Day 1: 金融学概述
- Motivation:
(inaccurate) Definition of "Finance" = Math + $$$
Three people:
1. James Simons - a math professor before Renaissance Technologies (hedge fund)
2. Warren Buffet - small groups of staffs, worth of 62 billion dollars in 2008
3. Jack Walch - General Electric (Making good decisions about investments, costs, increased the business value to $130 billion over 20 years.)
- Dramatis Personae
Flow diagram: households, financial intermediaries, nonfinancial corporations, capital markets
Valuing & Managing: What is Value?
Price Demonstration Example: bidding two items, don't know the value of any of these; establish the market value, come up the value with limited information and factors, lack of transparency reduces the price.
Management: How much to spend? What to buy/sell? When to buy/sell? How to finance the transaction?
- Framework of Financial Analysis
Stock: the level of assets
Flow: the rate of change of assets
example: bathtub - water in the tub is the "stock", the speed of water filling in the tub is "flow"
Balance Sheet & Income Statement: tools to do financial analysis
Corporate Financial Decisions: dealing with a lot of cash flows; main point is to make the corporate more valuable; maximize the probability to reach financial goals
- Time & Risk
How to measure risk, manage risk, incorporate risk into valuation methods
- Six Fundamental Principles of Finance
Corporate Finance: Capital budgeting and project finance
1. systematic transfers of wealth are unlikely [there is no such thing as a free lunch]
2. other things equal, individuals prefer more money to less (non-satiation); prefer money now to later (impatience); prefer to avoid risk (risk aversion)
3. all agents act to further their own self-interest
4. financial market prices shift to equalize supply and demand; 5. financial markets are highly adaptive and competitive; 6. risk-sharing and frictions are central to financial innovation
