# Tag Info

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If you look in the portfolio management sections of the CFA (chartered financial analyst) curriculum, you'll find a listing of commonly used portfolio management techniques. It is by no means exhaustive, but the content in the CFA curriculum comes directly from industry professionals, so it is reasonable current and applicable. CFA Candidate Body of ...

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Yes, a Monte Carlo simulation (MC) is what you need. It is a well known and documented approach with many uses in finance, science and engineering. MC simulations are used to simulate the returns of complex financial assets or in your case returns of business ventures under uncertainty. Your input variables ($x_1, x_2,\cdots, x_n$) are uncertain. If you ...

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Quant investing has the same basic problem as any approach to asset management: capacity for capital invested. Unlike quant trading, quant investing deals with large assets. For this reason, the type of arbitrage opportunities pursued by quant traders are not feasible for investing - those strategies simply do not have the capacity necessary for asset ...

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Off the top of my head, credit default swaps (CDS) on sovereign debt -- and perhaps on large companies in the sector you care about in that country, if the CDS's exist -- leap to mind. Check out the Wikipedia article on them. They are something along the lines of "insurance rates" (not exactly, but this is a reasonable first-pass understanding) on a ...

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You answered your own question with the statement it began with: "Since if the option's price is lower than its intrinsic value (eg. strike price - current stock price for puts), then an arbitrage opportunity arises from buying the option at bargain and then exercising it..." An options price cannot be lower than its intrinsic value (for any discernab,le ...

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In kamikaze_pilot's defense, the question is not that naive or simple. First of all, you need to define what options you are talking about. Consider a digital option for example (which is really fairly vanilla since you can proxy it as a combination of two European calls), which pays 1 of the stock is beyond a certain level at maturity and nothing ...

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It is common for the Bid (and sometimes the average of the Bid/Ask) price of deep in the money options to be below the Intrinsic Price. Download some data and try it. http://www.cboe.com/delayedquote/QuoteTableDownload.aspx

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There are a number of papers in the literature which show that Dollar Cost Averaging is suboptimal, in the sense that, given a DCA investment strategy, then there exists an alternative investment strategy which will be strictly preferred by a utility maximising agent. This preferred strategy may not necessarily be a "lump-sum" strategy, but a better strategy ...

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You did not carefully read the article you yourself linked to. Dollar cost averaging is a generalized concept. What the author compares is a full-sized investment or time-specific partial investments. So, dca is a concept and you draw conclusions from one single approach to dca. There is no mathematical proof that dca works or not because it is one single ...

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The problem is the way you compute profit, in which you are not accounting for the timing of cashflows. If you compute NPV's you get a better comparison. Also if you check the IRR, it will be 5% for both investments.

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Your question is little broad and has two aspect: Theory and Application. If you are interested in scientific approach and academic literature this kind of thing is called Mathematical_optimization which is branch of Multi-objective optimization which is again a branch of Operations_research. In terms of mathematics of solving these problems multivariate ...

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That is what XIRR does or can you read this answer. Basically it tries to find an interest rate that works out to the same numbers. I think Excel and Google Docs use the Newton approximation http://www.mftransparency.org/calculating-interest-rates-using-newtons-method/ There's also a java implementation available on github called jxirr.

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Equity is for the bulls; debt is for the bears. It depends on what kind of capital is available for financing and what the group needing capital can offer in terms of security. Early stage startups have nothing to offer but future returns (especially if they are cash-flow negative). A high risk investment with little collateral and a high burn rate may not ...

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You are mixing terms here. The definition of an "interest rate" is typically a simple interest rate as applies to the Principal of a loan. The unpaid interest rate is not compounded. This is owed at the conclusion of the loan or when converted to debt. Typically rolled into the equity stake. The definition of "discount" is what the convertible debt holder ...

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seems to me that the rate used depends on the corresponding strategy's grip on funding: that is to say, if the strategy is self-financing, rf=0 when calculating sharpe (in the sense that your costs of funds is zero in construction of the strategy); if it requires an outlay at t_0, an amount which is tied up throughout the time frame of the year, rf should be ...

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