From the book - The exploitation of security mispricing in such a way that risk-free profi ts can be earned is called arbitrage. It involves the simultaneous purchase and sale of equivalent securities in order to profit from discrepancies in their prices. Perhaps the most basic principle of capital market ... click here for more details.
From the book - Whereas conventional theories presume that investors are rational, behavioral fi nance starts with the assumption that they might not be. We will examine some of the information-processing and behavioral irrationalities uncovered by psychologists in other contexts and show how these tendencies applied to fi nancial markets ... click here for more details.
This paper explores a functional approach to financial system design in which financial functions instead of institutions are the “anchors” of such systems and the institutional structure of each system and its changes are determined within the theory. It offers a rudimentary synthesis of the neoclassical, neoinstitutional, and behavioral perspectives ... click here for more details.
From the book - In this chapter we consider the evidence along more explicit and rigorous lines. The first part of the chapter presents the methodology that has been deployed in testing the single-factor CAPM and APT and assesses the results. The second part of the chapter provides an overview ... click here for more details.
From the book - This chapter explores both pricing and risk management in selected futures markets in more depth. Most of the growth has been in financial futures, which now dominate trading, so we emphasize these contracts.
We begin with foreign exchange futures, where we show how forward exchange rates are ... click here for more details.
From the book - This chapter describes the workings of futures markets and the mechanics of trading in these markets. We show how futures contracts are useful investment vehicles for both hedgers and speculators and how the futures price relates to the spot price of an asset. We also show ... click here for more details.
From the book - We start with a discussion of the factors that ought to affect option prices. After this discussion, we present several bounds within which option prices must lie. Next we turn to quantitative models, starting with a simple “two-state” option valuation model, and then showing how this ... click here for more details.
From the book - This chapter is an introduction to options markets. It explains how puts and calls work and examines their investment characteristics. Popular option strategies are considered next. Finally, we examine a range of securities with embedded options such as callable or convertible bonds, and we take a ... click here for more details.
HOW CAN WE evaluate the performance of
a portfolio manager? It turns out that even
average portfolio return is not as straightforward
to measure as it might seem. In
addition, adjusting average returns for risk
presents a host of other problems. We begin
with the measurement of portfolio returns.
From there we move on to conventional
approaches to ... click here for more details.
This chapter provides an excellent explanation of the Capital Asset Pricing Model, its assumptions, issues and empirical validity. The chapter is extremely well-written, and is loaded with easy to follow examples and interesting side notes. As a starting point for understanding and applying CAPM, this is one of the best.