A Derivation of CAPM from a Measure of Manager's Performance Based on The Stochastic Discount Factor Thursday, 10/13/2005, 4:00 PM-5:00 PM
Professional Master's Program Seminar (Financial Mathematics). Luis Roman, Worcester Polytechnic Institute. Constructions of general equilibrium models allow determining relevant measures of risk for any asset and the relationship between expected return and risk for any asset when markets are in equilibrium. The simplest form of an equilibrium model is called the standard Capital Asset Pricing Model (CAPM). On the other hand, the stochastic discount factor (SDF) approach has been used to measure conditional performance of hedge funds. In this talk, we will present the mathematical concepts underlying the stochastic discount factor and define a new measure of manager's performance based on the SDF. Then, we will show how CAPM can be derived from this new measure.
PMP Seminar: Liquidity and the Stochastic Supply Curve for a Security's Price Thursday, 10/20/2005, 4:00 PM-5:00 PM
Speaker: Marcel Blais (WPI)
Abstract: Recently Cetin, Jarrow, and Protter have proposed an extension of the usual models for asset prices, which incorporates liquidity. To do this they have postulated the existence of a supply curve, which gives the instantaneous liquidity levels at every time and price. This allows for an analysis of stock prices incorporating liquidity. Using data from Morgan Stanley we can estimate the postulated supply curve quite precisely. Using statistical analysis we can show such a supply curve does in fact exist, and we can show how it changes over time. Findings show that the supply curve behavior for liquid stocks is linear, with a slope close to zero, although different from zero, and for illiquid stocks is non-linear. We use this model to develop different ways to measure liquidity, and investigate how this affects option pricing.
Refreshments will be served.
Trillion Dollar Bet Thursday, 11/10/2005, 4:00 PM-5:00 PM
There will be a showing of "Trillion Dollar Bet", a 1 hour NOVA documentary about the hedge fund, Long Term Capital Management.
How a brilliant investment strategy created worldwide financial panic.
In 1973, three brilliant economists, Fisher Black, Myron Scholes, and Robert Merton, discovered a mathematical breakthrough that revolutionized modern finance. The elegant formula they unleashed upon the world was sparse and deceptively simple, yet it lead to the creation of a multi-trillion dollar industry. Their bold ideas earned them a Nobel Prize and attracted the elite of Wall Street.
In 1993, Scholes and Merton joined forces with John Meriweather, the legendary bond trader of Salomon Brothers. With 13 other partners, they launched a new hedge fund, Long Term Capital Management, that promised to use mathematical models to make investors tremendous amounts of money with little risk. Their money machines reaped fantastic profit, until their theories collided with reality, sending them spiraling out of control. This crisis threatened to bring markets around the world to the brink of collapse.
Join NOVA in the quest to turn finance into a science. Plus, trace the little-known history of predicting financial markets and go to work with some successful modern traders who rely on intuition, as well as on mathematical models.
Equity and fixed income derivatives: methods and intuition Thursday, 12/1/2005, 4:00 PM-5:00 PM
Speaker: Gary Middlemiss
Overview of the financial sector (brokers, hedge funds, mutual funds).
Organizational structure of a typical financial company. How the buy side thinks of equity option Greeks. How the sell side thinks of equity option Greeks. How changing hedge fund strategies can affect brokers in different markets. Yield curve intuition zero rates, forward rates, treasury curve, swap curve, credit curves. Smoothing considerations.
Exposure to changes in the term structure (bucketized risk, par point risk, principle component analysis).
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A Derivation of CAPM from a Measure of Manager's Performance Based on The Stochastic Discount Factor Thursday, 10/13/2005, 4:00 PM-5:00 PM
Professional Master's Program Seminar (Financial Mathematics). Luis Roman, Worcester Polytechnic Institute. Constructions of general equilibrium models allow determining relevant measures of risk for any asset and the relationship between expected return and risk for any asset when markets are in equilibrium. The simplest form of an equilibrium model is called the standard Capital Asset Pricing Model (CAPM). On the other hand, the stochastic discount factor (SDF) approach has been used to measure conditional performance of hedge funds. In this talk, we will present the mathematical concepts underlying the stochastic discount factor and define a new measure of manager's performance based on the SDF. Then, we will show how CAPM can be derived from this new measure.
PMP Seminar: Liquidity and the Stochastic Supply Curve for a Security's Price Thursday, 10/20/2005, 4:00 PM-5:00 PM
Speaker: Marcel Blais (WPI) Abstract: Recently Cetin, Jarrow, and Protter have proposed an extension of the usual models for asset prices, which incorporates liquidity. To do this they have postulated the existence of a supply curve, which gives the instantaneous liquidity levels at every time and price. This allows for an analysis of stock prices incorporating liquidity. Using data from Morgan Stanley we can estimate the postulated supply curve quite precisely. Using statistical analysis we can show such a supply curve does in fact exist, and we can show how it changes over time. Findings show that the supply curve behavior for liquid stocks is linear, with a slope close to zero, although different from zero, and for illiquid stocks is non-linear. We use this model to develop different ways to measure liquidity, and investigate how this affects option pricing. Refreshments will be served.
Trillion Dollar Bet Thursday, 11/10/2005, 4:00 PM-5:00 PM
There will be a showing of "Trillion Dollar Bet", a 1 hour NOVA documentary about the hedge fund, Long Term Capital Management. How a brilliant investment strategy created worldwide financial panic. In 1973, three brilliant economists, Fisher Black, Myron Scholes, and Robert Merton, discovered a mathematical breakthrough that revolutionized modern finance. The elegant formula they unleashed upon the world was sparse and deceptively simple, yet it lead to the creation of a multi-trillion dollar industry. Their bold ideas earned them a Nobel Prize and attracted the elite of Wall Street. In 1993, Scholes and Merton joined forces with John Meriweather, the legendary bond trader of Salomon Brothers. With 13 other partners, they launched a new hedge fund, Long Term Capital Management, that promised to use mathematical models to make investors tremendous amounts of money with little risk. Their money machines reaped fantastic profit, until their theories collided with reality, sending them spiraling out of control. This crisis threatened to bring markets around the world to the brink of collapse. Join NOVA in the quest to turn finance into a science. Plus, trace the little-known history of predicting financial markets and go to work with some successful modern traders who rely on intuition, as well as on mathematical models.
Equity and fixed income derivatives: methods and intuition Thursday, 12/1/2005, 4:00 PM-5:00 PM
Speaker: Gary Middlemiss Overview of the financial sector (brokers, hedge funds, mutual funds). Organizational structure of a typical financial company. How the buy side thinks of equity option Greeks. How the sell side thinks of equity option Greeks. How changing hedge fund strategies can affect brokers in different markets. Yield curve intuition zero rates, forward rates, treasury curve, swap curve, credit curves. Smoothing considerations. Exposure to changes in the term structure (bucketized risk, par point risk, principle component analysis).
Powered by the Social Web - Bringing people together through Events, Places, & Common Interests