distinguish between realised returns and expected returns ● understand the relationship between expected return and risk ● understand the basic notion of uncertainty and be able to calculate sample variance ● understand the role and importance of the normal distribution. Key points 1 Investing involves allocating wealth to yield future returns. 2 Investments are typically measured according to risk and return. 3 The investment process can be broadly thought of as being comprised of an allocation stage‚
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CHAPTER 6 RISK‚ RETURN‚ AND THE CAPITAL ASSET PRICING MODEL True/False Easy: | |(6.2) Payoff matrix |Answer: a |EASY | |[i]. |A payoff matrix shows the set of possible rates of return on an investment‚ along with their probabilities of occurrence‚ and the | | |investment’s expected rate of return as found by multiplying each outcome or "state" by its probability.
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............. 2 Chapter 2 Consensus Expected Returns: The CAPM ..................................................... 3 Chapter 3 Risk ................................................................................................................. 3 Chapter 4 Exceptional Return‚ Benchmarks‚ and Value Added...................................... 5 Chapter 5 Residual Risk and Return: The Information Ratio ......................................... 6 Chapter 6 The Fundamental Law of Active Management
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portfolio management and option hedging. We present the stochastic control method to portfolio optimization‚ which covers Merton’s pioneering work. The alternative martingale approach is also exposed with a nice application on option hedging with value at risk criterion. ∗ Lectures for the CIMPA-IMAMIS school on mathematical finance‚ Hanoi‚ April-May 2007. 1 Contents 1 Introduction 3 2 Financial decision-making and preferences 4 3 Dynamic programming and martingale methods : an
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parents. While this generation of parents probably roamed the streets in packs with their friends every holidays when they were young‚ today many live in panic about the perceived dangers of life outside the home. Should a three-year-old be allowed to risk possible (but unlikely) injury climbing to the top of the spider web in the playground? Can a six-year-old walk alone‚ but mostly within parental view‚ to the kiosk at the local pool to order and pay for some hot chips? What about the 12-year-old who
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INVESTMENT AND SECURITIES MARKETS Semester 1‚ 2010 / 2011 Ms. Viet Cao Topic 2 – Formal overview of investor psychology Part 1: Heuristic – driven biases 2010 Investment & Securities Markets 2 What are heuristics ? – Trial and error rules of thumb or “mental shortcuts” to simplify complex judgment or decisions – Includes intuitive “back-of-the-envelope” mental calculations – However‚ heuristics are imperfect and often leads to errors – Investors‚ like everyone else‚ commit decision errors
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increase in its current ratio and a drop in its total assets turnover ratio. However‚ the company’s sales‚ quick ratio‚ and fixed assets turnover ratio have remained constant. What explains these changes? 7. If investors’ aversion to risk increased‚ would the risk premium on a high-beta stock increase more or less than that on a low-beta stock? Explain. 8. If a company’s beta were to double‚ would its expected return
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Herd Behaviour. The Quarterly Journal of Economics‚ Vol. Arjomand‚ L. (2002). Sampling distribution of the mean. Retrieved December 2‚ 2008‚ from http://business.clayton.edu/arjomand/business/l7.html Benartzi‚ S. Thaler‚ H‚ R. (1995). Myopic Loss Aversion and the Equity Premium Puzzle. The Quarterly Journal of Economics‚ Vol Befring. E (1994). Forskningsmetodik och statistik. Studentlitteratur Lund. Burns‚ A.C.‚ & Bush‚ R.F. (2000). Marketing reasearch (3rd ed.). New Jersey: Prentice Hall. Camerer
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Objective: The focus of this course is on the economics of commercial banks. This course seeks to enhance your understanding of why commercial banks exist and what economic roles they play‚ the risks faced by banks in the lending process‚ off-balance sheet banking‚ deposit insurance‚ bank regulation‚ and risk management. 1 The economics of financial contracting in the banking industry---from deposit contracts to derivative instruments---and the interplay between information‚ technology‚
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Contents Chapt~ 1 ExJ>ected Utilicy and Risk Aversion ..............................................................................• ! Chapt€11" 2 Mean-Varian.ce Analysis ................................................................................................ 6 Chapter 3 CAPM‚ Atbitmge‚ and Linear Factor Models .............................................................. 12 Chapter 4 Consumption-Savings Decisions and State Pricing............................................
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