Financial Theory
Based on Andrew Lo's MIT 15.401 Finance Theory I
This module follows the structure of Professor Andrew Lo’s MIT 15.401 Finance Theory I course. Each session is a self-contained Jupyter notebook combining theoretical exposition with Python implementations, interactive visualizations, and exercises.
Sessions¶
| # | Topic | Key Concepts |
|---|---|---|
| 1 | Introduction and Course Overview | Six principles of finance, flow model of the economy, time and risk |
| 2 | Present Value Relations I | Compounding, discounting, NPV, perpetuities, annuities |
| 3 | Present Value Relations II | Growing annuities, leverage, inflation, Fisher equation |
| 4 | Fixed-Income Securities I | Bond pricing, spot rates, forward rates, term structure, YTM |
| 5 | Fixed-Income Securities II | Duration, convexity, immunization, corporate bonds, credit risk |
| 6 | Equities | DDM, Gordon growth model, two-stage DDM, PVGO decomposition |
| 7 | Forward and Futures Contracts | Forward pricing, cost-of-carry, marking to market, hedging |
| 8 | Options | Put-call parity, binomial model, Black-Scholes, the Greeks |
| 9 | Risk and Return | Portfolio theory, CAPM, diversification, efficient frontier |
How to use these notebooks¶
Each notebook is designed to be read sequentially. The markdown cells develop the theory with full mathematical derivations, while the code cells provide computational illustrations using real-world examples from Lo’s lectures. Exercises at the end of each session let you test your understanding.