Modern finance theory emphasizes several key concepts: 1. Portfolio theory holds that investors can reduce unsystematic risk through diversification and should be concerned only with systematic market risk. 2. The Capital Asset Pricing Model describes the relationship between risk and expected return, with beta measuring a stock's systematic risk. 3. The efficient market hypothesis suggests various degrees to which markets incorporate information, from weak to semi-strong to strong form efficiency. 4. Option pricing theory, including the Black-Scholes model, provides a framework for valuing options based on assumptions like random stock prices and known interest rates.