MICROECONOMIC THEORY - Department of Economics
... The Portfolio Problem • How much wealth should a risk-averse person invest in a risky asset? – the fraction invested in risky assets should be smaller for more risk-averse investors ...
... The Portfolio Problem • How much wealth should a risk-averse person invest in a risky asset? – the fraction invested in risky assets should be smaller for more risk-averse investors ...
To hedge or not to hedge? Evaluating currency
... points annually for developed-market currencies.8 Notably, during times of market turmoil such as in 2008–2009, the hedging cost may rise dramatically. Although both the explicit expense ratio and implicit transaction costs of hedging are fairly certain, the benefits may be quite uncertain, as this ...
... points annually for developed-market currencies.8 Notably, during times of market turmoil such as in 2008–2009, the hedging cost may rise dramatically. Although both the explicit expense ratio and implicit transaction costs of hedging are fairly certain, the benefits may be quite uncertain, as this ...
Research Insight - Risk and Return of Factor Portfolios
... important for investors, because of the higher transaction costs typically associated with small‐cap stocks. To illustrate the relationship between regression weighting and the factor portfolio’s stock size distribution, we divided the estimation universe stocks into five quintiles based on thei ...
... important for investors, because of the higher transaction costs typically associated with small‐cap stocks. To illustrate the relationship between regression weighting and the factor portfolio’s stock size distribution, we divided the estimation universe stocks into five quintiles based on thei ...
Sharp Target Range Strategies with Application to Dynamic
... solves the problem of maximizing the probability of beating a stochastic benchmark by a given percentage. Gaivoronski, Krylov, and van der Wijst (2005) propose a dynamic benchmark-tracking strategy with transaction cost, applicable to a variety of risk measures. Morton, Popova, and Ivilina (2006) m ...
... solves the problem of maximizing the probability of beating a stochastic benchmark by a given percentage. Gaivoronski, Krylov, and van der Wijst (2005) propose a dynamic benchmark-tracking strategy with transaction cost, applicable to a variety of risk measures. Morton, Popova, and Ivilina (2006) m ...
Liquidity risk, Leverage and Long
... the Nasdaq stock exchange at the end of the year prior to the IPO and that are not in our sample of IPOs for a period of five years prior to the offer date. The size-matched firm is the firm closest in market capitalization to the issuer, where the issuer’s market capitalization is the first availa ...
... the Nasdaq stock exchange at the end of the year prior to the IPO and that are not in our sample of IPOs for a period of five years prior to the offer date. The size-matched firm is the firm closest in market capitalization to the issuer, where the issuer’s market capitalization is the first availa ...
CF Canlife Asia Pacific Fund
... companies which means they may be more difficult to buy and sell. Their prices may also be subject to short term swings. Counterparty Risk: As the Fund may enter into agreements to purchase warrants, structured products and currency hedging with counterparties; there is a risk that those parties may ...
... companies which means they may be more difficult to buy and sell. Their prices may also be subject to short term swings. Counterparty Risk: As the Fund may enter into agreements to purchase warrants, structured products and currency hedging with counterparties; there is a risk that those parties may ...
State Occurring
... Describe how to determine the appropriate reward—that is, risk premium—that investors should earn for purchasing a risky investment. Describe actions that investors take when the return they require to purchase an investment is different from the return they expect the investment to produce. I ...
... Describe how to determine the appropriate reward—that is, risk premium—that investors should earn for purchasing a risky investment. Describe actions that investors take when the return they require to purchase an investment is different from the return they expect the investment to produce. I ...
Survey Expectations and the Equilibrium Risk
... state. Under pro-cyclical optimism, the habit state-variable is excessively persistent and, hence, the forward-looking component of volatility becomes more important. Such an effect is stronger in bad times because risk aversion makes prices more sensitive to the state. Hence, the premium and the re ...
... state. Under pro-cyclical optimism, the habit state-variable is excessively persistent and, hence, the forward-looking component of volatility becomes more important. Such an effect is stronger in bad times because risk aversion makes prices more sensitive to the state. Hence, the premium and the re ...
lincreasedl Correlation in Bear Markets
... By using the VAR methodology, we are able to estimate the probabilifrir of a portfolio's reti3,m failing below a thre.shold (V,AR) return with a prespecified confidence level. With constanl correlation over the joint return distribution assumed, th,e probability^ of the portfoiio return falling belo ...
... By using the VAR methodology, we are able to estimate the probabilifrir of a portfolio's reti3,m failing below a thre.shold (V,AR) return with a prespecified confidence level. With constanl correlation over the joint return distribution assumed, th,e probability^ of the portfoiio return falling belo ...
A Natural Experiment on Dynamic Asset Allocation
... setting. Shefrin and Statman (2000) develop a behavioral portfolio theory in which multiple layers of investments are segmented from one another. They argue that popular advice is constructed as a pyramid: cash in the bottom (risk-free) layer, bonds in the middle (less risky) layer, and stocks in t ...
... setting. Shefrin and Statman (2000) develop a behavioral portfolio theory in which multiple layers of investments are segmented from one another. They argue that popular advice is constructed as a pyramid: cash in the bottom (risk-free) layer, bonds in the middle (less risky) layer, and stocks in t ...
talk - Center for Applied Probability
... September 1999, the nominal amount is $ 100, a relatively small number meant to create liquidity (the number of degree-days during the months of January or July may be of the order of 1,000). The final settlement price is defined by the HDD or CDD (cumulative) index of the contract month as calculat ...
... September 1999, the nominal amount is $ 100, a relatively small number meant to create liquidity (the number of degree-days during the months of January or July may be of the order of 1,000). The final settlement price is defined by the HDD or CDD (cumulative) index of the contract month as calculat ...
The Welfare Cost of Business Cycles with
... over time but also across all idiosyncratic features of the population. In other words, this welfare measure acts as if people were asked ex ante which economy they would like to be born in. Hence, the measure of business cycles can be thought of as the amount of consumption compensation newborns sh ...
... over time but also across all idiosyncratic features of the population. In other words, this welfare measure acts as if people were asked ex ante which economy they would like to be born in. Hence, the measure of business cycles can be thought of as the amount of consumption compensation newborns sh ...
A Close Look into Black-Scholes Option Pricing Model
... stock brokers charge rates based on spreads and other criteria. However, this is hardly the case in the real world. More significantly, the model assumes that markets are perfectly liquid and it is possible to purchase or sell any amount of stock or options or their fractions at any given time. This ...
... stock brokers charge rates based on spreads and other criteria. However, this is hardly the case in the real world. More significantly, the model assumes that markets are perfectly liquid and it is possible to purchase or sell any amount of stock or options or their fractions at any given time. This ...
CPDO – Managed Trades
... modeling of asset ratings must be done using a transition model and not just a default model • Thus each asset in the portfolio is transitioned on a timely basis according to a transition matrix • If there are no substitutions in the portfolio the default rates at each point in time are consistent w ...
... modeling of asset ratings must be done using a transition model and not just a default model • Thus each asset in the portfolio is transitioned on a timely basis according to a transition matrix • If there are no substitutions in the portfolio the default rates at each point in time are consistent w ...
Stock Market Overreaction to Bad News in Good Times: A Rational
... unobservable variables has the undesirable outcome that, if investors’ priors are also assumed to be normally distributed, the conditional variance of investors’ expectations is deterministic. Therefore the assumption of Gaussian distributions is ill-suited to study issues related to changing volati ...
... unobservable variables has the undesirable outcome that, if investors’ priors are also assumed to be normally distributed, the conditional variance of investors’ expectations is deterministic. Therefore the assumption of Gaussian distributions is ill-suited to study issues related to changing volati ...
***** 1
... values at that date. Any difference between the cost of the business combination and the acquirer’s interest in the net fair value of the identifiable assets, liabilities and provisions for contingent liabilities so recognized shall be accounted as ‘negative goodwill’ or gain from bargain purchase. ...
... values at that date. Any difference between the cost of the business combination and the acquirer’s interest in the net fair value of the identifiable assets, liabilities and provisions for contingent liabilities so recognized shall be accounted as ‘negative goodwill’ or gain from bargain purchase. ...
Project Interactions (Real Options)
... 4. Using the numbers in 3) you can find the corporate beta and market beta coefficient (equal to ((s/s)r) 5. Most projects have a + correlation with other projects and a coefficient < 1 6. Most projects are positively correlated with the market with coefficient < 1 7. Corporate risk should also be e ...
... 4. Using the numbers in 3) you can find the corporate beta and market beta coefficient (equal to ((s/s)r) 5. Most projects have a + correlation with other projects and a coefficient < 1 6. Most projects are positively correlated with the market with coefficient < 1 7. Corporate risk should also be e ...
Redefining Indexing Using Smart Beta Strategies
... In the last few decades6, the results of several studies have challenged the orthodoxy upon which market capitalizationweighted investing is based: that the entire market is the only risk factor that systematically rewards exposure to it7, according to the Capital Asset Pricing Model (CAPM). In addi ...
... In the last few decades6, the results of several studies have challenged the orthodoxy upon which market capitalizationweighted investing is based: that the entire market is the only risk factor that systematically rewards exposure to it7, according to the Capital Asset Pricing Model (CAPM). In addi ...
What Determines Expected International Asset Returns?*
... throughout that λ(Z) and B have full column rank K. Otherwise, (3) will be reduced to a pricing model with the number of factors being less than K. As in most studies, we assume that the expected returns are governed by the multivariate regression model: rit = θ1i Zt−1,1 + · · · + θLi Zt−1,L + εit , ...
... throughout that λ(Z) and B have full column rank K. Otherwise, (3) will be reduced to a pricing model with the number of factors being less than K. As in most studies, we assume that the expected returns are governed by the multivariate regression model: rit = θ1i Zt−1,1 + · · · + θLi Zt−1,L + εit , ...
“Idiosyncratic Risk, Systematic Risk, and Firm Welfare”
... to enter the market at a …xed cost or eschew trade. In other words, we assume that all M investors can trade in the market portfolio and the risk-free asset, but an investor can only trade in the …rm’s shares if he absorbs a cost C. Thus, only a subset N of the M ...
... to enter the market at a …xed cost or eschew trade. In other words, we assume that all M investors can trade in the market portfolio and the risk-free asset, but an investor can only trade in the …rm’s shares if he absorbs a cost C. Thus, only a subset N of the M ...
The Greek Letters
... Managing Delta, Gamma, & Vega D can be changed by taking a position in the underlying To adjust G & n it is necessary to take a position in an option or other derivative ...
... Managing Delta, Gamma, & Vega D can be changed by taking a position in the underlying To adjust G & n it is necessary to take a position in an option or other derivative ...