金融工程导论课件（朱英姿）.pptVIP

INTRODUCTION TO FINANCIAL ENGINEERING Introduction What is Finance? What is Financial Engineering? What is Finance Finance is about the bottom line of business activities Every business is a process of acquiring and disposing assets Real asset –tangible and intangible Financial assets Objectives of business Valuation of assets Management of assets Valuation is the central issue of finance Money vs. Finance What is Finance? Money Banking — Monetary Economics Corporate Finance Capital Market (Investments) Unifying Principles of Finance No arbitrage Preference Optimization Market in equilibrium Principle of Financial Engineering No arbitrage Market in equilibrium Unifying Equation of Valuation P=E(mx) Where m is state-dependent discount factor X is the state dependent payoff (cash flow) Consequence of no arbitrage equilibrium Conservation law of value of cash flow: the whole is equal to the sum of components Composition and de-composition of cash flow CHAPTER ONE: MM Theory and No Arbitrage MM Theory Assets = Liabilities + Equity Accounting Equality: duel entity system Book value measurement Corporate Finance Assets Liabilities and Equity Asset 1 Asset 2 Liabilities Asset 3 . . Equity . Asset n Total Assets Total Liabilities and Equity Capital Structure Financial leverage: MM Theory MM assumptions: Frictionless assumptions No income taxes No transaction costs No information asymmetry No cost to resolve interest conflicts among stakeholders All liabilities are risk-free A mini – case: does capital structure matter? Two companies EBIT Capital structure Firm value MM Proposition 1 Proposition 1: Under MM Assumption, i.e., in the frictionless environment, the total market value of a firm is independent of its capital structure. Comparison of Stocks between A and B Implication of MM The