Arbitrage Pricing Theory and Multifactor Models of Risk
I. Factor models are a tool that allow us to describe and quantify the dierent factors that
aect the rate of return on a security during any time period.
1. In the single factor,
Mutual Funds and Other Investment Companies
I. Investment companies are nancial intermediaries that collect funds from individual
investors and invest those funds in a potentially wide range of securities or other assets.
Each investor has a cla
Optimal Risky Portfolios
I. Portfolios that are composed of only one stock face two sources of risk: (i) risk from the
general macroeconomic conditions such as the business cycle, interest rates, and exchange
rates, and (ii) rm-specic inuences s
Risk Aversion and Capital Allocation to Risky Assets
I. The process of constructing a portfolio can be viewed as a sequence of (1) selecting the
composition of ones portfolio of risky assets such as stocks and long-term bonds, and (2)
How Securities are Traded
I. To raise capital, rms may choose to oat (or sell) securities in the primary market, which
may then be resold in the secondary market.The two major types of primary stock issues
are initial public oers (IPOs) and seas
The product: Henry Hub Natural Gas Future
Trade date: Friday, 28 Oct 2016.
Expiration month: November, 2017
The settled future price is $3.193/mmBtu.
The spot price on October 28, 2016 is $3.105/mmBtu.
F (natural gas on 11/2017) = $3.193/
Financial market homework:
1. Page 20: What is a good estimate of the capital gain?
Capital gain can be estimated by the modified duration. Because we can
see duration as time-weighted cash flow, we can use duration to
estimate the value of the bond. Modi
CITIBANK EQUITY LINKED CD
The Citibanks Stock Index Insured Account is designed to offer the difference when S&P
500 appreciates and return the initial principal when S&P 500 depreciates. The account was
started in March, 1993, so I calculated the payoff
I am here to introduce the long term strategy. First I collected data from
the past five years, from November 2011 to October 2016, and I
calculated the monthly return rates of TLT, TBT and TMV. Theoretically,
we should see that TBT= -2TLT and TMV = -3TLT
I. We can use a single-factor security market to greatly simplify the Markowitz procedure.
1. The success of a portfolio selection rule depends on the quality of the inout list:
specically, the estimates of expected security returns
Learning about Risk and Return from the Historical Record
I. Interest rates and forecasts or their future values are among the most important inputs into
any investment decision.
1. If an investor expects rates to fall, they will choose longer-t
The Capital Asset Pricing Model
I. The capital asset pricing model (CAPM) is a set of predictions concerning equilibrium
expected returns on risky assets.
1. The CAPM was developed in 1964 by Sharpe, Lintner, and Mossin based on the
Asset Classes and Financial Instruments
I. The money market is a subsector of the debt securities market consisting of short-term
securities that are highly marketable. Most such securities are in high denominations, so
many investors access the
Bond Prices and Yields
I. A bond is a security that obligates the issuer to make specied payments to the bondholder on specied dates.
1. The bond indenture is the contract between bondholder and issuer that species the maturity date,
I. The option contract species the terms and conditions of the option.
1. A call (put) option gives its holder the right to purchase (sell) an asset for a specied price called the
exercise price or strike price on or befor
The Term Structure of Interest Rates
I. Bonds of dierent maturity tend to sell at dierent yields to maturity, a relationship summarized graphically
as a yield curve.
1. Yield curves may take on any number of shapes, including upward slopi
The Ecient Market Hypothesis
I. The ecient market hypothesis (EMH) is the notion that stocks already reect all available
1. The evidence generally supports the idea that stock prices are unpredictable and
that new information causes
The Investment Environment
I. The material wealth of society can be divided into real and nancial assets.
1. Real assets are the land, buildings, machines, and knowledge used to produce goods
and services. They generate net income in the economy
Toolkit Series Jan. 14, 2013
Booklet 5:.Euided Visits
Places are powerful tools to help connect us to the past. An adult returning to a
playground might be ooded with memories from childhood. A family's annual trip to a favorite
Lending Club Consultant Report
Lending club is a P2P lending platform connecting individuals who
seek loans with individuals who are willing to lend money. The
Lending Clubs model combines both the ideas of utopian
marketplace and sign-up sheet. Lenders f