A unique perspective on applied investment theory and risk management from the Senior Risk Officer of a major pension fundInvestment Theory and Risk Management is a practical guide to today's investment environment. The book's sophisticated quantitative methods are examined by an author who uses these methods at the Virginia Retirement System and teaches them at the Virginia Commonwealth University. In addition to showing how investment performance can be evaluated, using Jensen's Alpha, Sharpe's Ratio, and DDM, he delves into four types of optimal portfolios (one that is fully invested, one with targeted returns, another with no short sales, and one with capped investment allocations). In addition, the book provides valuable insights on risk, and topics such as anomalies, factor models, and active portfolio management. Other chapters focus on private equity, structured credit, optimal rebalancing, data problems, and Monte Carlo simulation.Contains investment theory and risk management spreadsheet models based on the author's own real-world experience with stock, bonds, and alternative assetsOffers a down-to-earth guide that can be used on a daily basis for making common financial decisions with a new level of quantitative sophistication and rigorWritten by the Director of Research and Senior Risk Officer for the Virginia Retirement System and an Associate Professor at Virginia Commonwealth University's School of BusinessInvestment Theory and Risk Management empowers both the technical and non-technical reader with the essential knowledge necessary to understand and manage risks in any corporate or economic environment. INDICE: PrefaceAcknowledgmentsChapter 1: Discount Rates and ReturnsEstimating ReturnsGeometric and Arithmetic AveragesCaveats to Return ExtrapolationDiscounting Present Values of Cash Flow StreamsInternal Rate of Return and Yield to MaturityReal and Nominal ReturnsSummaryChapter 2: Fixed Income SecuritiesCoupon Bearing BondsInfinite Cash Flow Streams (Perpetuities)General Pricing Formulas for Finite Cash Flow StreamsInterest Rate RiskAnalysis of DurationInterest Rate Risk DynamicsImmunization and DurationApplications - Liability Discounting and Cash MatchingPension LogicRisky CouponsInflation Risk and TIPSA Bond Portfolio Strategy (Optional)SummaryAppendix 2.1: Solving Infinite and Finite Power SeriesReferencesChapter 3: Term StructureDiscounting Using Spot RatesForward RatesNPV revisitedShort RatesThe Bootstrap MethodDuration ReduxSummaryChapter 4: EquityThe Determination of Stock PricesDiscount Rates ReduxPrice and Dividend MultiplesExtrapolating Multiples to Forecast ReturnsPitfalls of Trend AnalysisThe Gordon Growth ModelSources of ReturnSummaryReferencesChapter 5: Portfolio ConstructionStochastic Returns and RiskDiversificationThe Efficient FrontierMarkowitz Portfolio Selection CriteriaCapital Market Line and the CAPMPerformance EvaluationSummaryAppendix 5.1: Statistical ReviewAppendix 5.2: Risk Adjusted PerformanceReferencesChapter 6: Optimal PortfoliosPortfolio 1: Minimum Variance Portfolio (Fully Invested)Portfolio 2: Minimum Variance Portfolios with Targeted ReturnPortfolio 3: Minimum Variance Portfolios with No Short SalesPortfolio 4: Minimum Variance Portfolios with Capped AllocationsPortfolio 5:Maximum Risk-Adjusted ReturnPerformance AttributionThe Efficient Frontier (Again)SummaryAppendix 6.1: Matrix OperationsChapter 7: Data and ApplicationsAnalyzing Returns on a Ten Asset PortfolioPerformance AttributionChanging the Investment HorizonBenchmarking to the Market PortfolioThe Cost of ConstraintsA Bond StrategySummaryChapter 8: AnomaliesDeviations from the CAPMBehavioral FinanceSummaryReferencesChapter 9: Factor ModelsArbitrage Pricing Theory (APT)FactorSelectionModel EstimationPrincipal ComponentsApplications and ExamplesSummaryReferencesChapter 10: Active Portfolio ManagementActive Portfolio Constructionand Attribution AnalysisPerformance AttributionSummaryAppendix 10.1: Active SpaceChapter 11: RiskThe Failure of VaRTaxonomy of RiskVisualizing RiskEstimating VolatilitiesMaximum Likelihood Estimation (Optional)Credit RiskAdjusting for LeverageAdjusting for IlliquidityOther RisksSummaryReferencesChapter 12: Monte Carlo MethodsExample 1: Generating Random Numbers - Estimating Ï€Example 2:Confirming the Central Limit TheoremExample 3: Credit Default RiskNon-Normal DistributionsThe Gaussian CopulaSummaryReferencesChapter 13: Systemic RiskExtreme Value TheoryEstimating the Hazards of Downside RisksA Systemic Risk IndicatorSummaryReferencesChapter 14: Incorporating Subjective ViewsMethodological ConceptsAn Example using Black-LittermanActive SpaceRisk AttributionSummaryReferencesChapter 15: Futures, Forwards, and SwapsInstitutional Detail and FuturesMechanicsThe Relationship between Spot Prices and Forward (Futures) PricesHedging Basis RiskHedging Portfolio RiskFutures PricingSwapsSummaryReferencesChapter 16: Introduction to OptionsOption Payoffs and Put-Call ParityPricing European Call OptionsPricing European Put OptionsOption StrategiesReal OptionsSummaryReferencesChapter 17: Models of Stock Price DynamicsStock Price DynamicsIto ProcessesLognormal Stock PricesDeriving the Parameters of the Binomial LatticeBlack-Scholes-Merton ModelThe Greek LettersMonte Carlo MethodsSummaryAppendix 17.1: Derivation of Ito’s LemmaChapter 18: Hedging Portfolio RiskSimple Hedging StrategiesS&P 500 Index PutsSelling VolatilityVIX CallsLiability Driven InvestmentSummaryReferencesChapter 19: Private EquityThe Private Equity ModelReturn and Risk MethodologySummaryAppendix 19.1: CAPMReferencesChapter 20: Structured CreditSecuritizationCredit EnhancementBasics of Pricing Interest Rate DerivativesInterest Rate DynamicsCDO ValuationThe Crash of the Housing BubbleSummaryReferencesChapter 21: Optimal RebalancingTrigger Strategies and No-trade RegionsAn Optimal Control ProblemImplicationsOptimal Rebalancing in a Static Optimization ModelThe Comparative Statics of Transactions CostsReferencesChapter 22: Data Problemsˆ—Covariance EstimationAn ExampleEmpirical ResultsOverlapping ObservationsConclusionsAppendix 22.1: Covariance Matrix EstimationRemoving the effects of smoothingReferencesAbout the AuthorIndex
- ISBN: 978-1-118-12959-3
- Editorial: John Wiley & Sons
- Encuadernacion: Cartoné
- Páginas: 480
- Fecha Publicación: 23/05/2012
- Nº Volúmenes: 1
- Idioma: Inglés