FINANCIAL ECONOMICS 2023, Schemi e mappe concettuali di Economia Finanziaria

Scarica FINANCIAL ECONOMICS 2023 e più Schemi e mappe concettuali in PDF di Economia Finanziaria solo su Docsity! FINANCIAL ECONOMICS LECTURE 1 Financial economics= behaviour of the financial markets Real financialwealth=M+B+E CPI 3 factors for index: - Sample -Weighting sample measures -Computational procedure Bond= debt instrument that promises a fixed income stream to the holder. It has 4 characteristics: 1. Fixed face o par value 2. A coupon 3. A fixed maturity dates. 4. Ownership (bearer bond on registered bond) Issuers: - 4 non corporate sectors - Corporate sector Investors: - Institutional investors (90/95%) - Individual investors Rating (Fitch inv. – Moody’s – Standard&Poor’s): creditworthiness of the issuer, have an impact on their marketability and effective yield. If rating improves the cost of debt decreases ↓RATING ↑YIELD ↑INTEREST RATE↓ PRICE LECTURE 2 TIPS (Bonds) = to investor who wanted a real default-free rate of return, promised yield in real terms Pmarket= Par value (1+i)n Fixed coupon rate bond ↓CURRENT PRICE↑YIELD¿MATUR ITY Price bonds in term of their yield, to compute an expected yield we use the observed current market price (MPO) and the promised cash flows. Bond price= flat price+ accrued interest (A.I.) A , I ,=coupon payment+ days since last coupon payment total days∈coupon period ↑SPREAD↑RISK ↑π→↑i Duration= the bond’s price volatility (interest rate sensitivity Macaulay duration calculates a weighted average of the payment’s dates associated with n-period bond. D= ∑ t=1 N CFt∗t (1+ i)t P0 ↑ i↓DURATION ↑YTM ↓DURATION ↑DURATION ↑RISK CHANGE BOND’S PRICE FOR A SMALL CHANGE IN YTM ∆ P P ≈−(D )∗[ ∆(1+ i m ) (1+ i m ) ] MODIFIED DURATION How bond’s price will change as interest rate changes D= D (1+ i m ) Bond convexity= trade off between a bond’s price and its yield to maturity is a curved function Convexity= how modified duration will change with yield curve shifts { 1 (1+i)2 [∑t=1 N CFt (1+ i)t ∗(t 2+t )]}/P MEASURE OF THE BOND’S DOLLAR PRICE FOR 1 BASIS POINT CHANGE IN YIELDS ∆ P≈−(ModD )∗(−0.0001 )∗(P )=BPV (Basis Point Value) σ=√∑ (rt−r )2 N VAR (95%) =mean+(−1.64)σ to quantify the loss LECTURE 5 DERIVATIVE - Swaps - Options and forwards - Futures Swaps = contract for an exchange of payments determined by the difference in 2 prices. To edge a stream of risky payments Interest rate swap (involve the exchange of difference between floating and fixed interest rate or vice versa. To increase or reduce the exposure to fluctuations in interest rate. Swap rate curve as benchmarks. S= FLR-FXR Foreign currency swap agreement between two foreign parties to swap interest payments on a loan, measured volume quotation system, to edge any risk. Credit default swap as an option-like agreement because it requires one party to pay an initial premium to the other and any subsequent payment not obligatory (insurance for a default). It covers credit-related events. FORWARD = is a trade agreement gives its holder both the right and full obligation to conduct a transaction involving another security or commodity, there must be two parties. It is negotiated in OTC, involves credit risk. FUTURES=agreement negotiated in exchange markets. It is an obligation between two parties to buy and sell an underlying at certain date under conditions. P∧L=(FP−IP)×tick ×nof contracts CONVERSION FACTOR= av (1+i) −c g 182.5 [(180−h+1)/180 ] /¿100 EXCHANGE VALUE = (p5min/100 * nominal value * n of contracts *FC) + interest OPTION gives to holder the right but not the obligation to buy or sell an underlying security or commodity at a predetermined future date and at a predetermined price. Trade in OTC markets and exchanges, To buy→ calls to sell→ puts. Option spread is a position. - Bull spread you buy a call and sell an otherwise call with a higher strike price. - Collar purchase of a put option and sell a call option with a higher strike price. - Bear spread sells a call and buys an otherwise identical call with a higher strike price. - Straddle buying a call and a put with the same strike price and time to expiration. LECTURE 6 Maximize from the total set of investment not all investors are risk averse. ↑Yields↑ Risk MARKOWITZ is a model based on several assumptions regarding investor behaviour, to set a portfolio with returns that are maximized for a given level of risk based on mean- variance portfolio construction. The efficient solution can be plotted on the Markowitz efficient frontier. Investor base decisions solely on expected return and risk, base on the information that we have. Any asset or portfolio of assets can be described by two characteristics: - Expected return. - Standard deviation COVARIANCE:E { [R i−E (Ri ) ][R j−E (R j )]} r ij= cov ij σ i σ j VARIANCE σ 2=∑ i=1 n [Ri−E (R i ) ] 2 Pi A single market model can describe the stock returns. Ri=αi+β iRm+εi MARKOWITZ EFFICIENT FRONTIER Represents se of portfolios with the maximum rate of return for every given level of risk or the minimum risk for every level of return. Markowitz defined the basic problem that the investor needs to solve as constrained optimization. Standarddeviation of portfoliominimize σ port=√∑i=1 n wi 2σ i 2+∑ i=1 n ∑ i=1 n w iw j σ iσ jσ ij CAPITAL MARKET THEORY builds directly on the portfolio theory by extending the Markowitz efficient frontier into a model for valuing all risky assets. This approach depends on the existence of a risk-free asset- The CAPITAL MARKET LINE(CML) represents all optimal portfolios that combine the risk-free asset and all the other securities in the marketplace allowing the investor to find the portfolios with higher returns for each level of risk, at the point of tangency it has the highest portfolio possibility line. E (Rport )=RFR+σ port[E (Rm )−RFR σM ] (CAPT) CAPITAL ASSET PRICING THEORY - All investors are Markowitz efficient. - No transaction costs. A single factor model, that only takes into consideration RM. It describes the relationship between systematic risk and expected return. E (R )=R f+β (E (RM )−R f ) SECURITY MARKET LINE Displays the relationship between the expected returns of a security and its systematic risk exposure, which is represented by its β- LECTURE 7 ARBITRAGE PRICING THEORY (APT) is a multifactor asset pricing model based on the idea that an asset’s return can be predicted using the linear relationship between the asset’s expected return and several macroeconomic variables that capture systematic risk (which can be, for example, the level of inflation and growth) based on the law of one price and the principle of no arbitrage, The conditions of multifactor model are less restrictive, but it requires a lot of calculations since all the factors in the model must be analysed, the sensitivity of the single security with respect to each of the factors must be defined and the risk premium associated to all of the factors has to be taken into account. CHEN, ROLL AND ROSS in1986 developed a model which includes: - Monthly and annual unanticipated growth in industrial production - Unexpected inflation - Unanticipated changes in the risk premium - Unanticipated changes in the slope of the term structure of rates LECTURE 8 BLACK & LITTERMAN MODEL (BL) is an analytical tool used by portfolio managers to optimize asset allocation within an investor’s risk tolerance and market views. The BL model starts from a neutral position using modern portfolio theory then takes additional input from investor’s views to determine how the ultimate asset allocation should deviate from the initial portfolio weights. It then undergoes a process of mean-variance optimization to maximize expected return given one’s objective risk tolerance.