The lecture shows how to apply scientific principles to investments. The scientific tools used are mainly mathematical, but only a modest level of mathematics is required to understand the primary concepts discussed in this course. The purpose is to convey the principles of financial engineering and an understanding of how these principles can be used in practice to make calculations that lead to good investment decisions.

(I) Deterministic cash flow streams: Basic theory of interest (compounding of interest, internal rate of return, net present value, inflation), fixed-income securities (description of securities, yield, duration, convexity, immunization), term structure of interest rates (yield curve, spot rate, forward rates, floating rate bonds, duration, immunization), applied interest rate analysis (capital budgeting, optimal portfolios, dynamic cash flow processes and their optimal management, valuation of a firm) (II) Single-period random cash flows: Mean-variance portfolio theory (random returns, mean-standard deviation diagram, diversification, feasible set, efficient frontier, Markowitz model and its solution, one-fund and two-fund theorem), capital asset pricing model, single- and multifactor models, arbitrage pricing theory, estimation of parameters from data, general pricing principles, utility functions, risk aversion, risk-neutral pricing

Oral examination

Bitte in Sekretariat der Vortragenden bei Frau Sandra Trenovatz melden First nine chapters of the book by David G. Luenberger, Investment Science, Oxford University Press (1998), ISBN 0-19-510809-4