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Unformatted text preview: 2. How do we deﬁne and measure risk? 3. How do ﬁnancial markets determine the price of risk? 4. How do we price risky cash ﬂows that cannot be replicated by traded securities? III. Objective of Part C Answers to these questions are the focus of this part of the course. 1. Time value of money (interest rates) (Chapter 8). 2. Deﬁning and Measuring risk (Chapter 9). 3. Portfolio theory (Chapter 10): • Diversiﬁable risk versus nondiversiﬁable risk. 4. The Capital Asset Pricing Model (CAPM) (Chapter 11): • How to determine price of risks by market equilibrium. 5. The Arbitrage Pricing Theory (APT) (Chapter 12): • How to price risks by “approximate arbitrage”. 15.407 Lecture Notes Fall 2003 c ± Jiang Wang...
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This note was uploaded on 01/19/2011 for the course 15 15.407 taught by Professor Wang during the Fall '03 term at MIT.
 Fall '03
 Wang

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