# Tag Info

14

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 them to estimate the yield of the new bonds. They usually announce this as a spread above a benchmark (Ex: "We estimate the new bonds will yield 25 to 50 bps ...

8

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 ...

5

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 ...

5

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 company. They usually take control, assess and decide what share price is "suitable" for the company to go public. This team usually takes 7% commission and they ...

4

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 importance in terms of future business. 2) There is a specific pricing call that takes place between the issuer and investment banks trading teams. This ...

4

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 depends" (on every variable that affects stock prices, ie all of them) ;-) You can always come up with such an estimate; but your confidence interval will ...

3

No, it's not correct. The 1000 you invest at the beginning of the second year should also be discounted, That 1000 also has a present value. This gives: $$NPV = \frac{2200}{(1+R)^2} - \frac{1000}{(1+R)} - 1000$$ with $R$ the annual rate. Remember, you cannot simply add incoming or outgoing cash flows that occur at different times.

3

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 $(X_t)$ is called a martingale if for all time points $t\geq s$, $$\mathbb{E}[X_t|\mathcal{F}_s]=X_s.$$ Here, $(\mathcal{F}_s)$ refers to a filtration, the ...

3

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 function in another electronic spreadsheet program) to find $i$. You can also set up a payment schedule similar to the loan amortization table shown here in Excel for ...

2

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 ...

2

The classic text for machine learning is 'The Elements of Statistical Learning' by Tibshirani et al. I believe the term "data mining" is often used synonymously with "machine learning".

2

It is true that strategies with higher trading frequencies have Sharpe ratios that appear implausibly high by the standards of Fama-French factors. The strong law of large numbers really helps them, as they realize profits repeatedly while not increasing the standard deviation very quickly. The real barriers to entry for them are the costs that ...

2

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) Collateralized Debt Obligation are complex entities which issue tranches of securities to investors and use the proceeds to buy MBS, ABS or other assets. The ...

2

In general, PPN is the short form for principal protected notes. Here, the principal, or notional, $N$ is generally return in full. I am a little confused why only 80 % is returned. It may be a contractual specification, and it is also called a PPN. Regarding the variable interest, or premium in your term, is the return that the investor will achieve. In ...

2

You have to annualize the monthly avg return also: =(12*AVERAGE(G3:G145)-0.015)/(STDEV(G3:G145)*Sqrt(12))

2

I do not think such figure exist in its per-canned form. However, for the most part, any pension/social security/annuity provider needs to have an idea of that, since it is their current and future liability that we are talking about. A quick and dirty way would be to look at US Social Security's funds, and get an estimate of how underfunded they are (so you ...

2

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-trading--ud501

2

To me, that smelled like dynamic programming too. After implementing a dynamic programming solution according to http://www.cs.rpi.edu/~magdon/courses/cf/notes/optimal.pdf and other sources from the same author, it dawned on me that dynamic programming might not really be necessary at all. In the end, what you want is to put all your value into the single ...

2

Why don't you calculate the IRR of each investment? (aside from all the issues with IRR).

2

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 when we talk about Value At Risk and similar systemic measure has nothing to do with the potential increases of volatility due to high frequency activity. ...

2

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 untouched. $P$ grows over each period by a factor $(1+g)$: $P_t = P_{t-1}(1+g)$. We can partition $P_t$ into sub-portfolios, each with its own churn history, as in: ...

2

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 is based on optimization models in which market data will somehow be involved. That you cannot do "without programming". Maybe you should think about finding ...

2

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 them as a portfolio, a commonly used criterion is to allocate capital to each strategy in proportion to the inverse of the strategy's standard deviation. So if ...

2

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/bond portfolios for example) GIPS requires TWR (Time Weighted Return) and forbids the use of IRR. To compute the IRR we need the dates and amounts of cash ...

2

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 if it is standalone) is used. If this is not available, you could make use of a combination of publicly available rates and some risk-adjustments: risk-free ...

2

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 interest rates today (the interest rate will be reset at a future date), the rolling does not add any price sensitivity to an instantaneous interest rate shock. ...

1

Not really sure about papers, but it seems you are looking for a stock screener, which these two are my favorites, that you can filter stocks based on your parameters (e.g., ROI, ROE, net profit, debt, market cap, volatility, etc.): TradingView Finviz

1

Yes, there are sound ways to address this problem. And, depending on the level of realism required and your goals, you will need to think a lot more to devise an acceptable strategy. Bird's eye view Let us first make the assumption that each asset indeed has exactly the same growth, each period. Even in this most simple case you can follow different ...

1

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, there is obviously a huge range as you've pointed out. This makes comparison straight across companies impossible. To compare companies, you need to take out ...

1

All of the DMS returns are adjusting for dividends. Hence dividends are accounted in the sample. Moreover, DMS have also accounted for inflation. Hence, the real total net equity index return, now and hereafter, $e_{t}$, may be mathematically defined as \begin{equation*} e_{t}=\frac{1+\frac{P_{t}+D_{t}}{P_{t-1}}}{1+\pi_{t}}-1 \end{equation*} ...

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