Models for Investors in Real World Markets

ISBN-10: 047135628X
ISBN-13: 9780471356288
Edition: 2003
List price: $162.00 Buy it from $101.83
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Description: The collapse of the Scholes-Merton Long Term Capital Management (LTCM) hedge fund made people who thought of the efficient market-based formulae for fair prices as rigid laws question their beliefs. This book provides an anti-efficient markets  More...

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Book details

List price: $162.00
Copyright year: 2003
Publisher: John Wiley & Sons, Incorporated
Publication date: 11/15/2002
Binding: Hardcover
Pages: 408
Size: 6.25" wide x 10.25" long x 0.75" tall
Weight: 1.584

The collapse of the Scholes-Merton Long Term Capital Management (LTCM) hedge fund made people who thought of the efficient market-based formulae for fair prices as rigid laws question their beliefs. This book provides an anti-efficient markets approach to investment theory and management.

Preface
Introduction and the Institutional Environment
Introduction
The Stock Market Efficiency Question
Some History
The Role of Financial Information in the Market Efficiency Question
The Role of Organized Markets in the Market Efficiency Question
The Role of Trading in the Market Efficiency Question
The Role of Securities Market Regulation in the Market Efficiency Question
The Role of Stock Market Indicators in the Market Efficiency Question
Summary
References
Some Conventional Building Blocks (With Various Reservations)
Introduction
The St. Petersburg Paradox
von Neumann-Morgenstern Utility
Creating a "St. Petersburg Trust"
Some Problems with Aggregate Choice Behavior
Jeffersonian Realities
Conclusions
Problems
References
Diversification and Portfolio Selection
Introduction
Portfolio Design as Constrained Optimization
A Graphical Depiction
Other Approaches: Confidence Limits and Stochastic Dominance
Non-Utility Techniques
Portfolio Rebalancing
Problems
References
Capital Market Equilibrium Theories
Introduction: The Capital Market Line
The Security Market Line
The Sharpe Diagonal Model
Portfolio Evaluation and the Capital Asset Pricing Model (CAPM)
Arbitrage Pricing Theory (APT) and Fama-French (FF)
Interaction of Equilibrium and Efficiency
Expectations, Convergence, and the Efficient Market Hypothesis
Conclusions
Problems
References
Equilibrium Implying Efficiency: The Neoclassical Fantasy
Introduction
A Formal Restatement of the Hypothesis
Who Are the EMH Investors?
Some Early History
Science and the "Social Sciences"
Risk versus Uncertainty
The 1960s and 1970s
The Weak Form of the EMH
The Semi-Strong Form of the EMH
An Example of "Soft" Results Becoming "Conclusive"
Other Studies
Intertemporal Analyses
More Evidence That Markets Are Not Efficient
Conclusions
References
More Realistic Paradigms for Investment
Introduction
Growth
Rational Valuation and Growth
Momentum and Growth
An Application
The "Risk Profile" Approach to Stock Selection
The "Risk Profile" Approach After-Taxes and Transactions Costs
Realistic Capital Market Theory
Conclusions
Problems
References
Security Analysis
Introduction
Financial Statement Analysis
Ameritape, Inc.
The Auditor's Opinion
The Historical Record
Notes to the Financial Statement
The Most Recent Year and Ratio Calculations
Other Information
Projections and Evaluation
Accounting Numbers and Corporate Accountability
Problems
References
Empirical Financial Forecasting
Introduction
Forecasting as Regression
Data Analysis of Ameritape, Inc.
Conclusions and a Philosophy
Problems
References
Stock Price Growth as Noisy Compound Interest
Introduction
Stock Progression Using Binomial Trees
Estimating [mu] and [sigma]
Time Indexed Risk Profiling
Investing in a Sure Thing
Invsting in an Index Fund
Time Based Risk Profiling
A Resampling Approach
A Partially Privatized Social Security Plan
Index Funds as High Interest Paying Money Market Accounts
Gaussian Model versus Resampling
Stock Progression Using Differential Equations
Ito's Lemma
A Geometric Brownian Model for Stocks
Conclusions
Problems
References
Investing in Real World Markets: Returns and Risk Profiles
Introduction
Ameritape Revisted
Forecasting: A Reality Check
Other Scenarios
The Time Indexed Distribution of Portfolio Value
Negatively Correlated Portfolios
Bear Jumps
Conclusions
Problems
References
Common Stock Options
Introduction
Black--Scholes and the Search for Risk Neutrality
Option Writers and Bookies
Alternative Pricing Models
The Black--Scholes Hedge Using Binomial Trees
A Game Independent of the Odds
The Black--Scholes Derivation Using Differential Equations
Black--Scholes: Some Limiting Cases
Conclusions
Problems
References
Summary, Some Unsettled (Unsettling) Questions, and Conclusions
Summary
What Is Uncertainty Aversion?
Can There Still Be Differential Uncertainty Premia?
Is Equity Premia Belief Sufficient to (at least) Index?
Does This Mean We Are Advocating Behavioral Finance?
What Strategies Might Hold Promise?
Conclusions
Assignment
References
A Brief Introduction to Probability and Statistics
Craps: An Intuitive Introduction to Probability
Random Variables, Their Means and Variances
Combinatorics Basics
Bayesian Statistics
Bayes' Theorem
A Diagnostic Example
The Binomial Distribution
The Uniform Distribution
Moment--Generating Functions
The Normal (Gaussian) Distribution
The Central Limit Theorem
The Gamma Distribution
Conditional Density Functions
The Weak Law of Large Numbers
The Multivariate Normal Distribution
The Wiener Process
The Poisson Process and the Poisson Distribution
Simulating Bear Jumps
Parametric Simulation
Simulating a Geometric Brownian Walk
The Multivariate Case
Resampling Simulation
The Multivariate Case
A Portfolio Case Study
A Simple Optimization Algorithm That (Usually) Works
Statistical Tables
Tables of the Normal Distribution
Tables of the Chi-Square Distribution
Index

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