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.
Autorentext
STEVEN PETERSON is 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. He is directly responsible for the measurement, forecasting, and attribution of risk at both the program and plan levels, with risk broadly defined to include various market and nonmarket risks. Peterson has done consulting for Crestar Investment Bank, SunTrust Bank, Ford Motor Company, Virginia Center for Urban Development (VCU Center for Public Policy), Virginia Department of Social Services, Virginia Division of Child Support Enforcement, LandAmerica, Virginia Retirement System, and Virginia Department of Corrections.
Klappentext
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.
Inhalt
Preface xv
Acknowledgments xix
CHAPTER 1 Discount Rates and Returns 1
Estimating Returns 1
Geometric and Arithmetic Averages 4
Caveats to Return Extrapolation 5
Discounting Present Values of Cash Flow Streams 7
Internal Rate of Return and Yield to Maturity 11
Real and Nominal Returns 14
Summary 14
CHAPTER 2 Fixed Income Securities 17
Coupon-Bearing Bonds 19
Infinite Cash Flow Streams (Perpetuities) 21
General Pricing Formulas for Finite Cash Flow Streams 22
Interest Rate Risk 24
Analysis of Duration 29
Interest Rate Risk Dynamics 31
Immunization and Duration 32
ApplicationsLiability Discounting and Cash Matching 36
Pension Logic 39
Risky Coupons 42
Inflation Risk and TIPS 43
A Bond Portfolio Strategy (Optional) 45
Summary 48
Appendix 2.1: Solving Infinite and Finite Power Series 49
Reference 50
CHAPTER 3 Term Structure 51
Discounting Using Spot Rates 51
Forward Rates 53
NPV Revisited 56
Short Rates 57
The Bootstrap Method 58
Duration Redux 62
Summary 66
CHAPTER 4 Equity 67
The Determination of Stock Prices 68
Discount Rates Redux 70
Price and Dividend Multiples 73
Extrapolating Multiples to Forecast Returns 74
Pitfalls of Trend Analysis 75
The Gordon Growth Model 78
Sources of Return 82
Summary 85
References 86
CHAPTER 5 Portfolio Construction 87
Stochastic Returns and Risk 87
Diversification 92
The Efficient Frontier 93
Markowitz Portfolio Selection Criteria 97
Capital Market Line and the CAPM 101
Performance Evaluation 106
Summary 108
Appendix 5.1: Statistical Review 108
Appendix 5.2: Risk-Adjusted Performance 112
Reference 113
CHAPTER 6 Optimal Portfolios 115
Portfolio 1: Minimum Variance Portfolio (Fully Invested) 115
Portfolio 2: Minimum Variance Portfolios with
Targeted Return 118
Portfolio 3: Minimum Variance Portfolios with No Short Sales 119
Portfolio 4: Minimum Variance Portfolios with Capped Allocations 122
Portfolio 5: Maximum Risk-Adjusted Return 123
Performance Attribution 125
The Efficient Frontier (Again) 127
Summary 129
Appendix 6.1: Matrix Operations 129
CHAPTER 7 Data and Applications 135
Analyzing Returns on a 10-Asset Portfolio 135
Performance Attribution 137
Changing the Investment Horizon Returns Frequency 139
Benchmarking to the Market Portfolio 141
The Cost of Constraints 144
A Bond Strategy 145
Summary 147
CHAPTER 8 Anomalies 149
Deviations from the CAPM 150
Behavioral Finance 155
Summary 161
References 162
CHAPTER 9 Factor Models 165
Arbitrage Pricing Theory (APT) 166
Factor Selection 170
Model Estimation 172
Principal Components 177
Applications and Examples 181
Summary 186
References 186
CHAPTER 10 Active Portfolio Management 187
Active Portfolio Construction and Attribution Analysis 190
Performance Attribution 192
Summary 194
Appendix 10.1: Active Space 195
CHAPTER 11 Risk 197
The Failure of VaR 198
Taxonomy of Risk 200
Visualizing Risk 202
Estimating Volatilities 208
Maximum Likelihood Estimation (Optional) 213
Credit Risk 215