Plain-language explanation.
Financial markets channel savings into investment, allocate risk, and determine asset prices — requiring economics, statistics, and behavioural science to value assets, manage portfolios, and design hedging strategies.
Core concepts and standard treatment.
Core financial markets covers asset classes (equities — ordinary shares — dividends, capital gains; bonds — government gilts — corporate bonds — coupon, par, YTM — duration — convexity; money market — T-bills; derivatives — futures, options, swaps, forwards; alternatives — hedge funds, PE, VC, real assets), risk and return (expected return; variance and standard deviation; covariance and correlation; diversification — systematic vs unsystematic risk; beta — Cov(ri,rM)/Var(rM); CAPM — E(ri) = rf + beta[E(rM)-rf]; Sharpe ratio; Jensen's alpha), equity valuation (DCF — Gordon Growth Model — P=D1/(r-g); FCFE and FCFF; P/E ratio; EV/EBITDA; price-to-book; Tobin's Q; comparable company analysis), and fixed income (yield curve — normal, inverted, flat; credit spreads — OAS; duration in portfolio management; credit analysis — investment grade vs high yield; CDS; MBS; sovereign spreads — EMBI).
Deeper theory, debates and edge cases.
Advanced financial markets covers portfolio theory and factor models (Markowitz mean-variance — efficient frontier; Black-Litterman; Fama-French three-factor — market, SMB, HML; Carhart four-factor — momentum; FF five-factor; smart beta — AQR factor investing; risk parity — equal risk contribution), derivatives pricing (Black-Scholes-Merton — risk-neutral pricing — put-call parity; Greeks — delta, gamma, theta, vega; volatility surface — VIX; LIBOR transition to SOFR; CLO structured credit; credit derivatives), and market microstructure (bid-ask spread — Glosten-Milgrom; limit order book; HFT — latency arbitrage; MiFID II best execution; dark pools; short selling; ETF creation-redemption arbitrage mechanism).
How it is applied in practice.
At the portfolio manager (CFA) and CIO level, practitioners contribute to Journal of Finance; manage investment portfolios (Vanguard passive — index funds; BlackRock Aladdin risk analytics; LDI — liability-driven investment — gilts and swaps — LDI crisis October 2022 UK; endowment model — Yale — Swensen — alternatives; sovereign wealth — Norwegian GPFG £1.3tn — Council on Ethics); advise on capital markets (IPO book building — FCA listing regime Hill Review; LBO — EBITDA multiples — KKR, Blackstone; infrastructure debt — UKGI PFI unwinding); and contribute to financial regulation (FCA MAR — market abuse; SMCR individual accountability; Solvency II; Basel III/IV — CET1 — RWA — leverage ratio — LCR; BRRD bail-in — MREL).