I have posted the formula sheet for midterm 2 at http://fin4335.garven.com/spring2019/formulas_part2.pdf; this formula sheet is also linked http://fin4335.garven.com/formula-sheets/ (see item 2).
A particularly important concept in finance (as well as on tomorrow’s exam) is the principle of riskless arbitrage. Essentially, if one encounters two otherwise identical investments; i.e., same risks but different returns, then arbitrage profits may be earned by shorting the investment which has a lower return and using the proceeds of the short sale to fund the purchase of the investment which has a higher return. This principle is at the heart of option pricing (particularly the delta hedging and replicating portfolio models) and even found its way in the portfolio/capital market theory topic (see the related problem set). The other important idea on the midterm exam relates to understanding the consequences of asymmetric information and the formulation of strategies for mitigating moral hazard and adverse selection-related risks. Anyway, these ideas are all well represented in the problem sets and various class problems on which we have worked since the first midterm exam.
See y’all tomorrow!