19.1 Basics 175 19.2 Continuous Dividend 176 19.3 Greeks 180 19.4 Daily Delta Hedging 184 19.5 Trading Strategies Over Any Horizon 187 19.6 Implied Volatility 192 19.7 Exotic Options 194 Problems 199 Chapter 20 Futures 201 20.1 Spot-Futures Parity (Cost of Carry) 201 20.2 Margin 203 Problems 204 Chapter 21 Pricing By Simulation 205 21.1 Path-Independent Derivatives 205 21.2 Path-Independent Derivatives With Jumps 206 21.3 Path-Independent Derivatives With Stratified Sampling 208 21.4 Path-Dependent Derivatives 209 21.5 Path-Dependent Derivatives With Jumps 210 Problems 211 Chapter 22 Corporate Bonds 213 22.1 Two Methods 213 22.2 Impact of Risk 215 Problems 216 PART 7 EXCEL SKILLS 217 Chapter 23 Useful Excel Tricks 217 23.1 Quickly Delete The Instruction Boxes and Arrows 217 23.2 Freeze Panes 217 23.3 Spin Buttons and the Developer Tab 218 23.4 Option Buttons and Group Boxes 219 23.5 Scroll Bar 221 23.6 Install Solver or the Analysis ToolPak 222 23.7 Format Painter 222 23.8 Conditional Formatting 223 23.9 Fill Handle 224 23.10 2-D Scatter Chart 224 23.11 3-D Surface Chart 226 DOWNLOADABLE CONTENTS Excel Modeling in Investments Fifth Edition.pdf Ready-To-Build spreadsheets available in both XLSX and XLS file formats: Ch 01 Bond Pricing - Ready-To-Build.xlsx Ch 02 The Yield Curve - Ready-To-Build.xlsx Ch 03 Affine Yield Curve Models - Ready-To-Build.xlsx Ch 04-05 Portfolio Optimization - Ready-To-Build.xlsm Ch 06 Portfolio Performance - Ready-To-Build.xlsx Ch 07 Portfolio Diversification Lowers Risk - Ready-To-Build.xlsx Ch 08 Stock Valuation - Ready-To-Build.xlsx Ch 09 Du Pont System of Ratio Analysis - Ready-To-Build.xlsx Ch 10 Asset Pricing - Ready-To-Build.xlsx Ch 11 Market Microstructure - Ready-To-Build.xlsx Ch 12 Life-Cycle Financial Planning - Ready-To-Build.xlsx Ch 13 International Parity - Ready-To-Build.xlsx Ch 14 Swaps - Ready-To-Build.xlsx Ch 15 Option Payoffs and Profits - Ready-To-Build.xlsx Ch 16 Option Trading Strategies - Ready-To-Build.xlsx Ch 17 Put-Call Parity - Ready-To-Build.xlsx Ch 18 Binomial Option Pricing - Ready-To-Build.xlsx Ch 19 Black-Scholes Option Pricing - Ready-To-Build.xlsx Ch 20 Futures - Ready-To-Build.xlsx Ch 21 Pricing By Simulation - Ready-To-Build.xlsx Ch 22 Corporate Bonds - Ready-To-Build.xlsx