Index
ABS. See Asset-backed securities (ABS)
Active portfolio management
active space
attribution analysis
benchmarks
parameter values
performance attribution
portfolio construction
Active space
AIG
The Alchemist (Coelho)
Allocations:
minimum variance portfolios with capped allocations
strategic asset allocation
ALM. See Asset liability modeling (ALM)
Alpha estimates, private equity
Alt-A mortgages
Amortization formula
Annuities
Anomalies
behavioral finance
Black, Jensen, and Scholes (BJS) methodology
deviations from CAPM
Applications. See Data and applications
APT. See Arbitrage pricing theory (APT)
Arbitrage pricing theory (APT)
ARCH
Arithmetic averages
ARM
ARMA model
Asset-backed securities (ABS)
Asset liability modeling (ALM)
At the money (ATM)
Attribution analysis
Autoregressive (AR) model
Bank of America
BARRA multifactor model
BARRA USE 3L
BASEL
Basel II
Basis risk:
hedging
spot prices, relationship with forward (futures) prices
Bayesian PDF
Bayesian setups
Bayes's rule
Bazdarich, Michael
BDT model. See Black-Derman-Toy (BDT) model
Bear spreads
Bear Stearns
Beginning of month (BOM) durations
Behavioral finance
BE/ME. See Book-to-market value of equity (BE/ME)
Benchmarks:
active portfolio management
to market portfolio
Beta estimates, private equity
Binomial lattice, deriving the parameters of
BIRR multifactor model
BJS. See Black, Jensen, and Scholes (BJS) methodology
Black-Derman-Toy (BDT) model
Black, Fisher
Black, Jensen, and Scholes (BJS) methodology
Black-Litterman model
Black-Scholes-Merton pricing model
Black-Scholes pricing model
Blake, William
Blitz and van Vliet methodology
BMV, private equity
BOM durations. See Beginning of month (BOM) durations
Bonds:
defined
fixed income securities (See Fixed income securities)
forwards, pricing
portfolio strategy
return
strategy
Book-to-market factor
Book-to-market value of equity (BE/ME)
Bootstrap method
Borrowing or lending, maximizing utility by
Break-even rate:
swaps
TIPS
British Petroleum (BP)
Brownian motion
BSM. See Black-Scholes-Merton pricing model
Buffett, Warren
Building blocks
Bull spread
Bureau of Public Debt
Bush administration, housing bubble crash
Butterfly spreads
Buyout betas
Call options:
combination of puts and calls
covered calls
defined
European call options, pricing
five-month call option
gamma
hedging portfolio risk
implied volatility
and loans
multiperiod stock dynamic
one-period call option on a stock
payout space
put-call parity, option payoffs and
share price
short calls
strike price
value
value at expiration
vega
Capital asset pricing model (CAPM):
assumptions
benchmarking to market portfolio
Black, Jensen, and Scholes (BJS) methodology
deviations from
equity
as factor model
failure of, reasons for
performance evaluation
portfolio construction
powerfulness of tool
private equity
subjective views
Capitalization
Capital market line, portfolio construction
Capital risk
CAPM. See Capital asset pricing model (CAPM)
Capped allocations
Case-Shiller housing index
Cash flow streams:
discounting present values of
finite cash flow streams, general pricing formulas
infinite cash flow streams (perpetuities)
Cash matching
CBOT. See Chicago Board of Trade (CBOT)
CDOs. See Collateralized debt obligations (CDOs)
CDS. See Credit default swap (CDS)
Central limit theorem, confirming
Chen, Peng
Chicago Board of Trade (CBOT)
Chicago Mercantile Exchange (CME)
Chicago, University of
Cholesky decomposition
Churchill, Winston
Circle within unit square
Cisco
Citi BIG bond index
Citigroup
Clarke, de Silva, and Thorley (CST) methodology
Clinton administration, housing bubble crash
CLOs. See Collateralized loan obligations (CLOs)
CME. See Chicago Mercantile Exchange (CME)
CML
CMOs. See Collateralized mortgage obligations (CMOs)
Coelho, Paulo
COLA adjustments
Collars
Collateralized debt obligations (CDOs)
Collateralized loan obligations (CLOs)
Collateralized mortgage obligations (CMOs)
Compounded discretely
Confirmation bias
Constraints, cost of
Contango
Contingent claim example
Continuous compounding
Control problem, optimal rebalancing
Convexity
Copula functions
Corn futures
Corr BM
Correlated Brownian motion
Cost of carry, forwards with
Counterparty risk
Countrywide
Coupon-bearing bonds
Coupons, risky
Covariance estimations:
data problems
diagonal covariance matrix
risk
Covariance matrix estimations:
data problems
stock price dynamics, models of
CPI swaps
Cramer's Rule
Crash of 1929
Credit card crisis
Credit crisis
Credit default risk
Credit default swap (CDS)
Credit enhancement
Credit market collapse
Credit risk
Credit, structured. See Structured credit
Cross-hedging
Crude oil futures
CST methodology. See Clarke, de Silva, and Thorley (CST) methodology
Data and applications. See also Data problems
benchmarking to market portfolio
bond strategy
constraints, cost of
investment horizon returns frequency, changing
performance attribution
10-asset portfolio, analyzing returns on
two mean-variance efficient portfolios
Data problems. See also Data and applications
Cholesky decomposition
covariance estimation
covariance matrix estimation
efficient frontier
EM algorithm
empirical results
estimation risk
example
Fisher-Gelmer transformation
maximum likelihood estimation (MLE)
Monte Carlo methods
moving averages, serial dependence of
optimal portfolios
overlapping observations
private equity
real estate returns
return series
smoothing
Stambaugh's derivations
Wilcoxon test
Default probability, estimating
Defined benefit pensions
Deitz return
Delta
Discount rates and returns
cash flow streams, discounting present values of
compounded discretely
continuous compounding
definition of discount rate
and equity
estimating returns
extrapolation
geometric and arithmetic averages
and inflation
internal rate of return and yield to maturity
k-period discount rate
net return
nominal returns
real returns
total return
Discrete time setting
Diversification
Dollar
Dollar-weighted returns
Downside risk
Drift, optimal rebalancing
Duration
beginning of month (BOM) durations
Fisher-Weil duration
and immunization
Macaulay duration
modified duration
term structure
Earnings, forecasting
Earnings model
Efficient frontier
Efficient markets hypothesis (EMH)
Efficient set
EGARCH
Einstein, Albert
EM algorithm
EMH. See Efficient markets hypothesis (EMH)
EMV
Endogenous risks
Enhanced mines, real options
Equity
discount rates
dividend discount model
efficient markets hypothesis (EMH)
extrapolating multiples to forecast returns
forward returns
Gordon growth model
price and dividend multiplier
sources of return
stock prices, determination
tranches, structured credit
trend analysis, pitfalls of
Estimation risk, data problems
ETL. See Expected tail losses (ETL)
Euler equation
Euripedes
Euro
European options. See Options
EVT. See Extreme value theory (EVT)
EWMA
Exogenous risks
Expected tail losses (ETL)
Expiration date and implied volatility
Extrapolation
forecasting returns, extrapolating multiples
portfolio construction
Extreme loss, probability of
Extreme value theory (EVT)
generalized extreme value (GEV)
generalized Pareto (GPD)
and systemic risk
Factor loading
Factor models
applications and examples
arbitrage pricing theory (APT)
BARRA multifactor model
BIRR multifactor model
diagonal covariance matrix
eigenvalues
factor selection
factor sensitivities
Fama-French three-factor model (See Fama-French three-factor model)
fundamental factor model
macro factors
model estimation
orthogonality
principal components
RAM multifactor model
Failure, defined
Fama, Eugene. See Fama-French three-factor model
Fama-French three-factor model
Fannie Mae. See Federal National Mortgage Association (FNMA)
FASB 157
Feasible set
Federal Home Loan Mortgage Corporation (FHLMC)
Federal National Mortgage Association (FNMA)
Fermi, Enrico
fMRI
FHLMC. See Federal Home Loan Mortgage Corporation (FHLMC)
Finite cash flow streams, general pricing formulas
Finite power series, solving
Fisher-Gelmer transformation
Fisher-Weil duration
Five-year moving average
Fixed income securities
bond portfolio strategy
bonds, defined
cash matching
CDS market
coupon-bearing bonds
coupons, risky
duration
finite cash flow streams, general pricing formulas
finite power series, solving
immunization and duration
infinite cash flow streams (perpetuities)
infinite power series, solving
inflation risk and TIPS
interest rate risk
interest rate risk dynamics
liability discounting
pension logic
security, defined
zero coupon bonds
Fixed versus floating discount factors
Flash Crash
Flat yield curve
Floating discount factors, fixed versus
Flow of Funds Accounts
FNMA. See Federal National Mortgage Association (FNMA)
Ford
Forecasting:
earnings
extrapolating multiples to forecast returns
Forwards:
basis risk
with cost of carry
futures, differences from
generally
hedging portfolio risk
rates
returns
spot prices, relationship
Four loss surfaces with no-shorting constraint
Framing
Freddie Mac. See Federal Home Loan Mortgage Corporation (FHLMC)
French, Kenneth. See also Fama-French three-factor model
website
Fundamental factor model
Future consumption
Futures:
basis risk
generally
mechanics
pricing (See Futures pricing)
short futures
Futures contracts, hedging portfolio risk
Futures pricing
bond forwards
contango
crude oil futures
futures returns
futures term structure
oil futures
oil futures with storage costs
returns
rolling futures contracts
spot prices
term structure, pricing
Gambles
Gamma
GARCH
EGARCH
MLE GARCH
MV GARCH
Gaussian copula
Gaussian VaR model
Generalized extreme value (GEV)
Generalized method of moments (GMM)
Generalized Pareto (GPD)
General partners (GPs)
Geometric and arithmetic averages
GEV. See Generalized extreme value (GEV)
GICS
Ginnie Mae. See Government National Mortgage Association (GNMA)
Global Horizon explosion
GMAC Mortgage LLC
GMM. See Generalized method of moments (GMM)
GNMA. See Government National Mortgage Association (GNMA)
Gold mines, real options
Gold prices
Gordon growth model
Government National Mortgage Association (GNMA)
Government sponsored entities (GSEs)
GPD. See Generalized Pareto (GPD)
GPs. See General partners (GPs)
Gradient descent
Graham, Benjamin
Greek letters
Growth stocks
GSEs. See Government sponsored entities (GSEs)
Haugen and Baker methodology
Hazard models
Hedging:
basis risk
cross-hedging
delta hedge
portfolio risk (See Hedging portfolio risk)
Hedging portfolio risk
call options
downside risk
futures
index puts
liability-driven investment (LDI)
put options
S&P 500
strategies, simple
VIX calls
volatility, selling
High minus low (HML)
High yield bonds (HYs)
Historical record, mixing subjective beliefs with
HML. See High minus low (HML)
Ho-Lee model
Home Depot
Hot-hands fallacies
Housing bubble crash
government's role
household leverage and meltdown
residential mortgage debt
HUD
Hull, John
Ibbotson, Robert
ICM. See Index comparison method (ICM)
Immunization and duration
Index comparison method (ICM)
Infinite cash flow streams (perpetuities)
Infinite power series, solving
Inflation
discount rate and returns
expected
risk, and TIPS
unexpected
Installment loans
Interest rate:
derivatives, pricing of
dynamics
movements, immunizing against
risk
Internal rates of return (IRRs)
Investment horizon returns frequency, changing
Investment Science (Luenberger)
IRRs. See Internal rates of return (IRRs)
Ito processes:
Ito's Lemma, application of
stock price dynamics, models of
Japanese bubble of the 1980s
Joint default likelihood
Kendall's correlations
Keynes, J. M.
Knight, Frank
K-period discount rate
Lagrange multiplier
LDI. See Liability-driven investment (LDI)
Leases, real options
Lehman Brothers
post-Lehman, hazard rates
pre- and post-Lehman tail densities
pre-Lehman
Leland, Hayne
Leverage, adjusting for
Levered risk
Liability discounting
Liability-driven investment (LDI)
LIBOR
Limited partnerships (LPs)
Linear programming
Livestock futures
Living deads, private equity
Loans and puts and calls
Lognormal stock prices
Long and Nickels alpha
Long-Term Capital Management default (1989)
Lotteries
LPs. See Limited partnerships (LPs)
LTVs
Luenberger, David
Luke 12:48 (The New Testament), 187
Macaulay duration
Macro factors
Marginal contribution to risk (MCR)
Margins
Market risk
Market value (MV) weights
Markowitz portfolio selection criteria
Matrix operations, optimal portfolios
Maximum likelihood estimation (MLE)
Maximum risk-adjusted return
MBSs. See Mortgage-based securities (MBSs)
MCAR
MCR. See Marginal contribution to risk (MCR)
Mean-variance efficient portfolio
Mental accounting
Merck
Merton, Robert. See also Black-Scholes-Merton pricing model
Mine leases, real options
Minimum risk
Minimum variance portfolios
with capped allocations
fully invested
with no short sales
with targeted return
Misallocations
MLE. See Maximum likelihood estimation (MLE)
MLE GARCH
Model estimation
Model risk
Modified Deitz return
Modigliani risk-adjusted performance result
Moneyness and implied volatility
Monte Carlo methods
central limit theorem, confirming
circle within unit square
credit default risk
data problems
failure, defined
Gaussian copula
non-normal distributions
options
random numbers, generating
stock price dynamics, models of
U.S. versus non-U.S. equity returns
Monty Hall puzzle
Mortgage, amortization formula
Mortgage-based securities (MBSs)
Mortgage securitization
Moving averages, serial dependence of
MSCI All World Index
Multiperiod stock dynamic
Muni rate
MV GARCH
MV weights. See Market value (MV) weights
Naked shorts
NAREIT
National Income and Product Accounts
NAVs
Net present value (NPV)
Net return
Newey-West estimators
Newton, Isaac
New York Mercantile Exchange (NYMEX)
Nominal returns
Non-normal distributions, Monte Carlo methods
No Shorts
No-trade regions, optimal rebalancing
Noxy-Marx, Robert
NPV. See Net present value (NPV)
NYMEX. See New York Mercantile Exchange (NYMEX)
October 1987 crash
Off-balance sheet investment vehicle (SIV)
Oil futures
with storage costs
OLS estimates
1/N rule
One Fund, portfolio construction
On-the-run (OTR) security
Optimal portfolios
borrowing or lending, maximizing utility by
data problems
efficient frontier
matrix operations
maximum risk-adjusted return
minimum variance portfolio (fully invested)
minimum variance portfolios with capped allocations
minimum variance portfolios with targeted return
minimum variance portfolio with no short sales
performance attribution
risk attributions
visualizing risk
Optimal rebalancing
control problem
drift
implications
no-trade regions
optimization formulas
static optimization model
transaction costs
trigger strategies
value at risk (VaR)
Optimization
formulas, optimal rebalancing
Options
bear spreads
bull spread
butterfly spreads
call options (See Call options)
collars
long straddles
naked shorts
payoffs
pricing European options
put options (See Put options)
real options (See Real options)
single period payout space
spot prices
spread strategies
straddles
strangles
strategies
strike price
types of
Options, Futures, and Other Derivatives (Hull)
OTC. See Over the counter (OTC)
OTR security. See On-the-run (OTR) security
Overconfidence
Overlapping observations, data problems
Over the counter (OTC)
Parallel shifts
Par bonds
Passive investments
Pass-through securitization
Pearson product-moment correlations
Pension funds
Pension logic
Pension plans:
asset liability modeling (ALM)
cash matching
P/E ratio
Performance attribution
active portfolio management
optimal portfolios
Performance evaluation:
portfolio construction
risk-adjusted performance
Perpetuities
Phillip Morris (MO)
Plain vanilla interest rate swaps
PMEs. See Public market equivalents (PMEs)
Portable alpha
Portfolio construction
active portfolio management
capital asset pricing model (CAPM)
capital market line
contingent claim example
Cramer's Rule
diversification
diversification on the margin
efficient frontier
example
extrapolation
Markowitz portfolio selection criteria
maximizing risk-adjusted return
mean-variance efficient portfolio
minimum risk
One Fund
performance evaluation
risk-adjusted performance
Sharpe ratio
statistical review
stochastic returns and risk
two-fund theorem
Portfolio returns, defined
Portfolios:
construction (See Portfolio construction)
management (See Active portfolio management)
optimal (See Optimal portfolios)
Price and dividend multiplier
Price-yield relationship
Prioritized claims, structured credit
Private equity
alpha estimates
beta estimates
BMV
buyout betas
capital asset pricing model (CAPM)
data problems
dollar-weighted returns
EMV
generalized method of moments (GMM)
general partners (GPs)
index comparison method (ICM)
internal rates of return (IRRs)
limited partnerships (LPs)
living deads
modified Deitz return
NAVs
private equity model
public market equivalents (PMEs)
return and risk methodology
risk-adjusted performance
time-weighted return
venture
Probability:
default probability, estimating
extreme loss
of system failure
Protective puts
Public market equivalents (PMEs)
Put options:
combination of puts and calls
defined
five-month put option value
hedging portfolio risk
and loans
pricing European put options
protective puts
put-call parity, option payoffs and
value
value at expiration
PV
Railroad mania of the 1840s
RAM multifactor model
Random numbers, generating
Rational expectations, theory of
Rauh, Joshua
Reagan, Ronald W.
Real estate returns:
corrected correlation matrix
data problems
Real options
enhanced mines
gold mines
leases
mine leases
Real returns
Rebalancing. See Optimal rebalancing
REITs
Retirement investment vehicles
Return-risk
methodology, private equity
Returns:
frequency
market value (MV) weights
sources of (See Return, sources of)
S&P 500 returns
Return, sources of
building blocks
earnings model
forecasting earnings
Risk
attribution
counterparty risk
covariances
credit default swap (CDS)
credit risk
default probability, estimating
endogenous risks
exogenous risks
four loss surfaces
gradient descent
leverage, adjusting for
levered risk
market risk
maximum likelihood estimation
minimum variance portfolios
model risk
return-risk (See Return-risk)
systemic (See Systemic risk)
taxonomy of risk
uncertainty, distinguished
uncollateralized derivatives exposure
VaR, failure of
visualizing risk
volatility, estimating
Risk-adjusted performance
private equity
Risk-adjusted return, maximum
RiskMetrics
Rolling futures contracts
Rubinstein, Mark
Russell 3000
Scholes, Myron. See also Black-Scholes-Merton pricing model; Black-Scholes pricing model
Securitization:
mortgage securitization
structured credit
Security, defined
Security market line (SML)
Senior tranches, structured credit
Shakespeare, William
Share price, call options
Sharpe ratio
Shiller, Robert
Short calls
Short rates
implied short rates
Treasury Curve
Short selling
Simple random sample
SIVs. See Off-balance sheet investment vehicle (SIV)
Small minus big (SMB)
SML. See Security market line (SML)
Smoothing
Soros, George
South Sea Bubble of 1720
S&P 500
hedging portfolio risk
trend growth
volatility
S&P 500 returns
Spearman correlations
Special purpose vehicles (SPVs)
Spot prices
options
relationship with forward (futures) prices
stock price dynamics, models of
Spot rates, discounting using
and forward rates
Spread strategies, options
SPVs. See Special purpose vehicles (SPVs)
Stambaugh's derivations
State contingent claims
Static optimization model
Statistical review, portfolio construction
Stochastic returns and risk
Stock:
one-period call option on a stock
prices, determination
Stock price dynamics, models of
binomial lattice, deriving the parameters of
Black-Scholes-Merton pricing model
Black-Scholes pricing model
Brownian motion
call portfolio volatility
Cholesky decomposition
Corr BM
correlated Brownian motion
covariance matrix
delta
discrete time setting
generally
Greek letters
Ito processes
lognormal stock prices
Monte Carlo methods
spot prices
volatility
Wiener process
Storage costs
Straddles
long straddles
Strangles
Strategic asset allocation
Strike price
call options
decline of
options
Structured credit
Alt-A mortgages
ARM
Black-Derman-Toy (BDT) model
collateralized debt obligations (CDOs)
collateralized loan obligations (CLOs)
collateralized mortgage obligations (CMOs)
credit enhancement
credit market collapse
credit risk
equity tranches
Federal Home Loan Mortgage Corporation (FHLMC)
Federal National Mortgage Association (FNMA)
Government National Mortgage Association (GNMA)
government sponsored entities (GSEs)
Ho-Lee model
Structured credit (Continued)
housing bubble crash
HUD
interest rate derivatives, pricing of
interest rate dynamics
joint default likelihood
LTVs
market credit
mortgage-based securities (MBSs)
mortgage securitization
pass-through securitization
prioritized claims
securitization
senior tranches
special off-balance sheet investment vehicle (SIV)
special purpose vehicles (SPVs)
10-year short-run lattice
tranches
valuation, CMOs
zero coupon fixed-income securities
Style analysis
Subjective views, incorporating
active space
Black-Litterman model
historical record, mixing subjective beliefs with
methodological concepts
risk attribution
strategic asset allocation
Survey of Consumer Finances
Swaps
break-even rate
CPI swaps
discount rate
plain vanilla interest rate swaps
three-year currency swaps
vanilla
Systemic risk
downside risks, estimating the hazards of
extreme value theory (EVT)
index model
indicator
probability of system failure
Targeted return
Taxonomy of risk
Tech bubble
10-asset portfolio, analyzing returns on
10-year short-run lattice
Term structure
bootstrap method
duration
floating discount factors, fixed versus
forward rates
immunization
net present value (NPV)
short rates
spot rates, discounting using
Thomas and Shapiro methodology
Thomson Venture Economics
Three-factor model. See Fama-French three-factor model
Three-year currency swaps
Time value of money
Time-weighted return, private equity
TIPS. See Treasury inflation protected securities (TIPS)
Total return
Tranches, structured credit
Transaction costs, optimal rebalancing
Treasury bonds:
futures
hedging portfolio risk
Treasury inflation protected securities (TIPS)
Trend analysis, pitfalls of
Two-fund theorem, portfolio construction
Two mean-variance efficient portfolios
TWX
Uncertainty, distinguished from risk
Uncollateralized derivatives exposure
U.S. Treasury rate
U.S. versus non-U.S. equity returns
Value:
call options
put options
Value at risk (VaR)
failure of
flaws of
Gaussian VaR model
optimal rebalancing
Value stocks
Vanilla swaps
VAR. See Vector autoregression (VAR)
VaR. See Value at risk (VaR)
Vector autoregression (VAR)
Vega, call options
Venture, private equity
Visualizing risk
VIX calls, hedging portfolio risk
Volatility
call options
estimating
hedging portfolio risk
implied
S&P 500
stock price dynamics, models of
straddles
and subjective views, incorporating
WAMU
Wiener process
Wilcoxon test
Wilde, Oscar
World War II, trends following
Yield curves
Yield to maturity
Zero coupon bonds
Zero coupon fixed-income securities