Discrete Time Finance Dr. Christian-Oliver Ewald School of Economics and Finance University of St.Andrews
Electronic copy of this paper is available at: http://ssrn.com/abstract=976589
Abstract These are my Lecture Notes for a course in Discrete Time Finance which I taught in the Winter term 2005 at the University of Leeds. I am aware that the notes are not yet free of error and the manuscrip needs further improvement. I am happy about any comment on the notes. Please send your comments via e-mail to
[email protected]
Electronic copy of this paper is available at: http://ssrn.com/abstract=976589
Contents 1 Single Period Market Models 1.1 The most elementary Market Model . . . . 1.2 A general single period market model . . . 1.3 Single Period Consumption and Investment 1.4 Mean-Variance Analysis . . . . . . . . . . . 1.5 Exercises . . . . . . . . . . . . . . . . . . . .
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2 Multi period Market Models 2.1 General Model Specifications . . . . . . . . . . . . . 2.2 Properties of the general multi period market model 2.3 The Binomial Asset Pricing Model . . . . . . . . . . 2.4 Optimal Portfolios in a Multi Period market Model .
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Chapter 1 Single Period Market Models Single period market models are the most elementary market models. Only a single period is considered. The beginning of the period is usually denoted by the time t = 0 and the end of the period by time t = 1. At time t = 0 stock prices, bond prices,possibly prices of other financial assets or specific fin