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Dedication
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Dedication
by Steven Peterson
Investment Theory and Risk Management, + Website
Cover
Series Page
Title Page
Copyright
Dedication
Preface
Acknowledgments
Chapter 1: Discount Rates and Returns
Estimating Returns
Geometric and Arithmetic Averages
Caveats to Return Extrapolation
Discounting Present Values of Cash Flow Streams
Internal Rate of Return and Yield to Maturity
Real and Nominal Returns
Summary
Chapter 2: Fixed Income Securities
Coupon-Bearing Bonds
Infinite Cash Flow Streams (Perpetuities)
General Pricing Formulas for Finite Cash Flow Streams
Interest Rate Risk
Analysis of Duration
Interest Rate Risk Dynamics
Immunization and Duration
Applications—Liability Discounting and Cash Matching
Pension Logic
Risky Coupons
Inflation Risk and TIPS
A Bond Portfolio Strategy (Optional)
Summary
Appendix 2.1: Solving Infinite and Finite Power Series
Reference
Chapter 3: Term Structure
Discounting Using Spot Rates
Forward Rates
NPV Revisited
Short Rates
The Bootstrap Method
Duration Redux
Summary
Chapter 4: Equity
The Determination of Stock Prices
Discount Rates Redux
Price and Dividend Multiples
Extrapolating Multiples to Forecast Returns
Pitfalls of Trend Analysis
The Gordon Growth Model
Sources of Return
Summary
References
Chapter 5: Portfolio Construction
Stochastic Returns and Risk
Diversification
The Efficient Frontier
Markowitz Portfolio Selection Criteria
Capital Market Line and the CAPM
Performance Evaluation
Summary
Appendix 5.1: Statistical Review
Appendix 5.2: Risk-Adjusted Performance
Reference
Chapter 6: Optimal Portfolios
Portfolio 1: Minimum Variance Portfolio (Fully Invested)
Portfolio 2: Minimum Variance Portfolios with Targeted Return
Portfolio 3: Minimum Variance Portfolios with No Short Sales
Portfolio 4: Minimum Variance Portfolios with Capped Allocations
Portfolio 5: Maximum Risk-Adjusted Return
Performance Attribution
The Efficient Frontier (Again)
Summary
Appendix 6.1: Matrix Operations
Chapter 7: Data and Applications
Analyzing Returns on a 10-Asset Portfolio
Performance Attribution
Changing the Investment Horizon Returns Frequency
Benchmarking to the Market Portfolio
The Cost of Constraints
A Bond Strategy
Summary
Chapter 8: Anomalies
Deviations from the CAPM
Behavioral Finance
Summary
References
Chapter 9: Factor Models
Arbitrage Pricing Theory (APT)
Factor Selection
Model Estimation
Principal Components
Applications and Examples
Summary
References
Chapter 10: Active Portfolio Management
Active Portfolio Construction and Attribution Analysis
Performance Attribution
Summary
Appendix 10.1: Active Space
Chapter 11: Risk
The Failure of VaR
Taxonomy of Risk
Visualizing Risk
Estimating Volatilities
Maximum Likelihood Estimation (Optional)
Credit Risk
Adjusting for Leverage
Adjusting for Illiquidity
Other Risks
Summary
References
Chapter 12: Monte Carlo Methods
Non-Normal Distributions
The Gaussian Copula
Summary
References
Chapter 13: Systemic Risk
Extreme Value Theory
Estimating the Hazards of Downside Risks
A Systemic Risk Indicator
Summary
References
Chapter 14: Incorporating Subjective Views
Methodological Concepts
An Example Using Black-Litterman
Active Space
Risk Attribution
Summary
References
Chapter 15: Futures, Forwards, and Swaps
Institutional Detail and Futures Mechanics
The Relationship between Spot Prices and Forward (Futures) Prices
Hedging Basis Risk
Hedging Portfolio Risk
Futures Pricing
Swaps
Summary
References
Chapter 16: Introduction to Options
Option Payoffs and Put-Call Parity
Pricing European Call Options
Pricing European Put Options
Option Strategies
Real Options
Summary
References
Chapter 17: Models of Stock Price Dynamics
Stock Price Dynamics
Ito Processes
Lognormal Stock Prices
Deriving the Parameters of the Binomial Lattice
Black-Scholes-Merton Model
The Greek Letters
Monte Carlo Methods
Summary
Appendix 17.1: Derivation of Ito's Lemma
Chapter 18: Hedging Portfolio Risk
Simple Hedging Strategies
S&P 500 Index Puts
Selling Volatility
VIX Calls
Liability-Driven Investment
Summary
References
Chapter 19: Private Equity
The Private Equity Model
Return and Risk Methodology
Summary
Appendix 19.1: CAPM
References
Chapter 20: Structured Credit
Securitization
Credit Enhancement
Basics of Pricing Interest Rate Derivatives
Interest Rate Dynamics
CMO Valuation
The Crash of the Housing Bubble
Summary
Reference
Chapter 21: Optimal Rebalancing
Trigger Strategies and No-Trade Regions
An Optimal Control Problem
Implications
Optimal Rebalancing in a Static Optimization Model
The Comparative Statics of Transaction Costs
Reference
Chapter 22: Data Problems
Covariance Estimation
An Example
Empirical Results
Overlapping Observations
Conclusions
Appendix 22.1: Covariance Matrix Estimation
References
About the Author
Index
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Preface
To my Father
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