Representing a true breakthrough in the organization of finance topics, Investment Science will be an indispensable tool in teaching modern investment theory. It presents sound fundamentals and shows how real problems can be solved with modern, yet simple, methods. David Luenberger gives thorough yet highly accessible mathematical coverage of the standard and recent topics of introductory investments: fixed-income securities, modern portfolio theory and capital asset pricing theory, derivatives (futures, options, and swaps), and innovations in optimal portfolio growth and valuation of multiperiod risky investments. Throughout the book, he uses mathematics to present essential ideas of investments and their applications in business practice. The creative use of binomial lattices to formulate and solve a wide variety of important finance problems is a special feature of the book. In moving from fixed-income securities to derivatives, Luenberger increases naturally the level of mathematical sophistication, but never goes beyond algebra, elementary statistics/probability, and calculus. He includes appendices on probability and calculus at the end of the book for student reference.
Creative examples and end-of-chapter exercises are also included to provide additional applications of principles given in the text.
1. Introduction ; I. DETERMINISTIC CASH FLOW STREAMS ; 2. The Basic Theory of Interest ; 3. Fixed-Income Securities ; 4. The Term Structure of Interest Rates ; 5. Applied Interest Rate Analysis ; II. SINGLE-PERIOD RANDOM CASH FLOWS ; 6. Mean-Variance Portfolio Theory ; 7. The Capital Asset Pricing Model ; 8. Models and Data ; 9. General Principles ; III. DERIVATIVE SECURITIES ; 10. Forwards, Futures, and Swaps ; 11. Models of Asset Dynamics ; 12. Basic Options Theory ; 13. Additional Options Topics ; 14. Interest Rate Derivatives ; IV. GENERAL CASH FLOW STREAMS ; 15. Optimal Portfolio Growth ; 16. General Investment Evaluation ; APPENDIX A: BASIC PROBABILITY THEORY ; APPENDIX B: CALCULUS AND OPTIMIZATION