The main purpose of this chapter is to explore important finance theories. First, we discuss discounted cash-flow valuation theory (classical financial theory). Second, we discuss the Modigliani and Miller (M and M) valuation theory. Third, we examine Markowitz portfolio theory. We then move on to the capital asset pricing model (CAPM), followed by the arbitrage pricing theory. Finally, we will look at the option pricing theory and futures valuation and hedging.
CITATION STYLE
Chen, W.-P., Chung, H., Ho, K.-Y., & Hsu, T.-L. (2010). Theoretical Framework of Finance. In Handbook of Quantitative Finance and Risk Management (pp. 3–22). Springer US. https://doi.org/10.1007/978-0-387-77117-5_1
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