Investment Theory and Risk Management - KuTenk.Business ...

August 11th, 2012 | by kutenk |

by Steven P. Peterson
2012
ISBN: 9781118129593
A practical guide to today?s investment environment, this unique book empowers both the technical and non-technical reader with the essential knowledge necessary to understand and manage risks in any corporate or economic environment.

Investment Theory and Risk Management, + Website (Wiley Finance)

Product Description

A unique perspective on applied investment theory and risk management from the Senior Risk Officer of a major pension fund

Investment 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 assets
• Offers 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 rigor
• Written 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 Business

Investment 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.

item_dimensions: 9.21 x 1.42 x 6.14 inches; 1.47 pounds
shipping_weight: 1.54 pounds
ASIN: 1118129598

$51.56

Table of Contents
Investment Theory and Risk Management
Preface
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
OVERVIEW
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
REFERENCES

Chapter 3 ? Term Structure
DISCOUNTING USING SPOT RATES
FORWARD RATES
NPV REVISITED
SHORT RATES
THE BOOTSTRAP METHOD
DURATION REDUX
SUMMARY

Chapter 4 ? Equity
OVERVIEW
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
REFERENCES

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
OVERVIEW
DEVIATIONS FROM THE CAPM
BEHAVIORAL FINANCE
SUMMARY
REFERENCES

Chapter 9 ? Factor Models
OVERVIEW
ARBITRAGE PRICING THEORY (APT)
FACTOR SELECTION
MODEL ESTIMATION
PRINCIPAL COMPONENTS
APPLICATIONS AND EXAMPLES
SUMMARY
REFERENCES

Chapter 10 ? Active Portfolio Management
OVERVIEW
ACTIVE PORTFOLIO CONSTRUCTION AND ATTRIBUTION ANALYSIS
PERFORMANCE ATTRIBUTION
SUMMARY
Appendix 10.1: ACTIVE SPACE

Chapter 11 ? Risk
OVERVIEW
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
OVERVIEW
NON?NORMAL DISTRIBUTIONS
THE GAUSSIAN COPULA
SUMMARY
REFERENCES

Chapter 13 ? Systemic Risk
OVERVIEW
EXTREME VALUE THEORY
ESTIMATING THE HAZARDS OF DOWNSIDE RISKS
A SYSTEMIC RISK INDICATOR
SUMMARY
REFERENCES

Chapter 14 ? Incorporating Subjective Views
OVERVIEW
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
OVERVIEW
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
OVERVIEW
THE PRIVATE EQUITY MODEL
RETURN AND RISK METHODOLOGY
SUMMARY
Appendix 19.1: CAPM
REFERENCES

Chapter 20 ? Structured Credit
OVERVIEW
SECURITIZATION
CREDIT ENHANCEMENT
BASICS OF PRICING INTEREST RATE DERIVATIVES
INTEREST RATE DYNAMICS
CMO VALUATION
THE CRASH OF THE HOUSING BUBBLE
SUMMARY
REFERENCES

Chapter 21 ? Optimal Rebalancing
OVERVIEW
TRIGGER STRATEGIES AND NO?TRADE REGIONS
AN OPTIMAL CONTROL PROBLEM
IMPLICATIONS
OPTIMAL REBALANCING IN A STATIC OPTIMIZATION MODEL
THE COMPARATIVE STATICS OF TRANSACTION COSTS
REFERENCES

Chapter 22 ? Data Problems*
OVERVIEW
COVARIANCE ESTIMATION
AN EXAMPLE
EMPIRICAL RESULTS
OVERLAPPING OBSERVATIONS
CONCLUSIONS
Appendix 22.1: COVARIANCE MATRIX ESTIMATION
REFERENCES

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