933 Pages Posted: 27 Mar 2014 Last revised: 15 Apr 2014

Michael Verhofen

University of St. Gallen - Swiss Institute of Banking and Finance; Allianz Global Investors

Date Written: March 26, 2014


This book is an introduction to Finance. The target audience are students in Finance.

The following topics are covered:

1. Portfolio Theory: Modern portfolio theory, Value at risk, Resampled efficient frontier, Asset allocation, Black-Litterman model, Roy's safety-first criterion, Intertemporal portfolio choice, Constant proportion portfolio insurance

2. Market Equilibrium: Capital asset pricing model, Mutual fund separation theorem, Fama-MacBeth regression, Arbitrage pricing theory, Fama-French three-factor model, Returns-based style analysis, Factor analysis, Principal component analysis, Stochastic discount factor

3. Market Efficiency: Efficient-market hypothesis, Adaptive market hypothesis, Random walk, Geometric Brownian motion, Event study, Insider trading, Pairs trading, Low-volatility anomaly, Market microstructure, High-frequency trading, Market timing, Financial contagion, Calendar effect, January effect, Technical analysis

4. Behavioural Finance: Behavioral economics, Prospect theory, Anchoring, Hindsight bias, Overconfidence effect, Gambler's fallacy, Bandwagon effect, Availability heuristic, Optimism bias, Loss aversion, Dunning-Kruger effect, Ambiguity aversion

5. Fixed Income: Bond, Present value, Yield to maturity, Yield curve, Forward rate, Bootstrapping, Duration, Convexity, Credit Rating, Altman Z-score, Convertible bond, Mortgage-backed security, Asset-backed security

6. Funds: Mutual fund, Hedge fund, Exchange-traded fund, Performance attribution, Jensen's alpha, Sharpe ratio, Treynor ratio, Information ratio, Modigliani risk-adjusted performance

7. Derivatives: Futures contract, Put-call parity, Spot–future parity, Contango, Normal backwardation, Option, Binomial options pricing model, Black-Scholes model, Implied volatility, Volatility smile, Stochastic volatility, VIX, Foreign exchange market

8. Econometrics: Statistics, Statistical hypothesis testing, Probability distribution, Regression analysis, Student's t-test, Robust regression, Resampling, Bootstrapping, Quantile regression, Overfitting, Time series, Autoregressive integrated moving average ARIMA, Autoregressive conditional heteroskedasticity GARCH/ARCH, Unit root, Cointegration, Chow test, Panel analysis, Vector autoregression, Granger causality, Non-parametric statistics, Seasonality

9. Economics: Economic growth, Business cycle, Monetary policy, Taylor rule, Inflation, Deflation, Financial crisis

10. Case Studies: Charles Ponzi, Wall Street Crash of 1929, Silver Thursday, Savings and loan crisis, Black Monday (1987), Japanese asset price bubble, Black Wednesday, 1997 Asian financial crisis, 1998 Russian financial crisis, Nick Leeson, Long-Term Capital Management, Dot-com bubble, Enron, Financial crisis of 2007-08, Madoff investment scandal, 2010 Flash Crash

Suggested Citation

Verhofen, Michael, Finance (March 26, 2014). Available at SSRN: or

Michael Verhofen (Contact Author)

Allianz Global Investors ( email )


University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, CH-9000


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