14 votes
Accepted

How exactly are corporate bonds priced at issue

I am not an investment banker, but usually the procedure is something like this: (0) The IB knows the yield of existing bonds with the same maturity and credit rating, so it is not too difficult for ...
Alex C's user avatar
  • 9,372
6 votes
Accepted

Invested Capital: operating approach vs financing approach

Because ROIC is not part of of the official accounting standards such as US-GAAP or IFRS, its definition may vary, also depending a bit on how the party defining it is planning to use it and the ...
Alper's user avatar
  • 1,036
5 votes
Accepted

IPO Valuation: Share Pricing and Number of Shares

IPO valuation is super sophisticated. There is usually a Managing Underwriter, who has a team of analysts/asset pricers/investment bankers/lawyers/etc. with complicated terms and they go and value a ...
Emma's user avatar
  • 460
4 votes

How exactly are corporate bonds priced at issue

In addition to @AlexC answer there are 2 additional key points. 1) if the issue is oversubscribed the IB / syndicate team will choose the allocation to each client usually based on their relative ...
Attack68's user avatar
  • 10.2k
4 votes
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How much market data is required to confidently predict the yearly returns of a stock?

It seems implicit in the question that you are happy to assume that the distribution of historical returns is an unbiased and consistent estimator of the distribution of future returns. Else "it ...
demully's user avatar
  • 5,061
3 votes

How to calculate performance of a private equity investment?

I am not an expert on GIPS, with its many pages of rules, but I do remember that under GIPS Private Equity results are to be given in terms of IRR (Internal Rate of Return). In most other cases (stock/...
Alex C's user avatar
  • 9,372
3 votes
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Why are changes in stock market wealth considered permanent?

I guess the concept you're looking for are martingales. These are stochastic processes which remain on their current level (in expectation!). Ignoring some technical conditions, a stochastic process $...
Kevin's user avatar
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3 votes
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How to (efficiently) calculate the maximum possible return of a perfect "crystal ball" investment strategy?

This answer seems to be wrong. Please read the edit and the comments. To me, that smelled like dynamic programming too. After implementing a dynamic programming solution according to http://www.cs.rpi....
wehnsdaefflae's user avatar
3 votes
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Calculate interest

You can't derive a formula from this equation to calculate $q$ (or $i$) directly for all values of $n$ given the other variables. However, you can use the RATE() function in Excel (or a similar ...
Alper's user avatar
  • 1,036
3 votes

How to incorporate ESG in Portfolio Optimization?

recall that, in general, you have the following elements: A universe of possible stocks. There are tens of thousands of possible investments out there, so you apply screens to limit your universe to ...
Dimitri Vulis's user avatar
3 votes

Two specific questions about CAPM's assumptions and implications

If the two companies have indeed the same beta, then company A will have more total risk. Or in other words company A has more idiosyncratic risk (i.e. the risk that is not explained by the model); ...
phdstudent's user avatar
  • 8,306
2 votes
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ABS vs covered bonds vs CDO

MBS are securities which represent ownership in a pool of mortgages ABS are securities which represent ownership in a pool of assets other than mortgages (for example auto loans or credit card loans) ...
Alex C's user avatar
  • 9,372
2 votes

Thoughts on how quantitative hedge funds use machine learning to invest in the stock market (algorithms, examples of data, etc.)

This may not directly answer your questions. There's a class offered by Georgia Tech called Machine Learning for Trading, you might find it useful. https://www.udacity.com/course/machine-learning-for-...
Hao's user avatar
  • 313
2 votes

Choice between 2 investments that cost the same but offer different interest and face value

Why don't you calculate the IRR of each investment? (aside from all the issues with IRR).
zglin's user avatar
  • 238
2 votes
Accepted

Why should long-term investors care about flash crashes/ intra-daily volatility/HFT?

I agree with the implicit idea behind your question that "on the paper, high frequency fluctuations of prices should not affect long term moves". One point is for sure: the volatility we have in mind ...
lehalle's user avatar
  • 12.1k
2 votes

Optimizing Investment Portfolio

The scope of your question is quite unclear to me. You seem to mention trading. If you have multiple trading strategies (that you think are good, and reasonably uncorrelated) and you want to trade ...
nbbo2's user avatar
  • 11.3k
2 votes

Optimizing Investment Portfolio

What does it mean that you will optime portfolio "without programming"? Does that mean that you will do calculations by hand??? Articles will not help you since every article you will be able find ...
Sanjay's user avatar
  • 1,657
2 votes

Estimating realised gains given growth rate and churn

Assume we start at $t=0$ with $P_0$, there are $t=1...N$ subsequent periods, and at each period-end $t$ an (entirely arbitrary) portion $c$ of our portfolio $P_t$ is churned and $(1-c)$ remains ...
Ivan's user avatar
  • 1,386
2 votes

NPV and efficient market hypothesis

The assumption that the discount rate should be derived from the IRR of an alternative investment is not correct. Commonly the WACC of the company (or the WACC of the funds needed for the investment ...
Philipp S's user avatar
2 votes

What is the duration of a rolling 5 year investment?

The duration represents the sensitivity of the price of a financial instrument to current interest rates. Since at the rolling date the price will be equal to the face value no matter what happens to ...
sqrt2sqrt2's user avatar
2 votes

Open Interest on Stocks

In my opinion, your intuition that their definition is crap is correct. Google doesn’t give me another source that uses this definition either.
Bob Jansen's user avatar
  • 8,552
1 vote

Optimal investment strategy problem with competing bet-sizing options and limited budget

If I understand correctly, you are looking for the optimal allocation $b_1, \dotsc, b_n$. You can compute the expected log return for each asset - it is $p_i \log f(b_i),$ so you optimize the sum $\...
Igor Rivin's user avatar
1 vote
Accepted

Comparison of Carhart alphas (four-factor model)

Setup From your question, I assume you have two strategies $A$ and $B$ with excess returns $R_{A,t}, R_{B,t}$. You model these excess returns using the Carhart 4-factor models (FF3 factors + the ...
kurtosis's user avatar
  • 2,900
1 vote

Citation for the definition of Return on Investment

Any textbook on corporate finance contains the formula for ROI. Below are two popular ones, Berk and De Marzo - Corporate Finance Bodie, Kane, Marcus - Investments
develarist's user avatar
  • 3,000
1 vote
Accepted

What is this chart showing?

Consider a line through the scatter plot of X and Y, where the points are such that X+Y=10. i.e., if you plot the points {1,9}, {2,8}, {3,7},…,{9,1}, and draw a line through these points, you will get ...
Magic is in the chain's user avatar
1 vote
Accepted

Constructing an arbitrage opportunity for a company involving Forwards

In any "arbitrage" situation, you are trying to create a scenario where you sold a rich asset and bought a cheap asset, while keeping the overall position as flat as possible to risk. Assuming ...
AlRacoon's user avatar
  • 6,532
1 vote
Accepted

Security Analysis By Benjamin Graham Example Doubt

After announcement, in December, of the intention to call the bond in April at 11 the market price fell to 11 and apparently remained at 11 throughout January. The broker could have purchased the ...
Attack68's user avatar
  • 10.2k
1 vote

NPV and efficient market hypothesis

Note that CF1 is a weighted average of possible future outcomes, about which it is possible for different investors to have different beliefs and risk preferences. NPV = -I + sum(p(i) * CFi1) /(1+k) ...
demully's user avatar
  • 5,061
1 vote

Possible application of Polya's Urn on Portfolio's Investments?

As a Polya urn is often referred to as the rich get richer, it maybe possible to use his urn to get richer. It is known that these urns can be related to the Dirichlet-multinomial distribution. That ...
andrew clark's user avatar
1 vote

Comparing values of indicator between different stocks

Technical analysis is not quite in my wheelhouse, but it's been an interesting topic to me, so hopefully I can lend a hand. Let's start with some basic assumptions: Because OBV is based on volume, ...
Michael Hartmann's user avatar

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