Finance and accounting Books

Book SynopsisPRAISE FOR VALUE CREATION PRINCIPLES In Value Creation Principles, Madden introduces the Pragmatic Theory of the Firm that positions the firm as a system fueled by human capital, innovation, and, at a deeper level, imagination. He challenges us to understand how we know what we think we know in order to better discover faulty assumptions that often are camouflaged by language. His knowledge building loop offers guideposts to design experiments and organize feedback to facilitate early adaptation to a changed environment and to avoid being mired in ways of thinking rooted in 'knowledge' of what worked well in the past?a context far different from the context of today. His book explains a way of being that enables those who work for, or invest in, business firms to see beyond accounting silos and short-term quarterly earnings and to focus on capabilities instrumental for creating long-term future and sustainable value for the firm's stakeholders. I can't recommend this astounding book enough especially given its deep and timely insights for our world today. ?John Seely Brown, former Chief Scientist for Xerox Corp and Director of its Palo Alto Research Center (PARC); co-author with Ann Pendleton-Jullian of Design Unbound: Designing for Emergence in a White Water World In contrast to existing abstract theories of the firm, Madden's pragmatic theory of the firm connects management's decisions in a practical way to a firm's life cycle and market valuation. The book promotes a firm's knowledge building proficiency, relative to competitors, as the fundamental driver of a firm's long-term performance, which leads to insights about organizational capabilities, intangible assets, and excess shareholder returns. Value Creation Principles is ideally suited to facilitate progress in the New Economy by opening up the process by which firms build knowledge and create value, which is a needed step in revising how neoclassical economics treats the firm. ?Tyler Cowen, Professor of Economics, George Mason University; co-author of the popular economics blog Marginal Revolution Bartley Madden rightfully points out that both textbook and more advanced economic theories of the firm fail to address the concerns of top management and boards of directors. He offers a tantalizing pragmatic alternative that directly connects to quantitative changes in the firm's market value. His framework gives recognition to the importance of intangible assets, and his pragmatic approach is quite complementary to the Dynamic Capabilities framework that strategic managers implicitly and sometimes explicitly employ. ?David J. Teece, Thomas W. Tusher Professor in Global Business, Faculty Director, Tusher Center for the Management of Intellectual Capital, Haas School of Business, University of California, BerkeleyTable of ContentsPreface and Overview xv I A Firm’s Role in Society 1 Overview of the Pragmatic Theory of the Firm 3 The Nucleus of the Pragmatic Theory of the Firm 4 The Evolution of Thinking about the Theory of the Firm 7 Kindred Spirits for the Pragmatic Theory of the Firm 10 Innovation and Economic Growth 16 The Purpose of the Firm 24 The Pragmatic Theory of the Firm 30 2 Knowledge Building and Firm Performance 33 The Knowledge-Building Path to Improved Performance 34 The Knowledge-Building Loop 35 Human Behavior, Culture, and Firm Performance 44 Elegant, Parsimonious, and Reliable Theories 48 3 Work, Innovation, and Resource Allocation 53 Lean Thinking—“No Problem is a Problem” 55 The Theory of Constraints 60 Ontological/Phenomenological Model 64 Innovation 69 Resource Allocation 71 The Key Constraint in Sustaining a Knowledge-Building Culture 75 II The Pragmatic Theory of the Firm Connects Innovation and Valuation 4 Life-Cycle Performance and Firm Risk 81 The Firm’s Competitive Life Cycle 84 A Paranoid Optimist Restructures Nokia 90 A Case Study of Innovation—Amazon 93 The Life-Cycle Valuation Model 96 What Does a Stock Price Say about a Firm’s Future Investments? 99 Forward-Looking, Market-Implied Discount Rate 101 The Roots of Modern Finance 103 Firm Risk Offers a Different Mindset 106 Summary of Key Ideas 110 A Research Methodology for Advancing the Life-Cycle Framework 111 Better Estimates of the investor Discount Rate 116 5 Intangible Assets, Brands, and Shareholder Returns 121 The New Economy and Connectivity-Enabled Business Models 123 Empirical Evidence about Intangible Assets 126 Brands Impact a Firm’s Market Value 129 A Conceptual Roadmap for Handling Intangible Assets 133 Integrated Reports, Life-Cycle Reviews, and Intangibles 139 Expect More Than Coffee—Starbucks 143 Costco Starts by Caring for Its Employees 145 Ringing Doorbells and Changing Times—Avon 148 Why Did Illumina Outperform the Stock Market 18-Fold from 2004 to 2014? 150 The Efficient Market Hypothesis and the Factor Zoo 153 Excess Shareholder Returns and Three Levels of Cause-and-Effect Logic 157 Useful Ideas for Investors, Managements, and Academic Researchers 164 Investors 164 Managements 166 Academic Researchers 167 System Principles and Effective Language 168 III Value Creation 6 Life-Cycle Position, Adaptability, and Organizational Structure 181 Life-Cycle Guideposts 182 Focused Execution of an Innovative Business Model—Netflix 183 Innovation in the Operating Room—Intuitive Surgical 188 Nothing Runs Like a Deere 191 Smith Corona and NCR 194 The ABCs of Organizational Structure 198 Organizational Experimentation at the Haier Group 204 Value Creators Drive Dynamism in China 209 7 Achieving Progress Through Knowledge Building and Value Creation 213 The New Economy and the Pragmatic Theory of the Firm 214 Life-Cycle Track Records are a Scorecard and a Learning Tool 222 Politics and the Greater Good 224 Progress Studies 230 About the Author 239 Index 241

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Book SynopsisAccelerators can be powerful tools to build and transform businesses in a short period of time, which is why they have spread like wildfire in the corporate world. Designing the Successful Corporate Accelerator gives readers the tools to design, create, and manage successful corporate accelerators that achieve results time and time again. Authors Jules Miller and Jeremy Kagan are seasoned professionals in this space, and combine global market research, interviews with accelerator leaders, and their own experience launching and running accelerators to share what worksand what doesn't. The first half of the book takes a broader look at corporate innovation as a whole and how accelerators fit in, then the second half offers practical advice for how to launch, run, and manage world-class accelerator programs. Perfect for executives, employees, founders, investors, intrapreneurs, and entrepreneurs, Designing the Successful Corporate Accelerator is a practical guidebook for anyone with a passion for corporate innovation and entrepreneurship.Table of ContentsForeword ix Acknowledgments xiii About the Authors xv Introduction xix Section I Corporate Innovation Is Hard 1 Chapter 1 Accelerators and Corporate Innovation 3 Chapter 2 A Crash Course on Innovation Theory 17 Chapter 3 A Complex Machine to a Simple Machine 39 Section II Get with the [Accelerator] Program 55 Chapter 4 Startup Accelerators 57 Chapter 5 Accelerator Archetypes 73 Chapter 6 Know Your Why 95 Section III Buy In or Walk Away 109 Chapter 7 Stakeholder Engagement 111 Chapter 8 Resources 129 Chapter 9 Outsourcing and Delegating 139 Section IV Before the Program 149 Chapter 10 Recruiting and Selection 151 Chapter 11 Investment 175 Chapter 12 Metrics and KPIs 193 Section V During the Program 207 Chapter 13 Programming 209 Chapter 14 Mentors 225 Chapter 15 Making Partnerships Work 241 Section VI After the Program 263 Chapter 16 Post-Program Portfolio Management 265 Chapter 17 Planning for Long-Term Success 279 Endnotes 287 Index 303

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Book SynopsisLearn to save, invest, and plan to achieve financial independence in retirementand take charge of your financial destiny, from the author ofThe?Coffeehouse?Investor InThe Coffeehouse Investor''s Ground Rules,financial advisorBill?Schultheishelps youtake control of your long-term financial goals and enjoy financial freedom in retirement.Building?upon?the?philosophy that made his first book,The?Coffeehouse?Investor, a critically-acclaimed bestseller, Billshows youhowignoringWall Streetandthemyth of theperfect portfolio' lets youfocus onthe only three components that really mattersaving,investing, andplanning. One of the most common mistakes investors make is staking their entire financial futures on index funds while ignoring the basics. Index funds arenotthe solution to building lasting wealth. Index funds aresimply the financial toolsthat enableyou to devote your attention to the essential components of long-term financial security.ByfollowingtheGrTable of ContentsForeword vii Preface xi 1 Two Lives Become One 1 2 Ground Rule 1: Save 17 3 Women, Winning In Wealth 31 4 Ground Rule 2: Invest 47 5 Wall Street Unwound 62 6 Ground Rule 3: Your Plan 79 7 Our Essential Creativity 96 8 Conversation Over Coffee 112 Epilogue 127 Further Reading 133 Index 135

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Book SynopsisThis book is a detailed and step-by-step introduction to the mathematical foundations of ordinary and partial differential equations, their approximation by the finite difference method and applications to computational finance. The book is structured so that it can be read by beginners, novices and expert users. Part A Mathematical Foundation for One-Factor Problems Chapters 1 to 7 introduce the mathematical and numerical analysis concepts that are needed to understand the finite difference method and its application to computational finance. Part B Mathematical Foundation for Two-Factor Problems Chapters 8 to 13 discuss a number of rigorous mathematical techniques relating to elliptic and parabolic partial differential equations in two space variables. In particular, we develop strategies to preprocess and modify a PDE before we approximate it by the finite difference method, thus avoiding ad-hoc and heuristic tricks. Part C The Foundations of the Finite Difference Method (FDM) Chapters 14 to 17 introduce the mathematical background to the finite difference method for initial boundary value problems for parabolic PDEs. It encapsulates all the background information to construct stable and accurate finite difference schemes. Part D Advanced Finite Difference Schemes for Two-Factor Problems Chapters 18 to 22 introduce a number of modern finite difference methods to approximate the solution of two factor partial differential equations. This is the only book we know of that discusses these methods in any detail. Part E Test Cases in Computational Finance Chapters 23 to 26 are concerned with applications based on previous chapters. We discuss finite difference schemes for a wide range of one-factor and two-factor problems. This book is suitable as an entry-level introduction as well as a detailed treatment of modern methods as used by industry quants and MSc/MFE students in finance. The topics have applications to numerical analysis, science and engineering. More on computational finance and the author's online courses, see www.datasim.nl.Table of ContentsPreface xix Who Should Read this Book? xxiii Part A : Mathematical Foundation for One-Factor Problems Chapter 1 : Real Analysis Foundations for this Book 3 1.1 Introduction and Objectives 3 1.2 Continuous Functions 4 1.2.1 Formal Definition of Continuity 5 1.2.2 An Example 6 1.2.3 Uniform Continuity 6 1.2.4 Classes of Discontinuous Functions 7 1.3 Differential Calculus 8 1.3.1 Taylor’s Theorem 9 1.3.2 Big O and Little o Notation 10 1.4 Partial Derivatives 11 1.5 Functions and Implicit Forms 13 1.6 Metric Spaces and Cauchy Sequences 14 1.6.1 Metric Spaces 15 1.6.2 Cauchy Sequences 16 1.6.3 Lipschitz Continuous Functions 17 1.7 Summary and Conclusions 19 Chapter 2 : Ordinary Differential Equations (ODEs), Part 1 21 2.1 Introduction and Objectives 21 2.2 Background and Problem Statement 22 2.2.1 Qualitative Properties of the Solution and Maximum Principle 22 2.2.2 Rationale and Generalisations 24 2.3 Discretisation of Initial Value Problems: Fundamentals 25 2.3.1 Common Schemes 26 2.3.2 Discrete Maximum Principle 28 2.4 Special Schemes 29 2.4.1 Exponential Fitting 29 2.4.2 Scalar Non-Linear Problems and Predictor-Corrector Method 31 2.4.3 Extrapolation 31 2.5 Foundations of Discrete Time Approximations 32 2.6 Stiff ODEs 37 2.7 Intermezzo: Explicit Solutions 39 2.8 Summary and Conclusions 41 Chapter 3 : Ordinary Differential Equations (ODEs), Part 2 43 3.1 Introduction and Objectives 43 3.2 Existence and Uniqueness Results 43 3.2.1 An Example 45 3.3 Other Model Examples 45 3.3.1 Bernoulli ODE 45 3.3.2 Riccati ODE 46 3.3.3 Predator-Prey Models 47 3.3.4 Logistic Function 48 3.4 Existence Theorems for Stochastic Differential Equations (SDEs) 48 3.4.1 Stochastic Differential Equations (SDEs) 49 3.5 Numerical Methods for ODEs 51 3.5.1 Code Samples in Python 52 3.6 The Riccati Equation 55 3.6.1 Finite Difference Schemes 57 3.7 Matrix Differential Equations 59 3.7.1 Transition Rate Matrices and Continuous Time Markov Chains 61 3.8 Summary and Conclusions 62 Chapter 4 : An Introduction to Finite Dimensional Vector Spaces 63 4.1 Short Introduction and Objectives 63 4.1.1 Notation 64 4.2 What Is a Vector Space? 65 4.3 Subspaces 67 4.4 Linear Independence and Bases 68 4.5 Linear Transformations 69 4.5.1 Invariant Subspaces 70 4.5.2 Rank and Nullity 71 4.6 Summary and Conclusions 72 Chapter 5 : Guide to Matrix Theory and Numerical Linear Algebra 73 5.1 Introduction and Objectives 73 5.2 From Vector Spaces to Matrices 73 5.2.1 Sums and Scalar Products of Linear Transformations 73 5.3 Inner Product Spaces 74 5.3.1 Orthonormal Basis 75 5.4 From Vector Spaces to Matrices 76 5.4.1 Some Examples 76 5.5 Fundamental Matrix Properties 77 5.6 Essential Matrix Types 80 5.6.1 Nilpotent and Related Matrices 80 5.6.2 Normal Matrices 81 5.6.3 Unitary and Orthogonal Matrices 82 5.6.4 Positive Definite Matrices 82 5.6.5 Non-Negative Matrices 83 5.6.6 Irreducible Matrices 83 5.6.7 Other Kinds of Matrices 84 5.7 The Cayley Transform 84 5.8 Summary and Conclusions 86 Chapter 6 : Numerical Solutions of Boundary Value Problems 87 6.1 Introduction and Objectives 87 6.2 An Introduction to Numerical Linear Algebra 87 6.2.1 BLAS (Basic Linear Algebra Subprograms) 90 6.3 Direct Methods for Linear Systems 92 6.3.1 LU Decomposition 92 6.3.2 Cholesky Decomposition 94 6.4 Solving Tridiagonal Systems 94 6.4.1 Double Sweep Method 94 6.4.2 Thomas Algorithm 96 6.4.3 Block Tridiagonal Systems 97 6.5 Two-Point Boundary Value Problems 99 6.5.1 Finite Difference Approximation 100 6.5.2 Approximation of Boundary Conditions 102 6.6 Iterative Matrix Solvers 103 6.6.1 Iterative Methods 103 6.6.2 Jacobi Method 104 6.6.3 Gauss–Seidel Method 104 6.6.4 Successive Over-Relaxation (SOR) 105 6.6.5 Other Methods 105 6.7 Example: Iterative Solvers for Elliptic PDEs 106 6.8 Summary and Conclusions 107 Chapter 7 : Black–Scholes Finite Differences for the Impatient 109 7.1 Introduction and Objectives 109 7.2 The Black–Scholes Equation: Fully Implicit and Crank–Nicolson Methods 110 7.2.1 Fully Implicit Method 110 7.2.2 Crank–Nicolson Method 111 7.2.3 Final Remarks 114 7.3 The Black–Scholes Equation: Trinomial Method 115 7.3.1 Comparison with Other Methods 115 7.4 The Heat Equation and Alternating Direction Explicit (ADE) Method 120 7.4.1 Background and Motivation 120 7.5 ADE for Black–Scholes: Some Test Results 121 7.6 Summary and Conclusions 126 Part B : Mathematical Foundation for Two-Factor Problems Chapter 8 : Classifying and Transforming Partial Differential Equations 129 8.1 Introduction and Objectives 129 8.2 Background and Problem Statement 129 8.3 Introduction to Elliptic Equations 130 8.3.1 What is an Elliptic Operator? 130 8.3.2 Total and Principal Symbols 131 8.3.3 The Adjoint Equation 132 8.3.4 Self-Adjoint Operators and Equations 133 8.3.5 Numerical Approximation of PDEs in Adjoint Form 134 8.3.6 Elliptic Equations with Non-Negative Characteristic Form 135 8.4 Classification of Second-Order Equations 135 8.4.1 Characteristics 136 8.4.2 Model Example 137 8.4.3 Test your Knowledge 138 8.5 Examples of Two-Factor Models from Computational Finance 139 8.5.1 Multi-Asset Options 139 8.5.2 Stochastic Dividend PDE 140 8.6 Summary and Conclusions 141 Chapter 9 : Transforming Partial Differential Equations to a Bounded Domain 143 9.1 Introduction and Objectives 143 9.2 The Domain in Which a PDE Is Defined: Preamble 143 9.2.1 Background and Specific Mappings 144 9.2.2 Initial Examples 146 9.3 Other Examples 147 9.4 Hotspots 148 9.5 What Happened to Domain Truncation? 148 9.6 Another Way to Remove Mixed Derivative Terms 149 9.7 Summary and Conclusions 151 Chapter 10 : Boundary Value Problems for Elliptic and Parabolic Partial Differential Equations 153 10.1 Introduction and Objectives 153 10.2 Notation and Prerequisites 154 10.3 The Laplace Equation 154 10.3.1 Harmonic Functions and the Cauchy–Riemann Equations 154 10.4 Properties of The Laplace Equation 156 10.4.1 Maximum-Minimum Principle for Laplace’s Equation 158 10.5 Some Elliptic Boundary Value Problems 159 10.5.1 Some Motivating Examples 159 10.6 Extended Maximum-Minimum Principles 159 10.6.1 An Example 161 10.7 Summary and Conclusions 162 Chapter 11 : Fichera Theory, Energy Inequalities and Integral Relations 163 11.1 Introduction and Objectives 163 11.2 Background and Problem Statement 163 11.2.1 The ‘Big Bang’: Cauchy–Euler Equation 163 11.3 Well-Posed Problems and Energy Estimates 165 11.3.1 Time to Reflect: What Have We Achieved and What’s Next? 167 11.4 The Fichera Theory: Overview 168 11.5 The Fichera Theory: The Core Business 168 11.6 The Fichera Theory: Further Examples and Applications 171 11.6.1 Cox–Ingersoll–Ross (CIR) 171 11.6.2 Heston Model Fundamenals 172 11.6.3 Heston Model by Fichera Theory 176 11.6.4 First-Order Hyperbolic PDE in One and Two Space Variables 177 11.7 Some Useful Theorems 178 11.7.1 Divergence (Gauss–Ostrogradsky) Theorem 179 11.7.2 Green’s Theorem/Formula 180 11.7.3 Green’s First and Second Identities 180 11.8 Summary and Conclusions 180 Chapter 12 : An Introduction to Time-Dependent Partial Differential Equations 181 12.1 Introduction and Objectives 181 12.2 Notation and Prerequisites 181 12.3 Preamble: Separation of Variables for the Heat Equation 182 12.4 Well-Posed Problems 184 12.4.1 Examples of an ill-posed Problem 185 12.4.2 The Importance of Proving that Problems Are Well-Posed 187 12.5 Variations on Initial Boundary Value Problem for the Heat Equation 188 12.5.1 Smoothness and Compatibility Conditions 188 12.6 Maximum-Minimum Principles for Parabolic PDEs 189 12.7 Parabolic Equations with Time-Dependent Boundaries 190 12.8 Uniqueness Theorems for Boundary Value Problems in Two Dimensions 192 12.8.1 Laplace Equation 192 12.8.2 Heat Equation 193 12.9 Summary and Conclusions 193 Chapter 13 : Stochastics Representations of PDEs and Applications 195 13.1 Introduction and Objectives 195 13.2 Background, Requirements and Problem Statement 196 13.3 An Overview of Stochastic Differential Equations (SDEs) 196 13.4 An Introduction to One-Dimensional Random Processes 196 13.5 An Introduction to the Numerical Approximation of SDEs 199 13.5.1 Euler–Maruyama Method 199 13.5.2 Milstein Method 201 13.5.3 Predictor-Corrector Method 201 13.5.4 Drift-Adjusted Predictor-Corrector Method 202 13.6 Path Evolution and Monte Carlo Option Pricing 203 13.6.1 Monte Carlo Option Pricing 204 13.6.2 Some C++ Code 205 13.7 Two-Factor Problems 209 13.7.1 Spread Options with Stochastic Volatility 209 13.7.2 Heston Stochastic Volatility Model 211 13.8 The Ito Formula 215 13.9 Stochastics Meets PDEs 215 13.9.1 A Statistics Refresher 215 13.9.2 The Feynman–Kac Formula 217 13.9.3 Kolmogorov Equations 218 13.9.4 Kolmogorov Forward (Fokker–Planck (FPE)) Equation 218 13.9.5 Multi-Dimensional Problems and Boundary Conditions 219 13.9.6 Kolmogorov Backward Equation (KBE) 220 13.10 First Exit-Time Problems 221 13.11 Summary and Conclusions 222 Part C : The Foundations of the Finite Difference Method (FDM) Chapter 14 : Mathematical and Numerical Foundations of the Finite Difference Method, Part I 225 14.1 Introduction and Objectives 225 14.2 Notation and Prerequisites 226 14.3 What Is the Finite Difference Method, Really? 227 14.4 Fourier Analysis of Linear PDEs 227 14.4.1 Fourier Transform for Advection Equation 229 14.4.2 Fourier Transform for Diffusion Equation 230 14.5 Discrete Fourier Transform 232 14.5.1 Finite and Infinite Dimensional Sequences and Their Norms 232 14.5.2 Discrete Fourier Transform (DFT) 233 14.5.3 Discrete von Neumann Stability Criterion 235 14.5.4 Some More Examples 235 14.6 Theoretical Considerations 237 14.6.1 Consistency 237 14.6.2 Stability 238 14.6.3 Convergence 239 14.7 First-Order Partial Differential Equations 239 14.7.1 Why First-Order Equations are Different: Essential Difficulties 242 14.7.2 A Simple Explicit Scheme 243 14.7.3 Some Common Schemes for Initial Value Problems 245 14.7.4 Some Other Schemes 246 14.7.5 General Linear Problems 248 14.8 Summary and Conclusions 248 Chapter 15: Mathematical and Numerical Foundations of the Finite Difference Method, Part II 249 15.1 Introduction and Objectives 249 15.2 A Short History of Numerical Methods for CDR Equations 250 15.2.1 Temporal and Spatial Stability 251 15.2.2 Motivating Exponential Fitting Methods 253 15.2.3 Eliminating Temporal and Spatial Stability Problems 254 15.3 Exponential Fitting and Time-Dependent Convection-Diffusion 257 15.4 Stability and Convergence Analysis 258 15.5 Special Limiting Cases 260 15.6 Stability for Initial Boundary Value Problems 260 15.6.1 Gerschgorin’s Circle Theorem 261 15.7 Semi-Discretisation for Convection-Diffusion Problems 264 15.7.1 Essentially Positive Matrices 265 15.7.2 Fully Discrete Schemes 267 15.8 Padé Matrix Approximation 269 15.8.1 Padé Matrix Approximations 270 15.9 Time-Dependent Convection-Diffusion Equations 275 15.9.1 Fully Discrete Schemes 275 15.10 Summary and Conclusions 276 Chapter 16 Sensitivity Analysis, Option Greeks and Parameter Optimisation, Part I 277 16.1 Introduction and Objectives 277 16.2 Helicopter View of Sensitivity Analysis 278 16.3 Black–Scholes–Merton Greeks 279 16.3.1 Higher-Order and Mixed Greeks 282 16.4 Divided Differences 282 16.4.1 Approximation to First and Second Derivatives 282 16.4.2 Black–Scholes Numeric Greeks and Divided Differences 285 16.5 Cubic Spline Interpolation 286 16.5.1 Caveat: Cubic Splines with Sparse Input Data 289 16.5.2 Cubic Splines for Option Greeks 290 16.5.3 Boundary Conditions 291 16.6 Some Complex Function Theory 292 16.6.1 Curves and Regions 293 16.6.2 Taylor’s Theorem and Series 294 16.6.3 Laurent’s Theorem and Series 295 16.6.4 Cauchy–Goursat Theorem 296 16.6.5 Cauchy’s Integral Formula 297 16.6.6 Cauchy’s Residue Theorem 298 16.6.7 Gauss’s Mean Value Theorem 299 16.7 The Complex Step Method (CSM) 299 16.7.1 Caveats 302 16.8 Summary and Conclusions 302 Chapter 17 Advanced Topics in Sensitivity Analysis 305 17.1 Introduction and Objectives 305 17.2 Examples of CSE 305 17.2.1 Simple Initial Value Problem 306 17.2.2 Population Dynamics 307 17.2.3 Comparing CSE and Complex Step Method (CSM) 310 17.3 CSE and Black–Scholes PDE 310 17.3.1 Black–Scholes Greeks: Algorithms and Design 311 17.3.2 Some Specific Black–Scholes Greeks 312 17.4 Using Operator Calculus to Compute Greeks 313 17.5 An Introduction to Automatic Differentiation (AD) for the Impatient 314 17.5.1 What Is Automatic Differentiation: The Details 316 17.6 Dual Numbers 317 17.7 Automatic Differentiation in C++ 318 17.8 Summary and Conclusions 319 Part D : Advanced Finite Difference Schemes for Two-Factor Problems Chapter 18 : Splitting Methods, Part I 323 18.1 Introduction and Objectives 323 18.2 Background and History 324 18.3 Notation, Prerequisites and Model Problems 325 18.4 Motivation: Two-Dimensional Heat Equation 328 18.4.1 Alternating Direction Implicit (ADI) Method 328 18.4.2 Soviet (Operator) Splitting 330 18.4.3 Mixed Derivative and Yanenko Scheme 331 18.5 Other Related Schemes for the Heat Equation 333 18.5.1 D’Yakonov Method 333 18.5.2 Approximate Factorisation of Operators 334 18.5.3 Predictor-Corrector Methods 337 18.5.4 Partial Integro Differential Equations (PIDEs) 338 18.6 Boundary Conditions 339 18.7 Two-Dimensional Convection PDEs 341 18.8 Three-Dimensional Problems 343 18.9 The Hopscotch Method 344 18.10 Software Design and Implementation Guidelines 346 18.11 The Future: Convection-Diffusion Equations 346 18.12 Summary and Conclusions 347 Chapter 19 : The Alternating Direction Explicit (ADE) Method 349 19.1 Introduction and Objectives 349 19.2 Background and Problem Statement 351 19.3 Global Overview and Applicability of ADE 351 19.4 Motivating Examples: One-Dimensional and Two-Dimensional Diffusion Equations 352 19.4.1 Barakat and Clark (B&C) Method 353 19.4.2 Saul’yev Method 354 19.4.3 Larkin Method 355 19.4.4 Two-Dimensional Diffusion Problems 355 19.5 ADE for Convection (Advection) Equation 356 19.6 Convection-Diffusion PDEs 358 19.6.1 Example: Black–Scholes PDE 359 19.6.2 Boundary Conditions 360 19.6.3 Spatial Amplification Errors 361 19.7 Attention Points with ADE 362 The Consequences of Conditional Consistency 362 Call Pay-Off Behaviour at the Far Field 362 19.7.1 General Formulation of the ADE Method 362 19.8 Summary and Conclusions 364 Chapter 20 : The Method of Lines (MOL), Splitting and the Matrix Exponential 365 20.1 Introduction and Objectives 365 20.2 Notation and Prerequisites: The Exponential Function 366 20.2.1 Initial Results 367 20.2.2 The Exponential of a Matrix 367 20.3 The Exponential of a Matrix: Advanced Topics 368 20.3.1 Fundamental Theorem for Linear Systems 368 Proof of Theorem 20.1. 369 20.3.2 An Example 369 20.4 Motivation: One-Dimensional Heat Equation 370 20.5 Semi-Linear Problems 373 20.6 Test Case: Double-Barrier Options 375 20.6.1 PDE Formulation 376 20.6.2 Using Exponential Fitting of Barrier Options 377 20.6.3 Performing MOL with Boost C++ odeint 378 20.6.4 Computing Sensitivities 381 20.6.5 American Options 384 20.7 Summary and Conclusions 384 Chapter 21 : Free and Moving Boundary Value Problems 387 21.1 Introduction and Objectives 387 21.2 Background, Problem Statement and Formulations 388 21.3 Notation and Prerequisites 388 21.4 Some Initial Examples of Free and Moving Boundary Value Problems 389 21.4.1 Single-Phase Melting Ice 389 21.4.2 Oxygen Diffusion 390 21.4.3 American Option Pricing 391 21.4.4 Two-Phase Melting Ice 392 21.5 An Introduction to Parabolic Variational Inequalities 392 21.5.1 Formulation of Problem: Test Case 392 21.5.2 Examples of Initial Boundary Value Problems 395 21.6 An Introduction to Front-Fixing 399 21.6.1 Front-Fixing for the Heat Equation 399 21.7 Python Code Example: ADE for American Option Pricing 400 21.8 Summary and Conclusions 405 Chapter 22 : Splitting Methods, Part II 407 22.1 Introduction and Objectives 407 22.2 Background and Problem Statement: The Essence of Sequential Splitting 408 22.3 Notation and Mathematical Formulation 408 22.3.1 C0 Semigroups 408 22.3.2 Abstract Cauchy Problem 409 22.3.3 Examples 410 22.4 Mathematical Foundations of Splitting Methods 411 22.4.1 Lie (Trotter) Product Formula 411 22.4.2 Splitting Error 411 22.4.3 Component Splitting and Operator Splitting 413 22.4.4 Splitting as a Discretisation Method 413 22.5 Some Popular Splitting Methods 414 22.5.1 First-Order (Lie–Trotter) Splitting 415 22.5.2 Predictor-Corrector Splitting 415 22.5.3 Marchuk’s Two-Cycle (1-2-2-1) Method 416 22.5.4 Strang Splitting 417 22.6 Applications and Relationships to Computational Finance 417 22.7 Software Design and Implementation Guidelines 418 22.8 Experience Report: Comparing ADI and Splitting 419 22.9 Summary and Conclusions 421 Part E : Test Cases in Computational Finance Chapter 23 : Multi-Asset Options 425 23.1 Introduction and Objectives 425 23.2 Background and Goals 426 23.3 The Bivariate Normal Distribution (BVN) and its Applications 427 23.3.1 Computing BVN by Solving a Hyperbolic PDE 430 23.3.2 Analytical Solutions of Multi-Asset and Basket Options 433 23.4 PDE Models for Multi-Asset Option Problems: Requirements and Design 435 23.4.1 Domain Transformation 435 23.4.2 Numerical Boundary Conditions 435 23.5 An Overview of Finite Difference Schemes for Multi-Asset Option Problems 436 23.5.1 Common Design Principles 436 23.5.2 Detailed Design 438 23.5.3 Testing the Software 440 23.6 American Spread Options 440 23.7 Appendices 442 23.7.1 Traditional Approach to Numerical Boundary Conditions 442 23.7.2 Top-Down Design of Monte Carlo Applications 443 23.8 Summary and Conclusions 444 Chapter 24 : Asian (Average Value) Options 447 24.1 Introduction and Objectives 447 24.2 Background and Problem Statement 448 24.2.1 Challenges 449 24.3 Prototype PDE Model 450 24.3.1 Similarity Reduction 451 24.4 The Many Ways to Handle the Convective Term 452 24.4.1 Method of Lines (MOL) 452 24.4.2 Other Schemes 454 24.4.3 A Stable Monotone Upwind Scheme 455 24.5 ADE for Asian Options 455 24.6 ADI for Asian Options 456 24.6.1 Modern ADI Variations 458 24.7 Summary and Conclusions 459 Chapter 25 : Interest Rate Models 461 25.1 Introduction and Objectives 461 25.2 Main Use Cases 462 25.3 The CIR Model 462 25.3.1 Analytic Solutions 463 25.3.2 Initial Boundary Value Problem 466 25.4 Well-Posedness of the CIRPDE Model 466 25.4.1 Gronwall’s Inequalities 467 25.4.2 Energy Inequalities 468 25.5 Finite Difference Methods for the CIR Model 469 25.5.1 Numerical Boundary Conditions 470 25.6 Heston Model and the Feller Condition 471 25.7 Summary and Conclusion 475 Chapter 26 : Epilogue Models Follow-Up Chapters 1 to 25 477 26.1 Introduction and Objectives 477 26.2 Mixed Derivatives and Monotone Schemes 478 26.2.1 The Maximum Principle and Mixed Derivatives 478 26.2.2 Some Examples 480 26.2.3 Code Sample Method of Lines (MOL) for Two-Factor Hull–White Model 481 26.3 The Complex Step Method (CSM) Revisited 483 26.3.1 Black–Scholes Greeks Using CSM and the Faddeeva Function 483 26.3.2 CSM and Functions of Several Complex Variables 487 26.3.3 C++ Code for Extended CSM 488 26.3.4 CSM for Non-Linear Solvers 492 26.4 Extending the Hull–White: Possible Projects 493 26.5 Summary and Conclusions 495 Bibliography 497 Index 505

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Book SynopsisTable of ContentsPreface xi Acknowledgments xv About the Author xvii Chapter 1 Accounting Disrupted 1 Global Forces Reshaping the Digital Economy 5 What Do Businesses Want? 10 With Great Data Power Comes Great Responsibility 12 Why Data is Growing 13 If Finance Stands Still 15 Notes 17 Chapter 2 Unleashing Digitization 19 Why is Finance Changing? 22 The Rise of Digital 24 Decision-Making and Information: A Warning! 35 Notes 38 Chapter 3 The Trouble with Finance 41 Business is No Longer Linear 43 Strategy Folklore 45 The Importance of “?s” 50 High Sales Volume Means High Profits, Right? 54 How Do New Technologies Disrupt Accounting? 56 What Now? 60 Notes 61 Chapter 4 As If Managing Costs Mattered 63 Accounting Pillars 66 A Risk from Which There is No Return 66 Volume is Half the Story 69 Growth Through Scope 76 Notes 82 Chapter 5 Learning is Everything 83 Learn Fast: Cut Costs Faster 85 Intelligent Learning 87 Push the Pedal 90 Notes 93 Chapter 6 Performance Changes 95 New Targets for Performance Management 98 Whose Performance, Anyway? 99 Operations Get Closer to Strategy 100 Incentivizing Digitalization 101 Data’s Consequences 104 Digitalization Makes All Enterprises Unlike 105 On Being Data-Centric and Intuitive 106 Predictive Performance Management 108 How to Track Digitalization 110 Notes 111 Chapter 7 Digitalization and Auditing 113 Big Data: Big Audit Questions 116 RPAs, AI, and Audits 118 Blockchain is Here 121 Notes 128 Chapter 8 Better Change Your Mind 129 Unite and Conquer: The New Data Mantra 132 What Skills? 137 Risking Digital 140 The Hidden Side of Data: Careful! 144 What “New Normal”? 147 Notes 150 Resources 153 Index 157

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Book SynopsisProvides expertinsight and advicefor professionalslooking to strike out on their own, fullyupdated to reflect current trends and issues Considering the overabundance of professional service providers toiling at monolith employers, you might want tostart thinking about business independence.Starting Your Own Practice:TheIndependence Guide for Investment Advisors, Attorneys, CPAs and Other Professional Service Providersoffers you step-by-step guidance onthe entirety ofthe independence process, from your initial decision to break free, to managing your business, to your ultimate exit strategy. In the 15 years sincehefirst wroteStarting Your Own Practice,authorRobert Fragassohas gainedinvaluable practical experiencecontinuing to leadhis own independent investment management and financial planning firm.Now in itsSecond Edition, this popular guideprovides more depth on management considerations, transition to business maturity, and eventual profitable business succession. The author has added a wealth of alternative ideas on how toleverage your skills and talents in your own business,licenseyourservices and infrastructure,plan for your retirement,and more. Sharing new insightsonmakingthe independence move quicker, easier,andless costly, this new edition: Provides straightforward information on both the financial benefits and risks of starting your own practiceHelps you decide if you truly want to go into business for yourselfOffers expert guidance on planning your move and structuring your marketing, managing, staffing, and general business operationsDiscussespracticalconsiderations such as leaving your current employer, converting existing clients, protecting your confidentiality, and financing your new businessProvides new and revised content throughout, including additional in-depth commentary on management considerations and transition to business maturity Starting Your Own Practice: The Independence Guide for Investment Advisors, Attorneys, CPAs and Other Professional Service Providersis indispensable for anyone providing skilled personal services.Table of ContentsForeword xi Preface xiii Acknowledgments xv Chapter One: Is It Your Time To Move To Independence? 1 The Financial Benefits 3 Risk 7 The Entrepreneur’s Test 11 Chapter Two: What Does It Mean To Be In Business For YOURSELF AND WHO DOES IT WELL? 13 Time 13 People Make the Difference 14 Chapter Three: Creating Your Business 17 Choosing Your Market Niche 18 Structuring Your Business to Serve Your Market Niche 21 Your Unique Value Proposition 24 Creating Your Organizational Model 31 A Corporation with Departmental Special Ops Teams 35 Should You Build Resources Internally or Acquire Strategic Partners? 36 The Licensing Solution 40 Chapter Four: Staffing And Compensation 43 Your Fringe Benefit Package as a Recruitment, Retention, and Productivity Tool 48 Fringe Benefits Summary 53 Managing Workforce Growth 54 Chapter Five: Leaving Your Current Employer 57 Protecting Your Confidentiality 61 Chapter Six: Choosing Your Business Space 65 Interior Design 65 Office Location and Image 67 Finding the Right Building 68 Negotiating for Space 69 Chapter Seven: Equipment And Supplies 75 Financing 76 Legal Format and Protecting Your Investment 78 Protecting Your Business Investment 80 Ask What Your Government Can Do for You 82 Chapter Eight: Converting Existing Clients Or Customers To Your New Business 87 Chapter Nine: Gaining New Clients And Customers—The Right Way 93 The Sales Continuum 94 Advertising 94 Public Relations 96 Create Your Own PR through Newsletters and E-Newsletters 98 Direct Mail and Digital 104 Direct Mail and Email Tied to Demonstration or Consultation 105 Direct Mail or Email Offering Information upon Response 106 Networking 110 How to Network? 111 Educational Seminars 114 Teaching the Seminars 120 Referrals 124 Chapter Ten: Managing Your Business 131 Getting Started 131 Manage Your Business or It Will Manage You 134 Time Management 134 Activities Management 135 Putting Your Goals into Action 140 Personal 141 It Is as Easy as A-B-C 147 Techniques of Activities Management 148 People Management 153 Talk, Talk, Talk, and Talk 155 Creating Your Organization’s Employee Structure 156 Clerical/Secretarial Support 158 Revenues – Expense = Profits 158 CEO 159 Evaluate Results but Manage Activities 161 Corrective Action with Employees 162 Creating and Implementing Your Business’s Strategic Plan 165 Appreciate and Validate 166 Which Clients or Customers Do You Want? 167 Managing Your Clients and Customers 169 Treating Clients as People 175 Managing During Tough Times 176 Chapter Eleven: Your Exit Strategy 181 Who Will Buy or Receive Your Business? 181 Possible Exit Purchase Scenarios 182 Employee Stock Ownership Plan (ESOP) 183 External Sale to a Large Entity 185 External Smaller Entity 186 Price 186 How to Receive Payment for Your Business 187 Special Considerations in Selling to Family Members 188 Retirement Planning 189 The End of the Rainbow 189 Appendix 191 Index 197 About the Author 207

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Book SynopsisMany clients and businesses are highly focused on the impact of taxes and tax rates on their bottom line. President Trump and Congress''s passage of the Tax Cuts and Jobs Act brought unhappy surprises to many taxpayers accustomed to getting tax refunds. Make sure your clients are protecting themselves from higher taxes. Completely updated for tax law changes and Tax Court decisions, this book will bring you up to date on the latest strategies that will preserve your clients'' wealth and ensure your role as a trusted adviser to your clients. Get the latest techniques for building and conserving wealth through proactive tax-planning and investment strategies. Key topics covered include; Sales of capital gain assets and real property Planning for employer stock options, employer stock held in retirement accounts, and restricted stock Maximizing tax benefits for personal residence transactions Tax-planning opportunities with vacation homes,Table of ContentsChapter 1 1-1 Maximizing Tax Benefits for Sales of Capital Gain Assets and Real Property 1-1 Current capital gain and dividend tax rates 1-3 Tax-smart strategies for capital gain assets 1-8 Tax-smart strategies for fixed-income investments 1-12 Planning for mutual fund transactions 1-14 Converting capital gains and dividends into ordinary income to maximize investment interest write-offs 1-19 Planning for capital gain treatment for subdivided lot sales via IRC Section 1237 relief 1-22 Land is not always a capital asset 1-29 Beneficial capital gain treatment allowed for sale of right to buy land and build condo project 1-33 Escape taxable gains altogether with like-kind exchanges 1-35 Primer on the 3.8% net investment income tax 1-49 Chapter 2 2-1 Planning for Employer Stock Options, Employer Stock Held in Retirement Accounts, and Restricted Stock 2-1 Employer stock options: Tax implications 2-2 How to handle employer stock received in a qualified retirement plan distribution 2-12 Restricted stock: Tax implications 2-14 Chapter 3 3-1 Maximizing Tax Benefits for Personal Residence Transactions 3-1 Qualification rules for gain exclusion privilege 3-2 Excluding gain from sale of land next to residence 3-13 Excluding gains in marriage and divorce situations 3-14 “Electing out” of gain exclusion privilege 3-18 Sale of former principal residence “freed up” suspended PALs from rental period even though gain on sale was excluded 3-19 Understanding the tax implications of personal residence short sales and foreclosures 3-21 Tax angles when client converts personal residence into rental property 3-29 How the TCJA affects homeowners 3-33 Chapter 4 4-1 Tax Planning Opportunities with Vacation Homes, Timeshares, and Co-Ownership Arrangements 4-1 Rules for “regular” vacation homes (as opposed to timeshares and co-ownership deals) 4-2 Rules for timeshares and vacation home co-ownership arrangements 4-7 Playing the gain exclusion game with multiple residences 4-10 Chapter 5 5-1 Tax Planning for Marital Splits and Married Same-Sex Couples 5-1 Separate versus joint returns for pre-divorce years 5-3 Avoiding pre-divorce tax fiascos with IRA and qualified retirement plan assets 5-11 Planning to achieve tax-effective splits of IRA and QRP assets 5-12 Planning to achieve equitable after-tax property divisions 5-18 Treating payments as deductible alimony 5-21 Tax developments affecting married same-sex couples 5-29 Chapter 6 6-1 Tax-Saving Tips for Self-Employed Clients 6-1 “Heavy” SUVs, pickups, and vans are still big tax-savers 6-2 Combine “heavy” vehicle with deductible home office for major tax savings 6-8 Home office deduction options 6-10 What to do when both spouses are active in the self-employment activity 6-20 Simplified compliance rules for unincorporated husband-wife businesses in non-community property states 6-27 Update on tax-smart health savings accounts 6-30 Section 199A – The qualified business income deduction 6-37 Should your client’s business switch to C corporation status? 6-44 Chapter 7 7-1 Tax-Smart College Financing Strategies 7-1 Education tax credits 7-2 Deduction for higher education tuition and fees 7-8 Deduction for student loan interest 7-9 Coverdell Education Savings Accounts 7-11 Tax-free interest from U.S. Savings Bonds 7-12 Electing the accrual method for U.S. Savings Bonds 7-15 Splitting investment income with the kids 7-17 How a closely held business can deduct college expenses paid for the owner’s adult child 7-30 “Last-minute” suggestions for procrastinators 7-32 Glossary Glossary 1 Index Index 1 Solutions Solutions 1 Chapter 1 Solutions 1 Chapter 2 Solutions 4 Chapter 3 Solutions 5 Chapter 4 Solutions 7 Chapter 5 Solutions 8 Chapter 6 Solutions 10 Chapter 7 Solutions 13

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Book SynopsisThe long-term future of the American Social Security system which provides retirement, disability, and survivor benefits to millions, is uncertain. This is triggering big concerns for many workers who are paying into the system and need to make decisions about their retirement. This book features real-world situations around Social Security and Medicare to help financial professionals provide better advise to their clients on their personal financial plans. Key topics include: What Medicare will and will not do Managing Medicare gaps Analyzing the wide menu of Social Security benefits Social Security benefits for workers and families: retirement, survivor, disability, and death benefit Tax impact of Social Security premiums and benefits Impact of the 3.8 percent Medicare surtax on investment income Recent changes to the Medicare law Table of ContentsChapter 1 1-1 How the Social Security System Operates 1-1 FICA tax 1-4 Medicare tax 1-6 Medicare tax on earned income 1-7 Medicare tax on net investment income 1-10 Not everyone is covered under Social Security 1-13 Summary 1-15 Chapter 2 2-1 Benefit Eligibility 2-1 Summary 2-8 Chapter 3 3-1 Social Security Retirement Benefits 3-1 Retirement benefits 3-3 AIME 3-5 Calculating the PIA 3-7 Reduction in benefits for claiming benefits early 3-11 Delaying Social Security retirement benefits 3-14 Spousal retirement benefits 3-16 Working after retirement 3-23 Summary 3-25 Chapter 4 4-1 Social Security Survivors’ Benefits 4-1 No benefits in the month of death 4-3 Children’s benefits 4-10 Dependent parent’s benefits 4-12 Summary 4-13 Chapter 5 5-1 Disability Income Benefits 5-1 Characteristics attributable to disabled-worker beneficiaries 5-3 Medical eligibility for Social Security disability income benefits 5-13 When SSDI benefits will end 5-20 Summary 5-23 Appendix A Chapter 5, A-1 OASDI and SSI Program Rates & Limits 2019 Chapter 5, A-1 Appendix B Chapter 5, B-1 OASDI and SSI Program Rates & Limits 2018 Chapter 5, B-1 Chapter 6 6-1 Taxation of Social Security Benefits 6-1 How benefits are reported 6-3 Summary 6-10 Chapter 7 7-1 Medicare 7-1 Original Medicare 7-3 Medicare premiums and coinsurance rates Medicare Part A 7-7 Current Medicare premiums and deductibles 7-8 Are the premiums tax-deductible? 7-17 Skilled nursing care under Medicare Part A 7-20 Home healthcare coverage Under Medicare Part A 7-22 Hospice coverage Under Medicare Part A 7-25 Medicare Part B coverage 7-27 Medicare Part C Advantage plans 7-29 Medicare Part D — Prescription drugs 7-31 Medicare supplemental (Medigap) insurance 7-34 Summary 7-38 Chapter 8 8-1 The Future of Social Security and Medicare 8-1 The system is strained 8-2 Fixing the problems 8-9 Summary 8-11 Appendix A A-1 Fact Sheet A-1 Index Index 1 Solutions Solutions 1 Chapter 1 Solutions 1 Chapter 2 Solutions 2 Chapter 3 Solutions 3 Chapter 4 Solutions 4 Chapter 5 Solutions 6 Chapter 6 Solutions 8 Chapter 7 Solutions 9 Chapter 8 Solutions 11

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Book SynopsisYourcompletestartupdownturn survival guide Duringamarket boom,startupfundingisin abundance.Butwhen a financial crisis hits,investments dry up,making itdifficultfor newer, smaller outfits to survive.During aperiod ofeconomicinstability,thattask might seem even harder.However, acrisis doesn'thave to mean it's time to shut up shop.Restartupshows howit's possiblebychoosing toembrace instabilityandseizingthenew opportunities itprovidestostay afloat,and eventothrive. ArunkumarKrishnakumarand Maxson Teetechinvestor, influencer, blogger, andpodcasterusecase studies andin-depth interviews with VCs, CEOs, and academicstoflesh-outanecdotalcrisis-survival frameworks. They introduce youto the concepts, toolsandtechniquestohelpyousailthrough an economic storm. The money pyramidunderstandyourcrisisfinancing options Mental Health drop the societal taboofor the wellbeing of the company and the founders Fundraising psychologygo beyond the decTable of ContentsForeword xi Preface xiii Acknowledgements xxiii About the Authors xxv 1 Even Shit Floats in High Tide 1 Introduction 1 The Macros Matter 3 Capitalism: The Pyramid Scheme 4 Tier 0 5 Tier 1 5 Tier 2 5 Tier 3 5 Tier 4 7 Tier 5 8 Role of the Central Banks and Regulators 8 Virtuous Cycles 10 The Wealth Effect 14 An Interplay of Incentives 14 Investor Dilemma 17 Conclusion 20 2 Hindsight’s 2020 23 Introduction 23 Structural versus Event-Driven Crises 24 Structural 25 Event-Driven 25 The Crisis Timeline 26 Black Monday 1987 27 Dot-Com Bubble 1999–2000 29 The Great Recession of 2008 31 The Year of Crises – 2020 35 If It Smells Like Funk 38 Greed Is Good, or Is It? 38 Consistent Overvaluation 39 Failed Funding Rounds 39 Down Rounds 40 Funding Gaps 40 Data Collection 42 Ecosystem Pulse 43 Team 44 Product 45 Competition 47 Funding 48 Conclusion 49 3 Be Your Own Shrink 53 Introduction 53 Crisis Is Here 54 Put on Your Seat Belt First 54 The Emotional Gym 56 Organisational Emotional Fitness 60 You and Your Business: A 3D Model 61 Passion 62 Skills 63 Demand 64 Step Away 64 Switch Off or Snooze 65 Mentoring 67 Executive Coaching 68 Connect and Inspire 68 Conclusion 70 4 The Surgical Strike 73 Introduction 73 The Startup Bell Curve 75 A 3D Plan of Action 77 Survive: First-Order Optimisation 77 Normalise: Second-Order Optimisation 77 Thrive: Third-Order Optimisation 78 First-Order Optimisation 79 CashFlow Is Oxygen 80 Soul Searching 81 What’s the Heart of Your Business? 82 Where Are You Relevant? 84 Is Your Cost Structure Optimal? 85 Scenario Planning 87 The Soul versus Value Quadrant 88 Cold Decisions, Humane Execution 91 Communication Architecture 92 Clients: Increase Incoming 95 Suppliers and Vendors: Decrease Outgoing 97 The Firm: Align Culture 98 Team: Handle with Care 99 What Next? 103 Conclusion 104 5 Check Your Mirrors 107 Introduction 107 Second-Order Optimisation 108 The Who 110 The Why 112 The How Much 115 The How 118 Ask Them 118 Get Them 119 Understand Them 120 Behaviour versus Value 123 Conclusion 126 6 Map the Trip 127 Introduction 127 Infrastructure 128 Policy Infrastructure 128 Payment Services Directive (PSD 2) 130 Blockchain and Cryptocurrencies 131 India’s Aadhaar 132 Drug Discovery 134 Technology Infrastructure 134 Rise of the Machines 135 AWS and Innovation 136 Broadband and Video Genre 137 Ecosystem Infrastructure 139 Talent Infrastructure 139 Funding Infrastructure 141 The Missing Link 145 Conclusion 147 7 From Fiats to Ferraris 149 Introduction 149 The 4D Lens 150 Time: Longevity 151 Time: Velocity 151 Space: Scale 152 Space: Weight 152 The Business Model Barometer 153 Contractually Predictable 155 Enterprise Software 155 Software as a Service (SaaS) 156 Subscription 157 Behaviourally Predictable 158 Advertising 160 Transactional 161 Hybrid 162 Marketplace 162 Mix, Match and Moonshot 164 Conclusion 167 8 Hit Refresh 169 Introduction 169 Third-Order Optimisation 170 The Pirate Metrics 171 Shades of Grey 172 Preserve the Soul 175 Continue Experimentation 176 Build for a Crisis 177 Tip 1: Values Make or Break Firms 179 Tip 2: It’s the Team, Idiot 180 Tip 3: Decentralising Decision-Making 181 Tip 4: Data-Driven Accountability 182 Tip 5: Embracing Cost Consciousness 182 Tip 6: Growing Responsibly 183 Tip 7: Tapping into a Support Network 184 Tip 8: Mind the Mind 184 Conclusion 187 9 Winner Winner Chicken Dinner 189 Introduction 189 The Macro Environment 190 What History Tells Us 191 Wear Your Mask First 194 Cold Decisions and Humane Execution 197 Customer Is King 200 Infrastructure Catalysts 203 Business Model Evaluation 206 All Change 208 Conclusion 212 Glossary 215 Index 221

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Book SynopsisExplores how the financial industry will be affected by developments in blockchain and cryptocurrencies at the dawn of a new digital age in finance Our financial system is in the midst ofa digital revolution. Blockchain, viewed by many experts as the most important invention since the Internet, haschangedthe way we exchange value and information. Although most people are aware of Bitcoin and other cryptocurrencies, fewunderstandhowsecurity tokensdigitized forms of traditional ownership certificatescandriveblockchainto reach its fullestpotentialbyofferinginvestors features and innovations that are simply not possible with paper certificates. Digital Finance: Security Tokens and Unlocking the Real Potential of Blockchainexplainshowthe integration of blockchain and security token technology willtransform the current financial infrastructure and radically improve efficiency, transparency, and security. Using clear language and an easy-to-follow framework, author Baxter Hines draws upon his decades' experience in the financial industry toaddresshowthedigitizationof assetswilldrive cost reductions, enhance flexibility,andpave the way fornew business models and revenue streamsfor years to come. Filled with real-world case studies and expert insights on the latestopportunities andtrends,such as the COVID-19 pandemic'srole inacceleratingthe adoption of blockchain,this must-have resource: Shows how blockchainanddistributed ledger technology are disrupting the financial industryExplains what security tokensareandwhythey are the next major breakthrough for investingHighlightshowblockchain technology has created newand moreefficient ways of fund raising and investingIdentifiesthewayscompanieslike IBM, Fidelity Investments,and AXA are deploying blockchain and tokenized solutionsDescribes howassets only available to institutional investors could become marketed to the mainstreamDiscussesthe impact that security tokens will have on real assets such as stocks, real estate, bonds, and derivativesProvides insight into how centralbanksaround the worldare embracingblockchain and beginning to issue digital currencies Digital Finance: Security Tokens and Unlocking the Real Potential of Blockchainis essential reading for financial professionals, general investors, finance and technology students, regulators, legal professionals, and users of cryptocurrency and blockchain technology.Table of ContentsDisclaimer Notice ix Acknowledgments xi Preface xiii Introduction 1 Part I The Magic Ledger Chapter 1 Blockchain Basics 13 Chapter 2 Fundamentals of a Security Token 37 Chapter 3 What Types of Assets May Be Tokenized? 47 Chapter 4 Security Tokens Will Massively Disrupt and Vastly Improve Markets 61 Part II Creating the Digital Wrapper Chapter 5 Key Features of a Security Token 73 Chapter 6 The Security Token Ecosystem 79 Part III Realizing the Potential of Security Tokens Chapter 7 Regulation of Digital Assets 89 Chapter 8 Markets for Digital Assets & Security Tokens 103 Chapter 9 “DeFi”: eLending and the Future of Getting a Loan 117 Chapter 10 Digital Adoption 129 Concluding Thoughts 145 Notes 159 Additional Resources 175 About the Author 179 Index 181

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Book SynopsisA unique, authoritative, and comprehensive treatment of fixed income markets Fixed Income Trading and Risk Management: The Complete Guide delivers a comprehensive and innovative exposition of fixed income markets. Written by European Central Bank portfolio manager Alexander During, this book takes a practical view of how several different national fixed income markets operate in detail. The book presents common theoretical models but adds a lot of information on the actually observed behavior of real markets. You'll benefit from the book's: Fulsome overview of money, credit, and monetary policyDescription of cash instruments, inflation-linked debt, and credit claimsAnalysis of derivative instruments, standard trading strategies, and data analysisIn-depth focus on risk management in fixed income markets Perfect for new and junior staff in financial institutions working in sales and trading, risk management, back office operations, and portfolio management positions, Fixed Income Trading and Risk Management also belongs on the bookshelves of research analysts and postgraduate students in finance, economics, or MBA programs.Table of ContentsForeword xv Part One Preliminaries Chapter 1 Introduction 3 Chapter 2 Money, Credit and Banking 9 2.1 Abstract properties of money 9 2.2 Early forms of money 11 2.2.1 Paper money and bank notes 14 2.3 Fiat money 15 2.3.1 Fiat money and trade 15 Chapter 3 Banks 17 3.1 Banks and bank money creation 17 3.2 Categories of banks 18 Chapter 4 Bank Money Creation 20 4.1 Single-bank introduction 20 4.2 Extension to multiple banks 22 4.3 Transfer settlement in central bank money 25 4.4 Trade and non-bank credit 28 4.4.1 Non-cash trading instruments 29 4.4.2 Discounting 30 4.4.3 Delineating payment instruments from money 30 4.5 Digital token monies and cryptocurrencies 31 4.6 The money multiplier 32 Chapter 5 The Role of Central Banks 34 5.1 Introduction 34 5.2 Monetary financing 39 Chapter 6 Monetary Policy 40 6.1 Objectives of monetary policy 40 6.2 Monetary policy under inflation targeting 43 6.3 Central bank operational frameworks 46 6.3.1 Symmetric interest rate corridors 47 6.3.2 Asymmetric lending corridors 49 Chapter 7 Operational Frameworks 50 7.1 Control of the money supply 50 7.2 Liquidity provision: Rediscounting, outright purchases and Lombard lending 51 7.3 Liquidity absorption: Asset sales and reverse repos 52 7.4 The impact of FX operations 52 Chapter 8 Interaction between Frameworks and Policy 54 8.1 Volatility 54 8.2 Collateral 55 Chapter 9 Non-Standard Monetary Policy 57 9.1 Quantitative easing 57 9.1.1 The Monetary Effect of Large-Scale Asset Purchases 61 9.1.2 Market liquidity and central bank asset purchases 62 9.1.3 Helicopter money 63 9.1.4 Choice of methods and assets 65 9.2 Practical experience 67 9.2.1 QE, money multipliers and FX 67 9.2.2 Bank of Japan 2013 QE experience 71 9.2.3 Lessons from the initial BoJ quantitative easing 72 9.3 Negative interest rates 73 9.4 The specific situation of the ECB 74 Part Two Cash Instruments Chapter 10 Contract and Instrument Types 79 10.1 Securities and bilateral contracts 79 10.2 Security identifiers 81 10.2.1 ISIN codes 81 10.2.2 CUSIP codes 83 Chapter 11 Trading and Settlement 85 11.1 Trading 85 11.1.1 Trading and price formation 85 11.1.2 Trading venues 86 11.1.3 The OTC trade lifecycle 87 The trade inquiry 89 Negotiation 89 Agreement 90 Recording 91 Enrichment 92 Reporting 92 Pre-confirmation 93 Allocation 93 Confirmation 94 Settlement instructions 94 Fails 95 Reconciliation 96 11.1.4 The exchange trade cycle 96 11.1.5 Trading in competition versus single dealer inquiries and orders 97 Mistrades 98 11.2 Settlement 98 11.2.1 Settlement mechanisms 99 11.2.2 Settlement conventions 99 Chapter 12 Central Clearing 101 12.1 Direct clearing 101 12.2 Indirect clearing 106 12.2.1 Agency clearing 106 12.2.2 Principal clearing 107 12.2.3 Hybrid clearing models 107 12.3 Contract value adjustments (xVA) 108 12.3.1 Credit Value Adjustment 108 12.3.2 Funding Value Adjustment 109 12.3.3 Debit Value Adjustment 110 Chapter 13 The Money Market 111 13.1 Money market instruments 111 13.2 Discount factors 112 13.3 Daycount conventions 114 13.4 Money market interest rates 115 13.5 Compounding 116 13.6 LIBOR, Euribor, and friends 117 13.7 Overnight benchmarks 119 13.8 Benchmark reform 120 13.9 Money market futures and futures trading 121 13.9.1 Money market futures 121 13.9.2 Identification of futures contracts 122 13.9.3 Futures trading basics 124 13.9.4 Convexity adjustment 124 Chapter 14 The Repo Market 126 14.1 The repurchase market 126 14.2 Haircut 128 14.3 Variations of repurchase transactions 128 14.4 Rehypothecation 130 Chapter 15 Spot and Forward Rates 131 15.1 Forward rates 131 15.2 No-arbitrage calculations 131 15.3 Official rates versus term rates 133 15.3.1 The turn premium 133 15.3.2 Matching policy expectations to market rates 134 Chapter 16 The Bond Market 137 16.1 Introduction 137 16.2 Cashflow types 138 16.2.1 Bullet bonds 138 16.2.2 Zero coupon bonds, perpetuals and annuities 139 16.3 Issuer types 142 16.3.1 Joint issuance 144 16.3.2 Supranationals 146 16.4 Governing law and contractual clauses 147 16.5 Bond markets 151 16.5.1 The primary market 153 16.5.2 The secondary market I: (interdealer market) 157 16.5.3 The secondary market II: (customer-facing market) 158 16.6 Accrued interest 158 16.7 Yield 159 16.7.1 Running yield 160 16.7.2 Simple yield 160 16.7.3 Compound yield 160 16.7.4 Bond-equivalent yield 161 16.8 Interest rate risk 163 16.9 Convexity 164 16.10 Bond value decomposition 165 16.11 Carry 167 Chapter 17 Floating-Rate Notes 169 17.1 Coupon reset mechanics 170 17.2 Libor and OIS-linked notes 171 17.3 Discount margin 173 17.4 CMS and CMT floaters 174 Chapter 18 Asset Markets and Liquidity 176 18.1 Concepts 176 18.2 Liquidity measurement 180 18.2.1 Taxonomy of liquidity measures 181 18.3 Examples 183 18.4 Liquidity premium 185 18.5 Liquidity and volatility 187 Chapter 19 Curves and Curve Models 189 19.1 Models 190 19.2 Yield curve representation and interpretations 191 19.2.1 Discount factors versus par curves 191 19.3 Market-based curve representations 193 19.3.1 Bootstrapping 193 19.3.2 Reverse bootstrapping 195 19.4 Parametric curve models 196 19.4.1 The Nelson-Siegel and Nelson-Siegel-Svensson splines 197 19.4.2 Polynomial splines 198 19.4.3 The exponential spline 199 19.4.4 The Vasicek spline 200 19.4.5 Composite models 202 19.5 Fitting curve models 203 Chapter 20 Curve Analysis 205 20.1 Expectations 205 20.2 Convexity bias 209 20.3 Term risk premium 211 20.4 Preferred habitat 212 20.4.1 Asset–liability matching 212 20.4.2 Regulatory constraints 213 20.4.3 Passive investing 214 20.4.4 Central bank reserve portfolios 215 20.4.5 Market technicals 215 Chapter 21 Carry and Roll-Down 217 Chapter 22 Curve Spreads 220 22.1 Z-spread 220 22.2 Par spread 221 22.3 Swap spreads 222 22.3.1 Asset swap spreads 222 22.3.2 I-spreads 223 22.3.3 The TED spread 224 Part Three Inflation-Linked Debt Chapter 23 Inflation-Indexed Bonds 227 23.1 Introduction 227 23.1.1 Cashflows of inflation-linked bonds 230 23.1.2 Quotation of index-linked bonds 232 23.2 Rebalancing, rebasing and revision of CPI indices 232 23.3 Inflation seasonality 234 23.4 Price formation in inflation-linked markets 238 23.5 Return measures of inflation-linked bonds 240 23.6 Breakeven inflation 241 23.7 Carry on inflation-indexed bonds 244 23.8 Comprehensive inflation modelling 245 23.9 Inflation models and expectations 249 Part Four Defaultable Claims Chapter 24 Credit Risk 255 24.1 Default, insolvency, and bankruptcy 255 24.2 Seniority and subordination 256 24.2.1 Time subordination and acceleration 256 24.2.2 Contractual subordination 256 24.2.3 Statutory subordination 257 24.2.4 Joint liabilities and credit support 258 24.2.5 Sovereign debt 259 24.3 The default process 259 24.3.1 Collective action clauses 261 24.3.2 Debt exchanges and consent solicitations 262 24.3.3 Managed defaults 263 24.3.4 Wind-downs 263 24.4 Credit ratings 264 24.4.1 Rating migration 266 24.4.2 Alternative rating approaches 270 Chapter 25 Covered Bonds 272 25.1 Statutory covered bonds 277 25.2 Danish covered bonds 279 25.3 Structured covered bonds 281 25.4 Covered bond credit risk analysis 282 Chapter 26 Asset-Backed Securities 284 26.1 The ABS issuance process 285 26.2 Default risk of ABS 286 26.3 Maturity of ABS 287 Chapter 27 Residential Mortgage-Backed Securities 289 27.1 Residential mortgage prepayments 290 27.2 Prepayment modelling 292 Part Five Derivatives Chapter 28 Bond Futures 301 28.1 Introduction 301 28.2 Futures trading patterns 303 28.2.1 Open interest and trading volume 303 28.2.2 CFTC data for US futures contracts 307 28.3 Valuation of physically delivered bond futures 310 28.3.1 Basis and implied repo rate 310 28.3.2 Conversion factors and the notional coupon 312 28.3.3 The cash-and-carry arbitrage 314 28.3.4 The quality option 315 28.3.5 Hedging with futures 316 28.4 Futures rolls 321 28.4.1 Roll ratios 324 28.4.2 Advanced futures delivery models 325 28.5 Delivery windows 326 28.6 Interaction between futures and bonds 327 28.7 Futures squeezes 329 28.8 Cash-settled futures 331 28.8.1 Exchange-for-physical transactions 332 28.9 New bond issues 332 Chapter 29 Swaps 334 29.1 Introduction 334 29.2 Plain vanilla swaps 336 29.3 Trade compression and re-couponing 338 Part Six Standard Trading Strategies Chapter 30 Trading Principles 343 30.1 Definitions 343 30.2 Trade identification 345 30.3 Trade portfolios 346 Chapter 31 Curve Trading 347 31.1 Simple curve trades 350 31.1.1 Outright Trades 350 31.1.2 Steepeners and Flatteners 350 31.1.3 Butterflies 353 31.1.4 Condors 354 31.2 Intrinsic curve movements 354 31.2.1 Alternative specifications 360 Chapter 32 Bond Trading 362 32.1 Bond relative value 362 32.2 Relative value strategies 363 32.2.1 Spread widener/tightener 363 32.2.2 Basis trade 364 32.2.3 Bond spread 365 32.2.4 Bond spread with curve hedge 365 32.2.5 Alternative strategies 366 Part Seven Risk Management Chapter 33 Principal Component Analysis 371 33.1 PCA as generalised regression 373 33.2 Measuring data complexity with PCA 375 Chapter 34 Bond Index Mechanics 378 34.1 Bond index principles 378 34.2 Index rebalancing 380 Chapter 35 Portfolio Risk Management 381 35.1 Risk-neutral portfolios 381 35.2 Index tracking 383 35.2.1 Factor analysis and spanning sets 385 35.2.2 Friction effects 387 Chapter 36 Hedging 389 36.1 Introduction 389 36.2 Duration-neutral hedges 390 36.3 Regression hedges 391 36.4 Yield curve model hedges 392 Chapter 37 Mean-Variance Optimisation 395 Chapter 38 Portfolio Rebalancing 403 38.1 Passive and semi-passive strategies 404 38.1.1 No reallocation 404 38.1.2 Passive management 404 38.1.3 Index replication 405 38.1.4 Constant asset allocation 405 38.1.5 Trend-Following 406 38.1.6 Mean reversion 406 38.2 Numerical examples 407 Part Eight References Chapter 39 Selected Global Bond Markets 413 39.1 Euro area 413 39.1.1 Austria 414 39.1.2 Belgium 415 39.1.3 Finland 416 39.1.4 France 416 39.1.5 Germany 418 39.1.6 Greece 421 39.1.7 Ireland 422 39.1.8 Italy 423 39.1.9 The Netherlands 424 39.1.10 Portugal 425 39.1.11 Spain 426 39.2 Iceland 427 39.3 Japan 428 39.4 Sweden 430 39.5 United Kingdom 431 39.6 United States of America 433 Bibliography 435 Index 439

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Book SynopsisLearn how to maximize valueand increase efficiency in Xerowith basics and best practices Xero:A Comprehensive Guide for Accountants and Bookkeepersis a how-to guideforXero's US-basedadvisors. Xerois rapidly gaining traction as an accounting and bookkeeping software, as competitors' strategic changes have left professional advisors looking foran alternative. The rapid adoption of cloud technologyby businesseshas left manyaccountants and bookkeepersin need of a guide to quickly gain the Xero skillset.This book coversallfeatures available in theEstablished subscription plan in Xero.You'll walk through the technical details of how to take advantage of everything Xero has to offer. In addition tointroducingyou to the basics of using Xero, this book provides best practices that will help you streamlinebookkeeping workflowsandleverage thiscloud-based accountingplatform. Author Amanda Aguillard also connects the dots between accounting theory and the Xero interfaceandfeatures, so you will understand exactly whyyou'redoing what you're doing. In today's cloud computing world, we need all our tech tools to play nicely together, and this book delivers on that goal, showing you how to integrate Xero to your other software for seamless operation. Master Xero's interface and featuresspecific for the US version of the softwareLearn how to integrate Xero with other cloud-based softwareDiscover best practices that can help you maximize the value you get from using XeroAccess the companion website, full of templates for reports, invoices, bills with payments, and more Xero: A Comprehensive Guide for Accountants and Bookkeepers, along with its companion website, is your one-stop resource for becoming fluent in the features and functionalities of thisglobal accounting software platform.Table of ContentsForeword vii Preface ix Acknowledgments xi About the Author xiii Chapter 1: Introduction to Xero 1 Chapter 2: Leveraging Xero within an Ecosystem 7 Chapter 3: Xero HQ 15 Chapter 4: Navigating through Xero 53 Chapter 5: Creating a Xero Organization 69 Chapter 6: Settings 87 Chapter 7: Contacts 113 Chapter 8: Inventory 127 Chapter 9: Banking and Bank Feeds 137 Chapter 10: Bank Reconciliation 157 Chapter 11: Sales and Invoicing 203 Chapter 12: Purchases and Bills 245 Chapter 13: Fixed Assets 279 Chapter 14: Multicurrency 297 Chapter 15: Advanced Tools 299 Chapter 16: Reporting 319 Chapter 17: Month-End Reconciliation 347 Chapter 18: Advisory Tools 365 Chapter 19: Xero Expenses 375 Chapter 20: Xero Projects 393 About the Website 419 Index 421

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Book SynopsisTable of ContentsIntroduction Part One: The Process Chapter One: An Introduction to Strategic Sourcing X Visibility X Objectivity X Project Management Tool X In Summary X Chapter Two: Data Collection and Spend Analysis X What Is Data Collection? X Where to Start? X Dealing with Decentralized Data Sets X Spend Analysis X Spend Analysis Tools X Kicking Off the Projects X End-User Interviews X Line-Item Detail and Getting the Most from Your Supply Base X Supplier Interviews X Analyzing Contracts and Pricing Agreements X The Final Analysis: Building a Baseline X In Summary X Chapter Three: Conducting Research X Types of Cost-Savings Opportunities X Understanding the Category X Identifying Suppliers X Understanding the Supply Chain X Understanding Current Market Conditions X Understanding the Factors of Cost X Review of Technologies, Processes, Products, and Services X Collecting Market Intelligence Through the RFI Process X In Summary X Chapter Four: The RFX Process X Using the RFI to Begin the Sourcing Phase X Developing Your Sourcing Strategy X Going to Market X Generating the RFP and RFQ X Supplier Selection and Scorecard Criteria X Administering the RFX Process X Reverse Auctions X Alternatives to the RFX—The Importance of Flexibility and Creativity in the Sourcing Process XX In Summary Chapter Five: Scorecarding Suppliers X Measuring Value: Developing Selection Criteria X The Quantitative Analysis: Evaluating the Bid Portion of Supplier Proposals X The Qualitative Approach: Developing the RFP Matrix X References X Teamwork and Objectivity X Technology’s Role X In Summary X Chapter Six: Negotiations X Knowing What to Negotiate X Negotiation Optimization: Developing Final Targets X Getting to “No” XX What Not to Do XX In Summary XX Chapter Seven: Get It in Writing X The Contracting Phase X Essential Components of a Contract X Attachments XX Contract Management XX Making the Best Use of Your Legal Team XX Contracting Pitfalls and Language to Avoid XX Working Outside of a Contract: Pricing Agreements and Handshakes XX In Summary XX Chapter Eight: Implementation and Continuous Improvement X The Challenges of Implementation X Overcoming Challenges X Monitoring Improvements After Implementation X Savings and Compliance Best Practices XX Continuous Improvement Initiatives XX In Summary XX Chapter Nine: What Not to Do During a Strategic Sourcing Initiative X Creating Overly Complex or Long RFPs X Letting the Supplier Write the RFP for You X RFP Spam X In Summary XX Part Two: The Tools Chapter Ten: The Importance of Market Intelligence X The Types of Market Intelligence X Components of Success X Breaking Down the Components XX In Summary XX Chapter Eleven: Introduction to Procurement Technology X A Brief History of Procurement Technology X The Solution Landscape X Upstream and Downstream Procurement X Spend Analysis X Sourcing X Reverse Auctions XX Contract Lifecycle Management (CLM) XX Supplier Information Management (SIM) XX Supplier Performance Management (SPM) XX Supplier Risk Management (SRM) XX Procurement (PXP) XX Invoicing and Payment XX SXP Individual Products Versus Full-Suite Solutions XX In Summary XX Chapter Twelve: Increasing Stakeholder and Supplier Engagement X What Is a Stakeholder? X Who Are the Stakeholders? X The Value Brought by Stakeholders X In Summary XX Chapter Thirteen: Leveraging Group Purchasing Organizations X Types of GPOs X Services Provided by GPOs X Benefits of GPOs X GPO Disadvantages X Best Practices for Managing GPO Relationships XX Summary XX Part Three: Examples from the Field Chapter Fourteen: Supplier Collaboration X Opening Up Your Requirements X Giving Suppliers What They Need X Helping Suppliers With Their Supply Chain X Collaborating With Suppliers in Similar Industries X In Summary X Chapter Fifteen: Leveraging Supplier Feedback X Avoiding the RFP Process X Making Yourself the Ideal Customer X Examples of Leveraging Supplier Feedback Successfully X In Summary X Chapter Sixteen: Opportunity Assessment and Sourcing Roadmap X Introduction X Starting with Spend Analysis X Procurement Taxonomy X Opportunity Assessment X Roadmap XX In Summary XX Part Four: How to Do It—Sourcing Chapter Seventeen: Determining Project Complexity X Complexity Drivers X In Summary XX Chapter Eighteen: Planning and Optimizing Low-complexity Projects X Getting Familiar with Low Complexity X Where to Find Low Complexity Projects X Dealing with Unexpected Complexity X Adding Complexity with Purpose X Factoring Low-complexity Projects into Your Roadmap X In Summary X Chapter Nineteen: Navigating High-Complexity Projects X Process Drivers X Project Drivers XX In Summary XX Part Five: How to Do It—Building and Managing an Indirect Procurement Team Chapter Twenty: Building an Indirect Procurement Team X Defining the Role of Procurement X Designing the Framework X Building the Team XX In Summary XX Chapter Twenty-One: Team Training and Development X Where to Begin X Balancing the Content X How to Make It Stick X In Summary X Chapter Twenty-Two: Process, Policy, and Digitalization X Enacting the Change X The Role of Governance X Enabling the Team through Technology X In Summary XX

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Book SynopsisWhat if you could learnfinancialliteracy from Warren Buffett himself? Finance is a language like any other: themore fluentlyyou speak it, thefurtherand more comfortablyyou travel.And if you want to improve your financial literacy, what better teacher could you have than Warren Buffett? Often described as the greatest investor of all time, Warren Buffett startedhis investment firmwith$100 in the late 1950s andwenton to become the billionaire and sage we know today. Along the way he's reaped huge profits for fellow investors in Berkshire Hathaway and remains one of the most sought-after and closely watched figures in the business world. So how did he do it? InBuffett's Tips,award-winning professor and professional investor John M. Longodemonstrates just how by translatingdecades of Buffett's writings and media appearances into a 100 straightforward tips and strategiesanyone can followfor enhancedfinancial literacy and independence, including: ETable of ContentsPreface xv Acknowledgments xix Chapter 1: Who Is Warren Buffett? 1 Introduction 1 Buffett the Teen 2 Who Are We to Write This Book? 3 What Is Financial Literacy and Why Does It Matter? 4 Some Fundamental Buffett “Tips” 5 Buffett’s Work Ethic 7 Buffett Has Spent a Lifetime Learning 8 Why Is Buffett Happy? 10 Improve Your Communication Skills and See Your Lifetime Earnings Increase 50% 12 Acting with Integrity Is the Right Thing to Do and Good for Business 13 Buy Low, Sell High 14 Buffett Doesn’t Succumb to Peer Pressure: The Inner Scorecard 15 Buffett’s Fallback Career—Comedian 17 Buffett’s Lasting Legacy: Philanthropy 18 Buffett’s Tips from Chapter 1 19 References 20 Chapter 2: Investment Fundamentals According to Buffett 23 Introduction 23 The “Miracle of Compound Interest” Explained 24 Trade-Offs: A Fundamental Principle of Life 27 The Saint Petersburg Paradox: A Lesson on Risk and Return 29 Risk and Return: The Evidence 30 Diversification: One of the Few Free Lunches in Life 32 Supply and Demand Determine Price 33 Summary on Financial Fundamentals 35 Buffett’s Tips from Chapter 2 36 References 36 Chapter 3: Bank Accounts, Debit Cards, Credit Cards, and Your Credit Score 38 Introduction 38 Insured Bank Deposits 38 Savings Accounts and Certificates of Deposit (CD) 40 Checking Accounts and Electronic Bill Payment 42 Parts of a Check 43 Balancing a Checkbook 44 Debit Cards and Automated Teller Machines (ATM) 45 Credit Cards and Charge Cards 46 Apps to Send Money: PayPal, Venmo, Zelle, Apple Pay, Android Pay, and so forth 49 Your Credit Score: A Report Card of Your Financial Responsibility 50 Personal Bankruptcy: Try to Avoid at all Costs 52 A Word on Bitcoin from Buffett 53 Buffett’s Tips from Chapter 3 56 References 56 Chapter 4: Bonds and Inflation 58 Introduction 58 US Savings Bonds 59 Other US Treasury Fixed Income Securities 60 Inflation and the Consumer Price Index (CPI) 62 Bond Ratings and Corporate Bankruptcy 63 Corporate Bonds, Municipal Bonds, and Bowie Bonds 65 Bowie Bonds and Other Asset-Backed Securities 66 The Federal Reserve: The Central Bank of the United States 67 What Determines Interest Rates? 69 Intuition on Estimating the Price of a Bond 70 So Are Bonds Good Investments? 72 A Note on Negative Bond Yields 73 Appendix: Bond Valuation 74 Buffett’s Tips from Chapter 4 75 References 75 Chapter 5: Stock Market Fundamentals 77 Introduction 77 Initial Public Offerings (IPOs): The Birth of a Stock 78 Investment Banks and Investment Bankers 78 The Main Event: The Stock Begins Trading on the Exchange 80 The Stock Exchange 81 A Sidebar on Stock and Mutual Fund Symbols 83 Dividends 84 Large Cap vs. Small Cap 87 Growth vs. Value 88 Domestic vs. International 90 An Index Fund: A Great “Set It and Forget It” Long-Run Investment 91 Beating the Market and the Efficient Market Hypothesis 92 Meet Mr. Market, the Manic-Depressive Stock Market 94 Buffett’s Tips from Chapter 5 96 Appendix: Selling Short (or the “Don’t Try This at Home” Area of Investing) 96 References 98 Chapter 6: Buffett’s Approach to Stocks 100 Introduction 100 Estimating the Value of a Stock 101 Getting a Price Target with the Discounted Cash Flow Model 101 Getting a Price Target with the Wall Street P/E Model 103 Buffett’s Approach to Stocks 105 Getting into the Buffett Mindset on Investing 105 Stay within Your Circle of Competence 106 The Importance of Being Patient 107 Good vs. Bad Companies and the Passage of Time 107 How Buffett Thinks About Change in an Industry 109 Types of Businesses Buffett Likes 110 Demonstrated Consistent Earnings Power 111 Look for Companies with Good Management 112 Buy Companies That Have the Power to Overcome Inflation 113 Focus on Firms with Favorable Long-Term Prospects 115 When to Sell 117 Summarizing Buffett’s Approach 118 Buffett’s Tips from Chapter 6 119 References 120 Chapter 7: Accounting Fundamentals: The Report Card for Businesses 122 Introduction 122 The Income Statement: A Company’s Report Card for One Period 124 Apple’s Income Statement 125 The Balance Sheet: A Picture of a Company’s Report Card Since Inception 129 Current Assets 131 Long-Term Assets 132 Liabilities 134 Current Liabilities 134 Long-Term Liabilities 134 Stockholders’ Equity 135 A Quick Note on the Statement of Cash Flows 137 Summary 138 Buffett’s Tips from Chapter 7 139 References 139 Chapter 8: Buffett’s Approach to Portfolio and Risk Management 141 Introduction 141 The Key to Selecting a Well-Diversified Portfolio: Correlation 142 A (Theoretical) Portfolio with No Risk 143 Selecting an Optimal Diversified Portfolio: The “Business School” Approach 144 Buffett’s First Approach to Portfolio Selection: Index Funds 147 Buffett’s Second Approach to Portfolio Selection: Expert Mode 147 A Compromise Solution to Portfolio Selection 149 How Many Stocks Make a Diversified Portfolio? 150 The “Business School” Approach to Risk 151 Buffett’s Critique of the Business School Approach to Risk 153 Buffett’s Approach to Risk 154 Buffett on Gold 155 Summarizing Buffett’s Views on Risk 157 Endnote on CAPM 157 Buffett’s Tips from Chapter 8 158 References 158 Chapter 9: Business 101: Companies You Should Know 160 Introduction 160 The Dow Jones Industrial Average: The Oldest Diversified US Stock Market Index 161 How the Dow Is Calculated 162 An Explanation of Stock Splits 164 Different Share Classes and Buffett on Stock Splits 166 Current Stocks in the Dow Jones Industrial Average 167 Materials Stocks in the Dow 168 Chevron (NYSE: CVX) 168 Dow Chemical (NYSE: DOW) 168 Consumer and Business Services Stocks in the Dow 169 Home Depot (NYSE: HD) 169 McDonald’s (NYSE: MCD) 169 Walmart (NYSE: WMT) 170 Consumer Goods Stocks in the Dow 170 Apple (NASDAQ: AAPL) 171 Coca-Cola (NYSE: KO) 171 Nike (NYSE: NKE) 172 Procter & Gamble (NYSE: PG) 173 Walgreens Boots Alliance (NASDAQ: WBA) 173 Walt Disney (NYSE: DIS) 173 Financial Stocks in the Dow 173 American Express (NYSE: AXP) 174 Goldman Sachs (NYSE: GS) 174 JPMorgan Chase & Co. (NYSE: JPM) 174 Travelers (NYSE: TRV) 175 Visa (NYSE: V) 175 Health Care Stocks in the Dow 175 Amgen (NASDAQ: AMGN) 175 Johnson & Johnson (NYSE: JNJ) 176 Merck & Co. (NYSE: MRK) 176 UnitedHealth Group (NYSE: UNH) 176 Industrial Goods Stocks in the Dow 177 Boeing (NYSE: BA) 177 Caterpillar (NYSE: CAT) 177 Honeywell (NYSE: HON) 177 3M Company (NYSE: MMM) 178 Technology Stocks in the Dow 178 Intel (NASDAQ: INTC) 178 International Business Machines (NYSE: IBM) 179 Microsoft (NASDAQ: MSFT) 179 salesforce.com (NASDAQ: CRM) 180 Telecommunications Services Stocks in the Dow 180 Cisco Systems (NASDAQ: CSCO) 180 Verizon (NYSE: VZ) 181 Some Blue-Chip US Stocks That Aren’t in the Dow 181 The FANG Stocks—They Don’t Bite 181 China’s Emerging Titans 183 Some International Energy Titans 183 Some Global Consumer Titans 184 Some Global Financial Service Firms 185 Buffett’s Tips from Chapter 9 185 References 186 Chapter 10: Business 101—Past and Present Business Leaders, or Who’s Who in Business 187 Introduction 187 Past Business Leaders 188 Rose Blumkin (Mrs. B) 188 Andrew Carnegie 189 Walt Disney 189 Thomas Edison and Jack Welch 189 Henry Ford 190 Katharine Graham 190 William Randolph Hearst 190 Steve Jobs 191 Ingvar Kamprad 191 Ray Kroc 192 Estee Lauder 192 J.P. Morgan 192 John D. Rockefeller 193 Cornelius Vanderbilt 194 Sam Walton 194 Thomas Watson Jr. 195 Present Business Leaders 195 Bernard Arnault 196 Mary Barra 196 Jeff Bezos 197 Richard Branson 198 Michael Bloomberg 198 Sergey Brin, Larry Page, and Sundar Pichai 199 Shawn Carter, Beyoncé Knowles, Sean Combs, and Andre Young 200 Tim Cook 200 Jamie Dimon 201 Jack Dorsey 201 Bill Gates, Paul Allen, and Steve Ballmer 201 Reed Hastings 202 Kylie Jenner and Robyn Fenty 202 Phil Knight 203 Jack Ma, Pony Ma, and Robin li 203 Rupert Murdoch 203 Elon Musk 204 Amancio Ortega 204 Howard Schultz 204 Oprah Winfrey 205 Mark Zuckerberg and Sheryl Sandberg 205 Buffett’s Tips from Chapter 10 206 References 206 Chapter 11: Being Thrifty like Buffett: Ways to Save Money 208 Introduction 208 Your Library: Free Books, Magazines, Newspapers, Music, Movies, and More 209 Free Educational Courses: Khan Academy, Coursera 211 Websites for Free Stuff 212 Free Activities 213 Amazon.com: The World’s Biggest Store 214 Comparison Shopper Tools: Your New Best Friend 215 Barter: Turning a Cell Phone into a Porsche Convertible 216 Eat a Low-Cost Meal, Periodically 217 Shop Private Label and Generic Items 219 Clothes: Outlet Stores, Vintage Items, and Buying Off-Season 220 Buying Gasoline 221 Coupons, Double-Couponing, Triple-Couponing, and Groupon 222 Rewards Programs 223 Negotiate with Cell Phone, Cable, and other Service Providers 224 Yard Sales, Flea Markets, and More: Turning Trash into Treasure 225 Do-It-Yourself 227 Donate Things to Charity 227 Avoid Shooting Yourself in the Foot with Bad Habits 228 Tying It All Together in a Budget 228 Buffett’s Tips from Chapter 11 232 Appendix: Sample Budget 232 References 233 Chapter 12: Buffett’s Views on Cars and Homes 235 Introduction 235 Do You Need a Car? 236 New Cars vs. Used Cars 237 Buying vs. Leasing a Car 239 The Best Time to Buy or Lease a Car 241 Home Basics 243 Finding A Home 244 Bidding for a Home 245 Paying for a Home: The Down Payment 246 Paying for a Home: The Mortgage 248 A “House Hack”: Getting Someone to Pay (Most of) Your Mortgage 250 Looking Under the Hood of a Mortgage 250 What Determines Home Prices? 254 Buffett’s Tips from Chapter 12 254 References 255 Chapter 13: Buffett on Dale Carnegie, Communication Skills, and Emotional Intelligence 257 Buffett Learns Life-Changing Skills in a Dale Carnegie Course 257 CliffsNotes Version on Dale Carnegie and How to Win Friends and Influence People 259 Things How to Win Friends and Influence People Will Do for You 260 Techniques in Handling People According to How to Win Friends and Influence People 261 Six Ways to Make People Like You According to How to Win Friends and Influence People 264 How to Win People to Your Way of Thinking, According to How to Win Friends and Influence People 266 What Is Emotional Intelligence (EQ)? 269 Emotional Intelligence (EQ): Some Details 270 Have A Great Posse 274 Buffett’s Tips from Chapter 13 277 References 277 Chapter 14: Buffett’s Tips for College 280 Introduction 280 College: The Basics 281 Getting into a College 282 Graduate School: Optional for Some Jobs, Mandatory for Others 284 Paying for College: Scholarships and Grants 286 Paying for College: The Three-Year Plan for Super Achievers 287 Paying for College: 529 Plans 287 Paying for College: Student Loans 288 Paying for College: On- and Off-Campus Jobs 290 Your Resume: A Snapshot of Your Qualifications for a Job 291 Putting Together Your Resume 292 The Objective Section 292 The Education Section 293 The Work Experience Section 294 The Skills Section 295 The Activities and Interests Section 296 Cover Letter 297 Buffett’s Tips from Chapter 14 297 Appendix 298 References 299 Chapter 15: Buffett’s Tips for Careers 300 Introduction 300 LinkedIn Profile: Your Online Resume 300 Finding an Internship or Job 302 The Job Interview(s): Preparation 303 The Job Interview(s): Acing Your Interview 306 The Job Interview(s): Compensation, or Show Me the Money! 309 Succeeding on the Job 310 Financial Paperwork After Getting a Job 313 Forms W-2 and W- 4 313 Form 1040: The Annual Income Tax Form and “The Buffett Rule” 314 Retirement Plans 316 Becoming a 401(k) or IRA Millionaire 318 Buffett’s Tips from Chapter 15 319 Appendix 319 Health Benefits Information 319 References 322 Chapter 16: Buffett’s Tips for Philanthropy 324 Buffett’s Huge Gift and the Giving Pledge 324 Getting Involved in Philanthropic and Charitable Activities 327 Measuring Performance 329 Market-Based Economies Are Good Unless You Wind Up as Roadkill 331 It’s Not All About the Benjamins 333 The Loss of Reputation Hurts More Than the Loss of Money 335 Inheritance Matters 337 Buffett’s Definition of Success 338 Buffett’s Tips from Chapter 16 339 Appendix 339 Charitable Lunch Auctions for Warren Buffett, Benefiting Glide Foundation 339 References 340 Glossary of Financial Terms in “Plain English” 343 Index 393

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Book SynopsisGain a comprehensive understanding of how businesses produce, report, and utilize essential financial information! In this companion to How to Read a Financial Report, 9th Edition, bestselling financial author Tage Tracy delivers timeless knowledge on one of the most important functions of every business operating within the free market. Designed for managers, entrepreneurs, investors, and others who deal with vital financial information and the production of financial statements & reports on the inside, Business Financial Information Secrets shows you how to produce, understand, and utilize financial information to the greatest effect for your business and the economy at large. This book guides you through the surprisingly clean and simple process of proper accounting and reporting, regardless of your organization's size or structure. Cash flow and business capital management are covered extensively throughout the book as without a thorough undersTable of ContentsPart One – The What, When, & Where of Producing Best in Class Financial Information 1.) The Big Three Financial Statements. 2.) Externally Prepared Financial Reports & Statements. 3.) Internally Generated Financial Information. 4.) The Importance of Completeness. 5.) Accuracy vs. Reliability, not to be Confused. 6.) Reliability & Timeliness, the Best of Friends. 7.) Business Cycles & Financial Connections. Part Two – How to Analyze Financial Information and Its Meaning 8.) Basic Financial Ratio Analysis & Terminology. 9.) Advanced Financial Ratio Analysis, & Terminology. 10.) Projections & Forecasts – Living & Rolling. 11.) Flash Reports & KPI’s 12.) Wall Streets’ Latest Trick – Financial Engineering. Part Three – Why is the Financial Information So Critical and How to Use it to Your Advantage 13.) Capitalizing a Business. 14.) Net Profits & Cash Flows – Real or Imaginary! 15.) Business Valuations – Why & How? 16.) Business Acquisitions – The Basics. 17.) Deciphering the Cap Table.

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Book SynopsisTable of ContentsIntroduction 1 About This Book 1 Foolish Assumptions 2 Icons Used in This Book 2 Beyond the Book 3 Where to Go from Here 3 Part 1: Understanding Financial Security 5 Chapter 1: Navigating the (Bumpy) Road to Financial Independence 7 Reaching for Financial Security 8 Defining what you value 8 Assessing where you are 10 Grasping financial lingo and trends 11 Trying not to avoid money 11 Making use of insurance: A necessary evil 12 Coping with Crises 13 Everyone faces challenges, obstacles, and setbacks 13 Common crisis 14 Making Decisions Based on Changing Circumstances 15 Chapter 2: Understanding Capitalism and Economic Downturns 17 Understanding Our Economic System 18 Capitalism strengths and criticism 18 History of growth and downturns 22 Touring Past Crises: What Happened and Why 25 Why pilot training has relevance for your tour 25 The Panic of 1907 26 The Great Depression 27 World War II 29 Arab oil embargo and Watergate/Nixon’s resignation 29 9/11 terrorist attacks and recession 30 2008 financial crisis 31 2020 COVID-19 Pandemic 32 Mistakes Made and Lessons to Carry With You 35 Chapter 3: Coping with Personal Crises 39 When a Crisis Comes Calling 40 Losing your job or a significant source of income 40 Facing a medical crisis 43 Caring for elderly parents unexpectedly 44 Splitting from your spouse 46 Coping with the death of a spouse 47 Dealing with a natural disaster 48 Success Plans for Personal Crises and Life Changes 49 Keeping your big picture in mind 50 Considering a comprehensive checklist 50 Part 2: Crisis Mode: Accessing Safety Nets and Emergency Measures 53 Chapter 4: Your Safety Nets 55 Taking Stock of Your Resources 55 Surveying your accessible money and spending options 56 Finding assistance from family 57 Ensuring adequate insurance coverage 58 Surveying Societal Safety Nets 59 Health insurance subsidies 59 Unemployment insurance benefits 63 Federal refundable tax credits 64 Help with housing 65 For more information on safety net programs 66 Chapter 5: Digging Out and Forging Ahead 67 Turning Your Eye toward Recovery 67 Knowing how long it will take to regain stable financial footing 68 Coping with frustration and moving on 69 Thinking (and Researching) Before Making Financial Moves 70 Wise financial actions to take 70 Boneheaded financial actions to avoid 70 Leaning on an Expert for Help 71 Knowing how experts can help 72 Being careful in a time of need 72 Finding financial advisors and planners 72 Being aware of budget counselors 75 Investing in investment managers 76 Looking into real estate agents 77 Making note of tax preparers and advisors 79 Dealing with insurance agents 80 Tuning in to attorneys 80 Minding Your Media Intake 80 Example 1: The COVID-19 pandemic 81 Example 2: The 2008 Financial Crisis 83 Example 3: Corporations not paying income taxes 85 Lessons learned and keys to remember 86 Part 3: Being a Smart Consumer of Economic Information 87 Chapter 6: So Many Numbers! Making Sense of Economic Reports 89 Keeping Economic Reports in Perspective 90 Reports are a (small) snapshot in time 90 Beware annualized numbers 91 Take a long-term view of the numbers 92 Sleuthing Through Economic Reports 93 Employment/jobs reports 93 Gross Domestic Product 95 Consumer confidence 96 Corporate profits 97 Consumer prices (also known as inflation) 99 The reports you can mostly ignore 100 Interpreting Media Coverage of Economic Data 102 Understanding the short-term and provocative focus 102 Keeping an eye out for biases 102 Example 1: The COVID-19 pandemic 103 Example 2: The 2008 financial crisis 105 Chapter 7: Says Who? Weighing “Experts’” Advice 109 Understanding Why Particular Pundits Get Attention 110 Important things to know about the “news” media 110 Getting media attention is a competitive business 112 Controversial points of view often attract 112 Political partisans can be hazardous to your wealth 114 Uncovering Gurus’ Agendas 118 Figuring out what they’re really selling 118 Checking out their qualifications and track records 119 Deciding Whether Hiring an Advisor is the Right Choice 120 Chapter 8: Following Financial Markets 121 Understanding Stocks and Bonds 122 Making Informed Investing Decisions 123 Connecting corporate profits to stock prices 124 Looking at financial market efficiency 125 Focusing on interest rates, inflation, and the Federal Reserve 126 Challenging Financial Markets During Changing Times 129 What really moves financial markets (in the short term) 130 Why market timing is so hard to do 131 Part 4: Keeping Your Personal Finance House in Order 133 Chapter 9: Getting on the Right Road with Spending and Saving 135 Getting a Handle on Your Spending 136 Differentiating necessities from luxuries 136 Reducing your expenditures 137 Setting and following a budget 143 Some final spending reminders 144 Saving: Necessary Rocket Fuel 145 Understanding compounded returns 146 Considering your short- and long-term personal and financial goals 146 Noting the power of tax-deferred retirement accounts 149 Upping Your Income 151 Lowering Your Tax Bill 152 Knowing your income tax rate 152 Using your income tax rate 153 Taxing issues regarding children 156 Making quarterly tax filing requirements 157 Ouch! Dealing with Major Medical Bills 158 Reviewing your billing statements for accuracy 158 Negotiating with providers or an insurance company 158 Chapter 10: Investing Wisely and Securely 161 Checking Out All the Places You Can Invest Your Money 161 Noting how investment types differ from one another 162 Understanding the major investments 164 Building wealth with stocks 165 Locating money through real estate 171 Turning to small business options 174 Searching for safe money investments 175 Cultivating Good Investing Habits 176 Understanding fees 177 Managing monitoring and trading your investments 178 Keeping your emotions from following market trends 180 Dealing with investment setbacks 181 Developing a Personal Investing Plan 182 Taxing situations 183 Assessing your current portfolio 183 Allocating those assets 185 Selecting the Best Mutual Funds and Exchange-Traded Funds (ETFs) 188 Investing in stock and bond funds 189 Minding the ABCs of ETFs 191 Seizing Investment Opportunities During Tough Times 191 Cashing in on reduced stock and real estate prices 192 Mustering the courage to buy when more people are selling 193 Chapter 11: Getting and Maintaining Proper Insurance 195 Being Prepared: A Quick Lesson on Insurance 196 Don’t sweat the small losses 196 Define a small loss 197 Insurance not to buy 198 Insurance worth purchasing 199 Protecting Your Health 199 Reviewing your current health insurance 200 Saving tax dollars with health savings accounts 201 Maximizing your personal health 202 Securing Your Income-Earning Ability 204 Long-term disability insurance 204 Life insurance 207 Insurance on Your Assets 209 Insuring your home 210 Auto insurance 213 Excess liability insurance 217 Will, Trusts, and Estate Planning 217 Starting with a will 217 Preparing other useful legal documents 218 Considering your preparation options 219 Protecting Yourself from Identity Theft and Fraud 219 Part 5: Prepping for Future Armageddon 223 Chapter 12: What Pundits Scare People About 225 Fearmongers Have Been Scaring Folks for Generations 226 Case study: Peter Schiff has been scaring investors for generations 227 Understanding what pundits are trying to sell you 231 Seeing why fearmongers’ predictions are often wrong 232 Surveying the Leading Worries Being Pitched Today 233 Excessive government debts 233 High inflation and worthless currencies 237 Anarchy and the breakdown of society 238 Chapter 13: Preparing Yourself for Unexpected Future Crises 241 What Possible Future Crises Should You Be Prepared For? 242 Dangers of excessive dependence upon technology and internet 243 Hazards of faster and inaccurate “news” flow 243 Spreading socialism 245 Climate change (also known as global warming) 245 Power grid failures and resource shortages 247 Solvency of Social Security 248 Preparing Financially and Otherwise for New Future Crises 249 Part 6: The Part of Tens 251 Chapter 14: Tens Ways to Improve Your Personal Safety 253 Combine Your Instincts with Proven Strategies 253 What You Don’t Know Can Hurt You 254 Do Unto Others As You Would Have Others Do Unto You 254 Err on the Side of Caution 255 There’s (Some) Safety in Numbers, But There May be a Weak Link 255 If It Looks Too Good to Be True, It Probably is 255 Don’t Assume “Lightning Never Strikes Twice” 256 Don’t Judge a Book by Its Cover 257 Trust Your Instincts 257 Share Your Concerns with Someone You Trust 257 Chapter 15: Ten Ways to Address Over-Saving 259 Understanding the Over-Saver Mindset 259 Balancing Spending and Saving 261 Keeping Money Accumulation in Proper Perspective 261 Giving Yourself Permission to Spend More 262 Doing Some Retirement Analysis 262 Getting Smart about Investing Your Money 262 Going On a News Diet 262 Treating Yourself to Something Special 263 Buying More Gifts for the People You Love 263 Going Easy When It Comes to Everyday Expenses 263 Index 265

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Book SynopsisDiscover an insightful new text covering advanced problems in real property valuation In Advanced Issues in Property Valuation, real estate valuation experts and authors Hans Lind and Bo Nordlund provide a deep understanding of the concepts, theories, methods and controversies in property valuation. The book introduces readers to controversies and discussions in real estate valuation, including the relevance of market value for valuation for lending purposes, how uncertainty in property valuations should be interpreted, and the relationship between market value and fair value in financial reporting. Readers will also benefit from the inclusion of: A thorough introduction to the concepts, theories, methods and problems in real estate property valuationAn exploration of the relevance of market value for valuation for lending purposesA practical discussion of how uncertainty in property valuations should be interpretedA concise treatment of the relationship between market value and faiTable of Contents1. Introduction 5 1.1 The general purpose of the book 5 1.2 Overview of issues covered 6 1.3 How the book can be used 7 2. The concept of market value 9 2.1 Introduction 9 2.2 Standard definition 9 2.3 Criteria for a good definition: clear, measurable, concise and relevant 10 2.4 Problem 1. "Estimated price" or "most probable price"? 11 2.5 Problem 2: Shall the definition refer to a competitive market? 12 2.6 Problem 3: Should the definition refer to prudent and knowledgeable actors? 12 2.7 Problem 4: Should the definition include a reference to willing seller and willing buyer? 14 2.8 Problem 5: Market value and turnover 15 2.9 Highest and best use 18 2.10 Conclusion 18 Exercises 19 3. Finding the market value: What is a valuation method and how should the methods be categorized? 20 3.1 Introduction and overview 20 3.2 The three classic valuation approaches/methods 20 3.3 A problem with the standard classifications 24 3.4 The information base of a valuation 26 3.5 A different way to classify valuation methods 29 3.6 Adjustment methods 32 3.7 Why are regression analysis (hedonic methods) seldom used in ordinary valuations? 33 3.8 What is really the cash-flow method? 35 3.9 Valuation of development properties and option aspects 38 3.10 Use of different methods in the valuation of a specific object: Concluding comments 40 Exercises 42 4. Uncertainty and bias in property valuations 44 4.1 Introduction 44 4.2 Valuation variance: Why do valuers disagree? 45 4.3 Valuation accuracy: Why do the observed price differ from the market value? 46 4.4 How confident is the valuer in the estimated market value? 48 4.5 How stable is the estimated market value? 49 4.6 Client influence and bias 51 4.7 Behavioural factors 52 4.8 Valuation smoothing 54 4.9 How self-selection can lead to "bias" 55 4.10 Possible policy recommendations 57 4.11 Concluding comments 58 Exercises 59 5. Valuation for lending purposes and long-term value concepts 60 5.1 Introduction 60 5.2 Two competing theories about predictability of property prices 61 5.3 Price bubbles on the real estate market 62 5.4 The leverage cycles and bank incentives 63 5.5 Use market value, make risk analysis and adjust the Loan-to-value ratio (LTV-ratio) 64 5.6 “Long-run value” as an alternative 67 5.7 Alternative value concept (1) Mortgage Lending Value 68 5.8 Alternative value concept (2) Worth or (normalized) investment value 70 5.9 Derivatives of market value 71 5.10 Cost based value concepts 73 5.11 Final comment: Can valuation methods and credit rules affect the property cycle? 73 Exercises 74 6. Valuation for financial reports and other accounting related issues 75 6.1 Introduction 75 6.2 The fair value concept 76 6.3 The fair value hierarchy, disclosure requirements and the risk for bias 78 6.4 Valuation of public sector properties 80 6.5 Property depreciation, refurbishments, and free cash flows to the property firm 81 6.6 Auditing and quality assurance of fair values in financial reporting 82 6.7 Concluding comments about fair values 83 Exercises 84 7. Property valuation and sustainable buildings 87 7.1 Introduction 87 7.2 What is a green/sustainable building – on environmental certification system 87 7.3 How sustainability can affect property values 89 7.4 Valuation methods and sustainable buildings 91 7.5 The relation between values of "green" and "brown" buildings 92 7.6 Concluding comments 94 Exercises 94 8. Transparency issues 96 8.1 Transparent and rational markets 96 8.2 Transparent valuation reports 101 8.3 Concluding comments 103 Exercises 103 9. Valuation ethics, the role of the valuer and governance 104 9.1 The importance of valuation and basic ethical rules 104 9.2 The responsibility of valuers and valuation firms 104 9.3 Authorization/certification of valuers 107 9.4 Concluding comments 109 Exercises 110 10. Property valuation in the future 111 10.1 Technological development 111 10.2 Structural changes in society: Corona-pandemic as an example 113 10.3 Radical uncertainty and property valuation 114 Exercises 115 Appendix: Can the value of a property be divided into value of the parts? 117 Introduction 117 Dividing the value into land value and building value for homes and commercial buildings 117 Dividing the value into farmland and farm buildings 119 Dividing the value into property value and "business enterprise value" 120 Concluding comment 121 Exercises 121 References 122

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Book SynopsisDiscover the latest essential resource on asset allocation for students and investment professionals. Part of the CFA Institute's three-volume Portfolio Management in Practice series, Asset Allocation offers a deep, comprehensive treatment of the asset allocation process and the underlying theories and markets that support it. As the second volume in the series, Asset Allocation meets the needs of both graduate-level students focused on finance and industry professionals looking to become more dynamic investors. Filled with the insights and industry knowledge of the CFA Institute's subject matter experts, Asset Allocation effectively blends theory and practice while helping the reader expand their skillsets in key areas of interest. This volume provides complete coverage on the following topics: Setting capital market expectations to support the asset allocation processPrinciples and processes in the asset allocation process, including handling ESG-integration and client-specific constraintsAllocation beyond the traditional asset classes to include allocation to alternative investmentsThe role of exchange-traded funds can play in implementing investment strategiesAn integrative case study in portfolio management involving a university endowment To further enhance your understanding of tools and techniques explored in Asset Allocation, don't forget to pick up the Portfolio Management in Practice, Volume 2: Asset Allocation Workbook. The workbook is the perfect companion resource containing learning outcomes, summary overview sections, and challenging practice questions that align chapter-by-chapter with the main text.Table of ContentsPreface xiii Acknowledgments xv About the CFA Institute Investment Series xvii Chapter 1 Basics of Portfolio Planning and Construction 1 1. Introduction 1 2. Portfolio Planning 2 2.1. The Investment Policy Statement 2 2.2. Major Components of an IPS 3 2.3. Gathering Client Information 17 3. Portfolio Construction 19 3.1. Capital Market Expectations 20 3.2. The Strategic Asset Allocation 20 3.3. Steps Toward an Actual Portfolio 28 3.4. ESG Considerations in Portfolio Planning and Construction 32 3.5. Alternative Portfolio Organizing Principles 33 4. Conclusion and Summary 34 References 35 Practice Problems 36 Chapter 2 Security Market Indexes 41 1. Introduction 41 2. Index Definition and Calculations of Value and Returns 42 2.1. Calculation of Single-Period Returns 43 2.2. Calculation of Index Values over Multiple Time Periods 45 3. Index Construction and Management 46 3.1. Target Market and Security Selection 46 3.2. Index Weighting 47 3.3. Index Management: Rebalancing and Reconstitution 56 4. Uses of Market Indexes 58 4.1. Gauges of Market Sentiment 58 4.2. Proxies for Measuring and Modeling Returns, Systematic Risk, and Risk-Adjusted Performance 58 4.3. Proxies for Asset Classes in Asset Allocation Models 58 4.4. Benchmarks for Actively Managed Portfolios 59 4.5. Model Portfolios for Investment Products 59 5. Equity Indexes 59 5.1. Broad Market Indexes 59 5.2. Multi-Market Indexes 60 5.3. Sector Indexes 61 5.4. Style Indexes 62 6. Fixed-Income Indexes 63 6.1. Construction 63 6.2. Types of Fixed-Income Indexes 63 7. Indexes for Alternative Investments 66 7.1. Commodity Indexes 66 7.2. Real Estate Investment Trust Indexes 66 7.3. Hedge Fund Indexes 67 8. Summary 70 Practice Problems 71 Chapter 3 Capital Market Expectations, Part 1: Framework and Macro Considerations 77 1. Introduction 78 2. Framework and Challenges 78 2.1. A Framework for Developing Capital Market Expectations 79 2.2. Challenges in Forecasting 82 3. Economic and Market Analysis 90 3.1. The Role of Economic Analysis 90 3.2. Analysis of Economic Growth 91 3.3. Approaches to Economic Forecasting 96 3.4. Business Cycle Analysis 100 3.5. Analysis of Monetary and Fiscal Policy 108 3.6. International Interactions 117 4. Summary 121 References 124 Practice Problems 125 Chapter 4 Capital Market Expectations, Part 2: Forecasting Asset Class Returns 131 1. Introduction 132 2. Overview of Tools and Approaches 132 2.1. The Nature of the Problem 132 2.2. Approaches to Forecasting 133 3. Forecasting Fixed-Income Returns 134 3.1. Applying DCF to Fixed Income 134 3.2. The Building Block Approach to Fixed-Income Returns 136 3.3. Risks in Emerging Market Bonds 142 4. Forecasting Equity Returns 145 4.1. Historical Statistics Approach to Equity Returns 145 4.2. DCF Approach to Equity Returns 146 4.3. Risk Premium Approaches to Equity Returns 148 4.4. Risks in Emerging Market Equities 153 5. Forecasting Real Estate Returns 154 5.1. Historical Real Estate Returns 154 5.2. Real Estate Cycles 155 5.3. Capitalization Rates 156 5.4. The Risk Premium Perspective on Real Estate Expected Return 157 5.5. Real Estate in Equilibrium 158 5.6. Public vs. Private Real Estate 158 5.7. Long-Term Housing Returns 160 6. Forecasting Exchange Rates 161 6.1. Focus on Goods and Services, Trade, and the Current Account 162 6.2. Focus on Capital Flows 164 7. Forecasting Volatility 170 7.1. Estimating a Constant VCV Matrix with Sample Statistics 170 7.2. VCV Matrices from Multi-Factor Models 170 7.3. Shrinkage Estimation of VCV Matrices 172 7.4. Estimating Volatility from Smoothed Returns 173 7.5. Time-Varying Volatility: ARCH Models 174 8. Adjusting a Global Portfolio 175 8.1. Macro-Based Recommendations 175 8.2. Quantifying the Views 178 9. Summary 179 References 181 Practice Problems 183 Chapter 5 Overview of Asset Allocation 191 1. Introduction 191 2. Asset Allocation: Importance in Investment Management 193 3. The Investment Governance Background to Asset Allocation 194 3.1. Governance Structures 195 3.2. Articulating Investment Objectives 195 3.3. Allocation of Rights and Responsibilities 197 3.4. Investment Policy Statement 198 3.5. Asset Allocation and Rebalancing Policy 199 3.6. Reporting Framework 199 3.7. The Governance Audit 199 4. The Economic Balance Sheet and Asset Allocation 201 5. Approaches to Asset Allocation 205 5.1. Relevant Objectives 207 5.2. Relevant Risk Concepts 208 5.3. Modeling Asset Class Risk 209 6. Strategic Asset Allocation 215 6.1. Asset Only 217 6.2. Liability Relative 222 6.3. Goals Based 225 7. Implementation Choices 230 7.1. Passive/Active Management of Asset Class Weights 230 7.2. Passive/Active Management of Allocations to Asset Classes 231 7.3. Risk Budgeting Perspectives in Asset Allocation and Implementation 235 8. Rebalancing: Strategic Considerations 236 8.1. A Framework for Rebalancing 238 8.2. Strategic Considerations in Rebalancing 239 9. Summary 241 References 242 Practice Problems 244 Chapter 6 Principles of Asset Allocation 247 1. Introduction 248 2. Developing Asset-Only Asset Allocations 249 2.1. Mean–Variance Optimization: Overview 249 2.2. Monte Carlo Simulation 262 2.3. Criticisms of Mean–Variance Optimization 265 2.4. Addressing the Criticisms of Mean–Variance Optimization 267 2.5. Allocating to Less Liquid Asset Classes 279 2.6. Risk Budgeting 280 2.7. Factor-Based Asset Allocation 283 3. Developing Liability-Relative Asset Allocations 287 3.1. Characterizing the Liabilities 287 3.2. Approaches to Liability-Relative Asset Allocation 290 3.3. Examining the Robustness of Asset Allocation Alternatives 302 3.4. Factor Modeling in Liability-Relative Approaches 304 4. Developing Goals-Based Asset Allocations 304 4.1. The Goals-Based Asset Allocation Process 306 4.2. Describing Client Goals 308 4.3. Constructing Sub-Portfolios 310 4.4. The Overall Portfolio 314 4.5. Revisiting the Module Process in Detail 315 4.6. Periodically Revisiting the Overall Asset Allocation 319 4.7. Issues Related to Goals-Based Asset Allocation 320 5. Heuristics and Other Approaches to Asset Allocation 321 5.1. The “120 minus your age” rule 321 5.2. The 60/40 stock/bond heuristic 323 5.3. The endowment model 323 5.4. Risk parity 324 5.5. The 1/N rule 326 6. Portfolio Rebalancing in Practice 326 7. Conclusions 331 References 332 Practice Problems 335 Chapter 7 Asset Allocation with Real-World Constraints 345 1. Introduction 345 2. Constraints in Asset Allocation 346 2.1. Asset Size 346 2.2. Liquidity 352 2.3. Time Horizon 355 2.4. Regulatory and Other External Constraints 359 3. Asset Allocation for the Taxable Investor 364 3.1. After-Tax Portfolio Optimization 365 3.2. Taxes and Portfolio Rebalancing 369 3.3. Strategies to Reduce Tax Impact 370 4. Revising the Strategic Asset Allocation 374 5. Short-Term Shifts in Asset Allocation 381 5.1. Discretionary TAA 382 5.2. Systematic TAA 383 6. Dealing with Behavioral Biases in Asset Allocation 386 6.1. Loss Aversion 387 6.2. Illusion of Control 387 6.3. Mental Accounting 388 6.4. Representativeness Bias 389 6.5. Framing Bias 390 6.6. Availability Bias 391 7. Summary 394 References 396 Practice Problems 397 Chapter 8 Asset Allocation to Alternative Investments 407 1. Introduction 407 2. The Role of Alternative Investments in a Multi-Asset Portfolio 408 2.1. The Role of Private Equity in a Multi-Asset Portfolio 411 2.2. The Role of Hedge Funds in a Multi-Asset Portfolio 412 2.3. The Role of Real Assets in a Multi-Asset Portfolio 412 2.4. The Role of Commercial Real Estate in a Multi-Asset Portfolio 413 2.5. The Role of Private Credit in a Multi-Asset Portfolio 414 3. Diversifying Equity Risk 414 3.1. Volatility Reduction over the Short Time Horizon 414 3.2. Risk of Not Meeting the Investment Goals over the Long Time Horizon 418 4. Perspectives on the Investment Opportunity Set 420 4.1. Traditional Approaches to Asset Classification 421 4.2. Risk-Based Approaches to Asset Classification 424 4.3. Comparing Risk-Based and Traditional Approaches 429 5. Investment Considerations Relevant to the Decision to Invest in Alternatives 431 5.1. Risk Considerations 431 5.2. Return Expectations 432 5.3. Investment Vehicle 432 5.4. Liquidity 434 5.5. Fees and Expenses 438 5.6. Tax Considerations 438 5.7. Other Considerations 439 6. Suitability Considerations 442 6.1. Investment Horizon 442 6.2. Expertise 442 6.3. Governance 442 6.4. Transparency 443 7. Asset Allocation Approaches 445 7.1. Statistical Properties and Challenges of Asset Returns 446 7.2. Monte Carlo Simulation 451 7.3. Portfolio Optimization 458 7.4. Risk Factor-Based Optimization 465 8. Liquidity Planning 469 8.1. Achieving and Maintaining the Strategic Asset Allocation 470 8.2. Managing the Capital Calls 476 8.3. Preparing for the Unexpected 476 9. Monitoring the Investment Program 480 9.1. Overall Investment Program Monitoring 480 9.2. Performance Evaluation 481 9.3. Monitoring the Firm and the Investment Process 483 10. Summary 485 References 487 Practice Problems 488 Chapter 9 Exchange-Traded Funds: Mechanics and Applications 497 1. Introduction 497 2. ETF Mechanics 498 2.1. The Creation/Redemption Process 499 2.2. Trading and Settlement 503 3. Understanding ETFs 504 3.1. Expense Ratios 504 3.2. Index Tracking/Tracking Error 505 3.3. Tax Issues 511 3.4. ETF Trading Costs 512 3.5. Total Costs of ETF Ownership 518 3.6. Risks 521 4. ETFs IN PORTFOLIO MANAGEMENT 526 4.1. ETF Strategies 526 4.2. Efficient Portfolio Management 526 4.3. Asset Class Exposure Management 528 4.4. Active and Factor Investing 530 5. Summary 533 Practice Problems 536 Chapter 10 Case Study in Portfolio Management: Institutional 541 1. Introduction 541 2. Background: Liquidity Management 542 2.1. Liquidity Profiling and Time-to-Cash 543 2.2. Rebalancing, Commitments 545 2.3. Stress Testing 546 2.4. Derivatives 547 2.5. Earning an Illiquidity Premium 547 3. QUINCO Case 548 3.1. Quadrivium University Investment Company (QUINCO) 550 3.2. Investment Strategy: Background and Evolution 551 3.3. Strategic Asset Allocation 553 3.4. Liquidity Management 558 3.5. Asset Manager Selection 563 3.6. Tactical Asset Allocation 565 3.7. Asset Allocation Rebalancing 570 4. Summary 574 References 575 Practice Problems 576 Glossary 581 About the Authors 587 About the CFA Program 589 Index 591

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Book SynopsisThe Asset Allocation Workbook offers a range of practical information and exercises that reinforce the key concepts explored in Portfolio Management in Practice, Volume 2: Asset Allocation. Part of the reputable CFA Institute Investment Series, the workbook is designed to further students' and professionals' hands-on experience with a variety of learning outcomes, summary overview sections, and challenging problems and solutions. The workbook provides the necessary tools and latest information to help learners advance their skills in this critical facet of portfolio management. Aligning chapter-by-chapter with the main text so readers can easily pair exercises with the appropriate content, this workbook covers: Setting capital market expectations to support the asset allocation process Principles and processes in the asset allocation process, including handling ESG-integration and client-specific constraints Allocation beyond the tTable of ContentsPart I Learning Objectives, Summary Overview, and Problems 1 Chapter I Basics of Portfolio Planning and Construction 3 Learning Outcomes 3 Summary 3 Practice Problems 5 Chapter 2 Security Market Indexes 9 Learning Outcomes 9 Summary 9 Practice Problems 10 Chapter 3 Capital Market Expectations, Part 1: Framework and Macro Considerations 17 Learning Outcomes 17 Summary 18 Practice Problems 21 Chapter 4 Capital Market Expectations, Part 2: Forecasting Asset Class Returns 27 Learning Outcomes 27 Summary 28 Practice Problems 30 Chapter 5 Overview of Asset Allocation 39 Learning Outcomes 39 Summary 40 Practice Problems 41 Chapter 6 Principles of Asset Allocation 45 Learning Outcomes 45 Summary 46 Practice Problems 47 Chapter 7 Asset Allocation with Real-World Constraints 57 Learning Outcomes 57 Summary 57 Practice Problems 59 Chapter 8 Asset Allocation to Alternative Investments 69 Learning Outcomes 69 Summary 69 Practice Problems 72 Chapter 9 Exchange-Traded Funds: Mechanics and Applications 81 Learning Outcomes 81 Summary 81 Practice Problems 83 Chapter 10 Case Study in Portfolio Management: Institutional 89 Learning Outcomes 89 Summary 89 Practice Problems 90 Part II Solutions 95 Chapter 1 Basics of Portfolio Planning and Construction 97 Solutions 97 Chapter 2 Security Market Indexes 101 Solutions 101 Chapter 3 Capital Market Expectations, Part I: Framework and Macro Considerations 105 Solutions 105 Chapter 4 Capital Market Expectations, Part II: Forecasting Asset Class Returns 111 Solutions 111 Chapter 5 Overview of Asset Allocation 119 Solutions 119 Chapter 6 Principles of Asset Allocation 121 Solutions 121 Chapter 7 Asset Allocation with Real-World Constraints 129 Solutions 129 Chapter 8 Asset Allocation to Alternative Investments 135 Solutions 135 Chapter 9 Exchange-Traded Funds: Mechanics and Applications 145 Solutions 145 Chapter 10 Case Study in Portfolio Management: Institutional 151 Solutions 151 About the CFA Program 157

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Book SynopsisDiscover the latest essential resource on equity portfolio management for students and investment professionals. Part of the CFA Institute's three-volume Portfolio Management in Practice series, Equity Portfolio Management offers a fuller treatment of active versus passive equity investment strategies. This text outlines key topics in the portfolio management process with clear, concise language to serve as an accessible guide for students and current industry professionals. Building on content in the Investment Management and Equity Valuation volumes in the CFA Institute Investment Series, Equity Portfolio Management provides an in-depth, technical examination of constructing and evaluating active equity methods. This volume explores: An overview of passive versus active equity strategiesMarket efficiency underpinnings of passive equity strategiesActive equity strategies and developing portfolios to reflect active strategiesTechnical analysis as an additional consideration in executing active equity strategies To further enhance your understanding of the tools and techniques covered here, don't forget to pick up the Portfolio Management in Practice, Volume 3: Equity Portfolio Management Workbook. The workbook is the perfect companion resource containing Learning Outcomes, Summary Overview sections, and challenging practice questions that align chapter-by-chapter with the main text. Equity Portfolio Management alongside the other Portfolio Management in Practice volumesdistill the knowledge, skills, and abilities readers need to succeed in today's fast-paced financial world.Table of ContentsPreface xi Acknowledgments xiii About the CFA Institute Investment Series xv Chapter 1 Overview of Equity Securities 1 Learning Outcomes 1 1. Introduction 1 2. Equity Securities in Global Financial Markets 2 3. Types and Characteristics of Equity Securities 6 3.1. Common Shares 7 3.2. Preference Shares 10 4. Private versus Public Equity Securities 12 5. Investing in Non-Domestic Equity Securities 15 5.1. Direct Investing 17 5.2. Depository Receipts 17 6. Risk and Return Characteristics of Equity Securities 20 6.1. Return Characteristics of Equity Securities 20 5.2. Risk of Equity Securities 22 7. Equity Securities and Company Value 23 7.1. Accounting Return on Equity 23 7.2. The Cost of Equity and Investors’ Required Rates of Return 28 Summary 29 References 31 Practice Problems 31 Chapter 2 Market Efficiency 35 Learning Outcomes 35 1. Introduction 35 2. The Concept of Market Efficiency 37 2.1. The Description of Efficient Markets 37 2.2. Market Value versus Intrinsic Value 39 2.4. Transaction Costs and Information-Acquisition Costs 43 3. Forms of Market Efficiency 44 3.1. Weak Form 44 3.2. Semi-Strong Form 45 3.3. Strong Form 48 3.4. Implications of the Efficient Market Hypothesis 48 4. Market Pricing Anomalies 50 4.1. Time-Series Anomalies 51 4.2. Cross-Sectional Anomalies 53 4.3. Other Anomalies 54 4.4. Implications for Investment Strategies 56 5. Behavioral Finance 57 5.1. Loss Aversion 57 5.2. Herding 58 5.3. Overconfidence 58 5.4. Information Cascades 58 5.5. Other Behavioral Biases 59 5.6. Behavioral Finance and Investors 60 5.7. Behavioral Finance and Efficient Markets 60 Summary 60 References 61 Practice Problems 63 Chapter 3 Overview of Equity Portfolio Management 67 Learning Outcomes 67 1. Introduction 67 2. The Roles of Equities in a Portfolio 68 2.1. Capital Appreciation 68 2.2. Dividend Income 69 2.3. Diversification with Other Asset Classes 70 2.4. Hedge Against Inflation 71 2.5. Client Considerations for Equities in a Portfolio 71 3. Equity Investment Universe 73 3.1. Segmentation by Size and Style 73 3.2. Segmentation by Geography 75 3.3. Segmentation by Economic Activity 77 3.4. Segmentation of Equity Indexes and Benchmarks 78 4. Income and Costs in an Equity Portfolio 79 4.1. Dividend Income 79 4.2. Securities Lending Income 80 4.3. Ancillary Investment Strategies 80 4.4. Management Fees 81 4.5. Performance Fees 81 4.6. Administration Fees 82 4.7. Marketing and Distribution Costs 82 4.8. Trading Costs 83 4.9. Investment Approaches and Effects on Costs 83 5. Shareholder Engagement 84 5.1. Benefits of Shareholder Engagement 84 5.2. Disadvantages of Shareholder Engagement 85 5.3. The Role of an Equity Manager in Shareholder Engagement 85 6. Equity Investment across the Passive–Active Spectrum 87 6.1. Confidence to Outperform 87 6.2. Client Preference 88 6.3. Suitable Benchmark 89 6.4. Client-Specific Mandates 89 6.5. Risks/Costs of Active Management 89 6.6. Taxes 89 Summary 90 References 91 Practice Problems 92 Chapter 4 Passive Equity Investing 95 Learning Outcomes 95 1. Introduction 95 2. Choosing a Benchmark 97 2.1. Indexes as a Basis for Investment 97 2.2. Considerations When Choosing a Benchmark Index 98 2.3. Index Construction Methodologies 100 2.4. Factor-Based Strategies 106 3. Approaches to Passive Equity Investing 109 3.1. Pooled Investments 110 3.2. Derivatives-Based Approaches 113 3.3. Separately Managed Equity Index-Based Portfolios 140 4. Portfolio Construction 119 4.1. Full Replication 119 4.2. Stratified Sampling 121 4.3. Optimization 122 4.4. Blended Approach 123 5. Tracking Error Management 123 5.1. Tracking Error and Excess Return 124 5.2. Potential Causes of Tracking Error and Excess Return 125 5.3. Controlling Tracking Error 126 6. Sources of Return and Risk in Passive Equity Portfolios 126 6.1. Attribution Analysis 127 6.2. Securities Lending 129 6.3. Investor Activism and Engagement by Passive Managers 131 Summary 132 References 133 Practice Problems 135 Chapter 5 Analysis of Active Portfolio Management 141 Learning Outcomes 141 1. Introduction 141 2. Active Management and Value Added 142 2.1. Choice of Benchmark 143 2.2. Measuring Value Added 143 2.3. Decomposition of Value Added 145 3. Comparing Risk and Return 147 3.1. The Sharpe Ratio 147 3.2. The Information Ratio 150 3.3. Constructing Optimal Portfolios 153 4. The Fundamental Law of Active Management 158 4.1. Active Security Returns 158 4.2. The Basic Fundamental Law 163 4.3. The Expanded Fundamental Law 164 4.4. Ex Post Performance Measurement 167 5. Applications of the Fundamental Law 169 5.1. Global Equity Strategy 169 5.2. Fixed-Income Strategies 177 6. Practical Limitations 183 6.1. Ex Ante Measurement of Skill 183 6.2. Independence of Investment Decisions 184 Summary 185 References 187 Practice Problems 187 Chapter 6 Active Equity Investing: Strategies 197 Learning Outcomes 197 1. Introduction 197 2. Approaches to Active Management 198 2.1. Differences in the Nature of the Information Used 200 2.2. Differences in the Focus of the Analysis 201 2.3. Difference in Orientation to the Data: Forecasting the Future vs. Analyzing the Past 202 2.4. Differences in Portfolio Construction: Judgment vs. Optimization 202 3. Types of Active Management Strategies 204 3.1. Bottom-Up Strategies 204 3.2. Top-Down Strategies 211 3.3. Factor-Based Strategies 214 3.4. Activist Strategies 228 3.5. Other Strategies 235 4. Creating a Fundamental Active Investment Strategy 239 4.1. The Fundamental Active Investment Process 239 4.2. Pitfalls in Fundamental Investing 241 5. Creating a Quantitative Active Investment Strategy 246 5.1. Creating a Quantitative Investment Process 246 5.2. Pitfalls in Quantitative Investment Processes 249 6. Equity Investment Style Classification 253 6.1. Different Approaches to Style Classification 253 6.2. Strengths and Limitations of Style Analysis 260 Summary 262 References 263 Practice Problems 264 Chapter 7 Active Equity Investing: Portfolio Construction 271 Learning Outcomes 271 1. Introduction 271 2. Building Blocks of Active Equity Portfolio Construction 272 2.1. Fundamentals of Portfolio Construction 273 2.2. Building Blocks Used in Portfolio Construction 275 3. Approaches to Portfolio Construction 284 3.1. The Implementation Process: The Choice of Portfolio Management Approaches 285 3.2. The Implementation Process: The Objectives and Constraints 296 4. Allocating the Risk Budget 301 4.1. Absolute vs. Relative Measures of Risk 302 4.2. Determining the Appropriate Level of Risk 307 4.3. Allocating the Risk Budget 310 5. Additional Risk Measures Used in Portfolio Construction and Monitoring 314 5.1. Heuristic Constraints 314 5.2. Formal Constraints 315 5.3. The Risks of Being Wrong 318 6. Implicit Cost-Related Considerations in Portfolio Construction 321 6.1. Implicit Costs—Market Impact and the Relevance of Position Size, Assets under Management, and Turnover 321 6.2. Estimating the Cost of Slippage 324 7. The Well-Constructed Portfolio 328 8. Long/Short, Long Extension, and Market-Neutral Portfolio Construction 332 8.1. The Merits of Long-Only Investing 333 8.2. Long/Short Portfolio Construction 335 8.3. Long Extension Portfolio Construction 336 8.4. Market-Neutral Portfolio Construction 337 8.5. Benefits and Drawbacks of Long/Short Strategies 338 Summary 342 References 345 Practice Problems 346 Chapter 8 Technical Analysis 351 Learning Outcomes 351 1. Introduction 351 2. Technical Analysis: Principles, Assumptions, and Links to Investment Analysis 352 2.1. Principles and Assumptions 353 2.2. Technical Analysis and Behavioral Finance 354 2.3. Technical Analysis and Fundamental Analysis 356 2.4. The Differences in Conducting/Interpreting Technical Analysis in Various Types of Markets 358 3. Charting 360 3.1. Types of Technical Analysis Charts 361 3.2. Trend, Support, and Resistance 372 3.3. Common Chart Patterns 375 4. Technical Indicators 397 4.1. Technical Indicators 398 5. Applications to Portfolio Management 417 5.1. Principles of Intermarket Analysis 418 5.2. Technical Analysis Applications to Portfolio Management 421 Summary 435 Practice Problems 438 Glossary 445 About the Authors 451 About the CFA Program 453 Index 455

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Book SynopsisState-of-the-art algorithmic deep learning and tensoring techniques for financial institutions The computational demand of risk calculations in financial institutions has ballooned and shows no sign of stopping. It is no longer viable to simply add more computing power to deal with this increased demand. The solution? Algorithmic solutions based on deep learning and Chebyshev tensors represent a practical way to reduce costs while simultaneously increasing risk calculation capabilities. Machine Learning for Risk Calculations: A Practitioner's View provides an in-depth review of a number of algorithmic solutions and demonstrates how they can be used to overcome the massive computational burden of risk calculations in financial institutions. This book will get you started by reviewing fundamental techniques, including deep learning and Chebyshev tensors. You'll then discover algorithmic tools that, in combination with the fundamentals, deliver actual solutiTable of ContentsAcknowledgements xvii Foreword xxi Motivation and aim of this book xxiii Part One Fundamental Approximation Methods Chapter 1 Machine Learning 3 1.1 Introduction to Machine Learning 3 1.1.1 A brief history of Machine Learning Methods 4 1.1.2 Main sub-categories in Machine Learning 5 1.1.3 Applications of interest 7 1.2 The Linear Model 7 1.2.1 General concepts 8 1.2.2 The standard linear model 12 1.3 Training and predicting 15 1.3.1 The frequentist approach 18 1.3.2 The Bayesian approach 21 1.3.3 Testing—in search of consistent accurate predictions 25 1.3.4 Underfitting and overfitting 25 1.3.5 K-fold cross-validation 27 1.4 Model complexity 28 1.4.1 Regularisation 29 1.4.2 Cross-validation for regularisation 31 1.4.3 Hyper-parameter optimisation 33 Chapter 2 Deep Neural Nets 39 2.1 A brief history of Deep Neural Nets 39 2.2 The basic Deep Neural Net model 41 2.2.1 Single neuron 41 2.2.2 Artificial Neural Net 43 2.2.3 Deep Neural Net 46 2.3 Universal Approximation Theorems 48 2.4 Training of Deep Neural Nets 49 2.4.1 Backpropagation 50 2.4.2 Backpropagation example 51 2.4.3 Optimisation of cost function 55 2.4.4 Stochastic gradient descent 57 2.4.5 Extensions of stochastic gradient descent 58 2.5 More sophisticated DNNs 59 2.5.1 Convolution Neural Nets 59 2.5.2 Other famous architectures 63 2.6 Summary of chapter 64 Chapter 3 Chebyshev Tensors 65 3.1 Approximating functions with polynomials 65 3.2 Chebyshev Series 66 3.2.1 Lipschitz continuity and Chebyshev projections 67 3.2.2 Smooth functions and Chebyshev projections 70 3.2.3 Analytic functions and Chebyshev projections 70 3.3 Chebyshev Tensors and interpolants 72 3.3.1 Tensors and polynomial interpolants 72 3.3.2 Misconception over polynomial interpolation 73 3.3.3 Chebyshev points 74 3.3.4 Chebyshev interpolants 76 3.3.5 Aliasing phenomenon 77 3.3.6 Convergence rates of Chebyshev interpolants 77 3.3.7 High-dimensional Chebyshev interpolants 79 3.4 Ex ante error estimation 82 3.5 What makes Chebyshev points unique 85 3.6 Evaluation of Chebyshev interpolants 89 3.6.1 Clenshaw algorithm 90 3.6.2 Barycentric interpolation formula 91 3.6.3 Evaluating high-dimensional tensors 93 3.6.4 Example of numerical stability 94 3.7 Derivative approximation 95 3.7.1 Convergence of Chebyshev derivatives 95 3.7.2 Computation of Chebyshev derivatives 96 3.7.3 Derivatives in high dimensions 97 3.8 Chebyshev Splines 99 3.8.1 Gibbs phenomenon 99 3.8.2 Splines 100 3.8.3 Splines of Chebyshev 101 3.8.4 Chebyshev Splines in high dimensions 101 3.9 Algebraic operations with Chebyshev Tensors 101 3.10 Chebyshev Tensors and Machine Learning 103 3.11 Summary of chapter 104 Part Two The toolkit — plugging in approximation methods Chapter 4 Introduction: why is a toolkit needed 107 4.1 The pricing problem 107 4.2 Risk calculation with proxy pricing 109 4.3 The curse of dimensionality 110 4.4 The techniques in the toolkit 112 Chapter 5 Composition techniques 113 5.1 Leveraging from existing parametrisations 114 5.1.1 Risk factor generating models 114 5.1.2 Pricing functions and model risk factors 115 5.1.3 The tool obtained 116 5.2 Creating a parametrisation 117 5.2.1 Principal Component Analysis 117 5.2.2 Autoencoders 119 5.3 Summary of chapter 120 Chapter 6 Tensors in TT format and Tensor Extension Algorithms 123 6.1 Tensors in TT format 123 6.1.1 Motivating example 124 6.1.2 General case 124 6.1.3 Basic operations 126 6.1.4 Evaluation of Chebyshev Tensors in TT format 127 6.2 Tensor Extension Algorithms 129 6.3 Step 1—Optimising over tensors of fixed rank 129 6.3.1 The Fundamental Completion Algorithm 131 6.4 Step 2—Optimising over tensors of varying rank 133 6.4.1 The Rank Adaptive Algorithm 134 6.5 Step 3—Adapting the sampling set 135 6.5.1 The Sample Adaptive Algorithm 136 6.6 Summary of chapter 137 Chapter 7 Sliding Technique 139 7.1 Slide 139 7.2 Slider 140 7.3 Evaluating a slider 141 7.3.1 Relation to Taylor approximation 142 7.4 Summary of chapter 142 Chapter 8 The Jacobian projection technique 143 8.1 Setting the background 144 8.2 What we can recover 145 8.2.1 Intuition behind g and its derivative dg 146 8.2.2 Using the derivative of f 147 8.2.3 When k < n becomes a problem 149 8.3 Partial derivatives via projections onto the Jacobian 149 Part Three Hybrid solutions — approximation methods and the toolkit Chapter 9 Introduction 155 9.1 The dimensionality problem revisited 155 9.2 Exploiting the Composition Technique 156 Chapter 10 The Toolkit and Deep Neural Nets 159 10.1 Building on P using the image of g 159 10.2 Building on f 160 Chapter 11 The Toolkit and Chebyshev Tensors 161 11.1 Full Chebyshev Tensor 161 11.2 TT-format Chebyshev Tensor 162 11.3 Chebyshev Slider 162 11.4 A final note 163 Chapter 12 Hybrid Deep Neural Nets and Chebyshev Tensors Frameworks 165 12.1 The fundamental idea 165 12.1.1 Factorable Functions 167 12.2 DNN+CT with Static Training Set 168 12.3 DNN+CT with Dynamic Training Set 171 12.4 Numerical Tests 172 12.4.1 Cost Function Minimisation 172 12.4.2 Maximum Error 174 12.5 Enhanced DNN+CT architectures and further research 174 Part Four Applications Chapter 13 The aim 179 13.1 Suitability of the approximation methods 179 13.2 Understanding the variables at play 181 Chapter 14 When to use Chebyshev Tensors and when to use Deep Neural Nets 185 14.1 Speed and convergence 185 14.1.1 Speed of evaluation 186 14.1.2 Convergence 186 14.1.3 Convergence Rate in Real-Life Contexts 187 14.2 The question of dimension 190 14.2.1 Taking into account the application 192 14.3 Partial derivatives and ex ante error estimation 195 14.4 Summary of chapter 197 Chapter 15 Counterparty credit risk 199 15.1 Monte Carlo simulations for CCR 200 15.1.1 Scenario diffusion 200 15.1.2 Pricing step—computational bottleneck 200 15.2 Solution 201 15.2.1 Popular solutions 201 15.2.2 The hybrid solution 202 15.2.3 Variables at play 203 15.2.4 Optimal setup 207 15.2.5 Possible proxies 207 15.2.6 Portfolio calculations 209 15.2.7 If the model space is not available 209 15.3 Tests 211 15.3.1 Trade types, risk factors and proxies 212 15.3.2 Proxy at each time point 213 15.3.3 Proxy for all time points 223 15.3.4 Adding non-risk-driving variables 228 15.3.5 High-dimensional problems 235 15.4 Results Analysis and Conclusions 236 15.5 Summary of chapter 239 Chapter 16 Market Risk 241 16.1 VaR-like calculations 242 16.1.1 Common techniques in the computation of VaR 243 16.2 Enhanced Revaluation Grids 245 16.3 Fundamental Review of the Trading Book 246 16.3.1 Challenges 247 16.3.2 Solution 248 16.3.3 The intuition behind Chebyshev Sliders 252 16.4 Proof of concept 255 16.4.1 Proof of concept specifics 255 16.4.2 Test specifics 257 16.4.3 Results for swap 260 16.4.4 Results for swaptions 10-day liquidity horizon 262 16.4.5 Results for swaptions 60-day liquidity horizon 265 16.4.6 Daily computation and reusability 268 16.4.7 Beyond regulatory minimum calculations 271 16.5 Stability of technique 272 16.6 Results beyond vanilla portfolios—further research 272 16.7 Summary of chapter 273 Chapter 17 Dynamic sensitivities 275 17.1 Simulating sensitivities 276 17.1.1 Scenario diffusion 276 17.1.2 Computing sensitivities 276 17.1.3 Computational cost 276 17.1.4 Methods available 277 17.2 The Solution 278 17.2.1 Hybrid method 279 17.3 An important use of dynamic sensitivities 282 17.4 Numerical tests 283 17.4.1 FX Swap 283 17.4.2 European Spread Option 284 17.5 Discussion of results 291 17.6 Alternative methods 293 17.7 Summary of chapter 294 Chapter 18 Pricing model calibration 295 18.1 Introduction 295 18.1.1 Examples of pricing models 297 18.2 Solution 298 18.2.1 Variables at play 299 18.2.2 Possible proxies 299 18.2.3 Domain of approximation 300 18.3 Test description 301 18.3.1 Test setup 301 18.4 Results with Chebyshev Tensors 304 18.4.1 Rough Bergomi model with constant forward variance 304 18.4.2 Rough Bergomi model with piece-wise constant forward variance 307 18.5 Results with Deep Neural Nets 309 18.6 Comparison of results via CT and DNN 310 18.7 Summary of chapter 311 Chapter 19 Approximation of the implied volatility function 313 19.1 The computation of implied volatility 314 19.1.1 Available methods 315 19.2 Solution 316 19.2.1 Reducing the dimension of the problem 317 19.2.2 Two-dimensional CTs 318 19.2.3 Domain of approximation 321 19.2.4 Splitting the domain 323 19.2.5 Scaling the time-scaled implied volatility 325 19.2.6 Implementation 328 19.3 Results 330 19.3.1 Parameters used for CTs 330 19.3.2 Comparisons to other methods 331 19.4 Summary of chapter 334 Chapter 20 Optimisation Problems 335 20.1 Balance sheet optimisation 335 20.2 Minimisation of margin funding cost 339 20.3 Generalisation—currently “impossible” calculations 345 20.4 Summary of chapter 346 Chapter 21 Pricing Cloning 347 21.1 Pricing function cloning 347 21.1.1 Other benefits 352 21.1.2 Software vendors 352 21.2 Summary of chapter 353 Chapter 22 XVA sensitivities 355 22.1 Finite differences and proxy pricers 355 22.1.1 Multiple proxies 356 22.1.2 Single proxy 357 22.2 Proxy pricers and AAD 358 Chapter 23 Sensitivities of exotic derivatives 359 23.1 Benchmark sensitivities computation 360 23.2 Sensitivities via Chebyshev Tensors 361 Chapter 24 Software libraries relevant to the book 365 24.1 Relevant software libraries 365 24.2 The MoCaX Suite 366 24.2.1 MoCaX Library 366 24.2.2 MoCaXExtend Library 377 Appendices Appendix A Families of Orthogonal Polynomials 385 Appendix B Exponential Convergence of Chebyshev Tensors 387 Appendix C Chebyshev Splines on Functions with No Singularity Points 391 Appendix D Computational savings details for CCR 395 D.1 Barrier option 395 D.2 Cross-currency swap 395 D.3 Bermudan Swaption 397 D.3.1 Using full Chebyshev Tensors 397 D.3.2 Using Chebyshev Tensors in TT format 397 D.3.3 Using Deep Neural Nets 399 D.4 American option 399 D.4.1 Using Chebyshev Tensors in TT format 400 D.4.2 Using Deep Neural Nets 401 Appendix E Computational savings details for dynamic sensitivities 403 E.1 FX Swap 403 E.2 European Spread Option 404 Appendix F Dynamic sensitivities on the market space 407 F.1 The parametrisation 408 F.2 Numerical tests 410 F.3 Future work . . . when k > 1 412 Appendix G Dynamic sensitivities and IM via Jacobian Projection technique 415 Appendix H MVA optimisation — further computational enhancement 419 Bibliography 421 Index 425

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Book SynopsisDemystifies regression-based valuation through simple explanations, easy-to-understand charts, and time-saving bonus resources Current methodologies using median, quartiles, or standard deviations to calculate revenue multipliers and cash flow multipliers often produce values that are wildly divergent. This forces the appraiser to choose between a very high or a very low value or consider averaging the values, opening the possibility for the appraiser to be challenged. On the surface, regression analysis appears to be the more complex, mathematical model, so many professionals shy away from using it out of fear that readers will be confused and reject the results of the appraisal. Valuing Businesses Using Regression Analysis solves this issue by breaking down regression to its simplest terms and providing easy-to-read charts and explanations that can be understood by all. Since regression analysis does not come pre-installed in Excel, this book will show Table of ContentsForeword Preface i CHAPTER 1: Current Methodologies 1 CHAPTER 2: The Solution 15 CHAPTER 3: Identifying Outliers Using Re-gression 26 CHAPTER 4: Cash Flow Multiplier Regression 31 CHAPTER 5: Enterprise Multiplier 41 CHAPTER 6: Polynomial Regressions 45 CHAPTER 7: Multiple Variable Regression 50 CHAPTER 8: Selection of Transactions in the Sample 62 CHAPTER 9: Regression 2.0 92 CHAPTER 10: Using Excel’s Regression Utility 107 CHAPTER 11: Excel Valuation Template 125 CHAPTER 12: Conclusion Acknowledgments 142

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Book SynopsisDiscover the interplay between strategy and risk in this insightful new resource from two experts in the financial industry who have applied their knowledge to multiple industries In The Two Headed Coin, accomplished authors James L. Darroch and David Wm. Finnie deliver an insightful exploration of the interplay between strategy and risk that underlies the operational framework of successful organizations. You''ll learn which risks are fundamental to the strategic positioning and goals of your organization and which are not. You''ll also discover the importance of an independent risk function, e,g., the CRO, and its invaluable role as part of the strategic process. You''ll also find: A thorough discussion of the notion of competitive advantage and how it relates to risk An exploration of consumer perception and reputation as an asset to be managed How to use scenario planning and real options to provide a framework for managTable of ContentsPreface: Risk is Good and Uncertainty is the Reality! xi Acknowledgments xxv About the Authors xxix Chapter 1 Strategy and Risk: Two Sides of the Same Coin 1 Strategic Positioning and Risk 6 Strategy and Risk in a Start-Up 7 Chapter 2 Executing on the Plan and Discovering New Risks 17 The Assumption of Goal Congruence and the Importance of Culture 21 Conclusion 27 Chapter 3 Which Risks to Keep 31 Strategic Positioning and Risk Governance 38 How Does Risk Management Help Close the Gap Between Strategy Formulation and Execution? 40 Conclusion: Embracing and Managing Risk 42 Chapter 4 How Do We Achieve Independent Risk Governance and Improve Performance? 47 What Do We Mean by ERM? 51 Chapter 5 Who Has the Specific Knowledge to Design the Risk Architecture? Why You Need an Independent Risk Function 61 The Strategy-Risk-Governance Process 61 Meeting the Objective and the Categorization of Risks 69 The Risk Architecture 71 Creation of a Risk Function 73 Conclusion 76 Chapter 6 Enterprise Risk Management and Competitive Advantage 79 How Does Strategy Affect Randomness? 86 Chapter 7 What Reputation Do We Want? With Whom? 91 Managing Reputation Risk 99 Chapter 8 Uncertainty, Scenario Planning, and Real Options 105 Real Options 113 Conclusion 116 Chapter 9 Risk Culture and Ethics: Can You Have Excellence and Consistency at the Same Time? 121 The Advisor-Customer Encounter 124 Control Systems, Discretion, and Ethics 127 Culture, Ethics, Performance, and Risk Management 135 Chapter 10 The Top of the Pyramid: The CEO as Integrator of Strategy and Risk and the Board as the Fourth Line of Defense 141 The CEO: The Operational Integration of Strategy and Risk 145 The Board: The Governance Integration of Strategy and Risk 145 The Board Provides More Than Oversight 146 Epilogue: Decision-Making at the Restaurant: Creating and Executing a Risk-Aware Strategy 151 Appendix I: Risk Transformation and the Need for an Integrated Risk Approach 157 Appendix II: Resiliency 161 Bibliography 167 Index 183

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Book SynopsisLearn how to invest, relax, and let your money do the work with this incredible guide Fully revised, updated, and expanded for the first time since its New York Times Best-Selling debut in 20TK, the legendary Alexander Green's essential guide for individual investors spells out stock-market success for everyone from first-timers to seasoned pros. The Gone Fishin' Portfolio: Get Wise, Get Wealthyand Get on With Your Life, Second Edition delivers a long-term investment strategy that lets you reap the rewards of financial success with a simple, yet sophisticated, strategy that increases returns, reduces risk, and leaves you with time to enjoy the finer things in life. You'll learn about the fundamental relationship between risk and reward in the financial markets and get a trading insider's view of how the investment industry actually works. With The Gone Fishin' Portfolio, you'll also discover: How to take your financial future into your own handsHow to invest in a way that doesn't require you to spend every waking moment worrying about your moneyHow to avoid the most common traps the investment industry sets for youWhy skilled investing doesn't have to be complicated Perfect for individual investors who want to put their money to work for them, The Gone Fishin' Portfolio gives you all the tools you need to manage your own money and maximize your investment returns today.Table of ContentsForeword vii Preface xi Acknowledgments xxi Part I Get Wise 1 Introduction 3 Chapter 1: The Unvarnished Truth About Your Money 9 Chapter 2: The First Step on the Road to Financial Freedom 15 Chapter 3: Change Your Mindset, Change Your Life 25 Chapter 4: Why Some Investors Succeed . . . But Most Don’t 33 Chapter 5: Why Manage Your Own Money? 47 Chapter 6: Know What You Don’t Know 57 Part II Get Wealthy 65 Chapter 7: Common Stocks: The Greatest Wealth Creators of All Time 67 Chapter 8: Don’t Buy What Wall Street Is Selling 81 Chapter 9: Your Single Most Important Investment Decision 93 Chapter 10: The Gone Fishin’ Portfolio Unveiled 111 Chapter 11: The ETF Alternative 141 Chapter 12: Why the Gone Fishin’ Portfolio Is Your Best Investment Plan 151 Chapter 13: How to Legally Stiff-Arm the IRS 161 Part III Get On with Your Life 169 Chapter 14: The Last Two Essentials 171 Chapter 15: Your Most Precious Resource 179 Afterword 193 Appendix A: Vanguard Funds 199 Appendix B: ETFs 241 About the Author 257 Index 259

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Book SynopsisDiscover what demographics can tell us about the economy, markets, and the future In Demographics Unravelled, renowned Macro-Demographics expert Amlan Roy delivers an insightful and timely exploration of the impact that people characteristics have on national economies. Considering factors like gender, race, migrant status, family background, and education, the author delves deeply into a subject that drives market behavior and economic variables, including growth, debt, inflation, employment, and productivity. These have national and international policy implications. In this one-of-a-kind book, you'll discover: Why the study of demographics is the hidden key to understanding economic growth, asset prices, and capital flowsHow to use detailed demographics to forecast future scenarios in economics, socioeconomics, geopolitics, and the environmentThe short-, medium-, and long-term effects of consumer and worker behaviorHow understanding demographics is key to understanding health, pensions, migration, sustainability and social policies. It is intimately linked to the Sustainable Development Goals of the UNGender, Climate, Poverty and Inequality Perfect for institutional investors, insurance professionals, economists, and business leaders, Demographics Unravelled will also earn a place in the libraries of academics and students studying a variety of economic disciplines and seeking a one-stop and in-depth discussion of demographics-drivenmacroeconomic effects.Table of ContentsAcknowledgements xv Selected Abbreviations xvii Preface xix Chapter 1: Introduction 1 1.1 Recasting Demographics 2 1.2 Effects and Implications of Demographics 5 Chapter 2: Core Data: Past, Present, and Future 11 2.1 Economic History and the History of Global Population Trends 13 2.2 Core Demographic Variables: Data, Analysis, and Some Observations 16 2.2.1 Population Size and Population Growth 16 2.2.2 Ageing Populations 18 2.2.3 Life Expectancy Increases 20 2.2.4 Total Fertility Rates 21 2.2.5 Dependency Ratios 23 2.2.6 Gender Ratios 26 2.2.7 Age Structure and Population Pyramids 29 2.2.8 The Demographic Transition Model 32 2.3 The Role of Migration 35 2.4 Urbanisation 46 2.5 Small Nation- States: Demographics 50 2.6 Changing Longevity— Metrics Need Changing 51 2.7 Changing Social and Individual Behaviour 53 2.8 Multiple Generations 55 2.9 Conclusion 57 Chapter 3: Demographics and Macroeconomics 59 3.1 Demographics and Economic Growth 60 3.2 The “Demographic Dividend” and GDP per Capita Growth 66 3.3 Inflation 70 3.4 Debt, Deficits, and Fiscal Sustainability 84 3.5 Demographics, Monetary Policy, and Interest Rates 90 3.6 Demographics and Unemployment 93 3.7 Demographics, Capital Flows, and Current Account 95 3.8 Conclusions 96 Chapter 4: Demographics and Asset Prices 99 4.1 Theories of Life- Cycle Consumption, Savings, and the Permanent Income Hypothesis 100 4.1.1 Life- Cycle Consumption Theory 100 4.1.2 Permanent Income Hypothesis 102 4.1.3 Consumption, Savings, and Intertemporal Loans: Pioneer Paul Samuelson 104 4.2 How Demographics Influences Equity Prices and Markets 105 4.3 Will There Be an Asset Market Meltdown When the Baby Boomers Retire? 116 4.4 Demographic Changes and Interest Rates (Bond Yields) 119 4.5 Demographics and Risk Premiums 124 4.6 Asset Holdings and Age 125 4.7 Demographics and Equity Sectors 128 4.8 Demographics and Real Estate 136 4.9 Demographics and Commodities 140 4.10 Conclusions 143 Chapter 5: Health and Longevity 147 5.1 Health Issues, Expenditures, and Measures 149 5.1.1 Health Expenditures 150 5.1.2 Global Health Security 152 5.1.3 Global Burden of Disease 155 5.1.4 Health in Emerging Countries 157 5.2 Longevity 163 5.2.1 Increases in Life Expectancy and Conditional Life Expectancy 164 5.2.2 Life Expectancy vs. Healthy Life Expectancy 166 5.2.3 DALYs and Their Causes 168 5.2.4 Longevity and Mortality: More Than Just Births and Deaths 169 5.2.5 Longevity Risk and the Uncertain Future of Longevity 172 5.2.6 Longevity Forecasting Models: Countries and Regions 174 5.2.7 Short Summary of Longevity Models 177 5.2.8 Annuities as a Longevity Risk Management Tool 183 5.2.9 Other Longevity Risk Management Tools and Instruments 187 5.3 Conclusions 190 Chapter 6: Pensions and Retirement 193 6.1 A Brief History of Social Security and Pensions 194 6.1.1 Pre–Social Security 195 6.1.2 Committee on Economic Security 196 6.2 Evaluating Pension Systems: Indicators and Cross- Country Comparisons 200 6.3 Evaluating Age- Related Pension Expenditures Across Countries 208 6.4 Pensions and Pension Systems: The Experts 210 6.5 Pensions, Asset Allocation, Investments, and Capital Markets 224 6.6 Pensions and Corporate Finance/Equity Prices 230 6.7 The Future of Retirement and Conclusions 231 Chapter 7: Quality of Life, Gender, Governance and Sustainability 235 7.1 Utility Theory, Social Welfare, and Happiness 236 7.2 Quality of Life: Human Development Index (HDI) 243 7.3 Gender and Governance 245 7.4 Corruption and Transparency 249 7.5 Sustainability and Climate Change 252 7.6 Politics and Geopolitics 254 7.7 Conclusion 256 Chapter 8: Summary and Conclusions 257 Notes 263 Index 283

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Book SynopsisTable of ContentsPreface xv Acknowledgments xxi About the Author xxiii Part I Introduction To Behavioral Finance 1 Chapter 1: What is Behavioral Finance and Why Does It Matter? 3 Why Behavioral Finance Matters 5 Behavioral Finance: The Big Picture 6 Standard Finance versus Behavioral Finance 15 Chapter 2: Introduction to Behavioral Biases 23 Introduction 23 Behavioral Biases Defined 24 Why Understanding and Identifying Behavioral Biases is Crucial 25 Categorization of Behavioral Biases 27 Differences between Cognitive and Emotional Biases 27 Difference among Cognitive Biases 28 Emotional Biases 29 A Final Word on Biases 31 Part II Belief Perseverance Biases Defined and Illustrated 33 Chapter 3: Belief Perseverance Bias #1: Cognitive Dissonance Bias 35 Bias Description 35 Am I Subject to Cognitive Dissonance Bias? 38 Investment Advice 39 Chapter 4: Belief Perseverance Bias #2: Conservatism Bias 41 Bias Description 41 Am I Subject to Conservatism Bias? 44 Investment Advice 45 Chapter 5: Belief Perseverance Bias #3: Confirmation Bias 47 Bias Description 47 Am I Subject to Confirmation Bias? 51 Investment Advice 52 Chapter 6: Belief Perseverance Bias #4: Representativeness Bias 55 Bias Description 55 Examples of Representativeness Bias 56 Am I Subject to Representativeness Bias? 60 Investment Advice 62 Chapter 7: Belief Perseverance Bias #5: Illusion-of-Control Bias 65 Bias Description 65 Example of Illusion of Control Bias 66 Am I Subject to Illusion of Control Bias? 69 Investment Advice 70 Chapter 8: Belief Perseverance Bias #6: Hindsight Bias 73 Bias Description 73 Example of Hindsight Bias 74 Am I Subject to Hindsight Bias? 76 Investment Advice 77 Part III: Information Processing Biases Defined and Illustrated 79 Chapter 9: Information Processing Bias #1: Mental Accounting Bias 81 Bias Description 81 Practical Application 83 Am I Subject to Mental Accounting Bias? 85 Investment Advice 88 Chapter 10: Information Processing Bias #2: Anchoring Bias 91 Bias Description 91 Example of Anchoring and Bias 92 Am I Subject to Anchoring Bias? 94 Investment Advice 95 Bonus Discussion: Investment Strategies That Leverage Anchoring Bias 96 Chapter 11: Information Processing Bias #3: Framing Bias 99 Bias Description 99 Example of Framing Bias 101 Am I Subject to Framing Bias? 105 Investment Advice 107 Chapter 12: Information Processing Bias #4: Availability Bias 109 Bias Description 109 Example of Availability Bias 110 Am I Subject to Availability Bias? 113 Investment Advice 114 Chapter 13: Information Processing Bias #5: Self-Attribution Bias 117 Bias Description 117 Example of Self-Attribution Bias 118 Am I Subject to Self-Attribution Bias? 119 Investment Advice 121 Chapter 14: Information Processing Bias #6: Outcome Bias 123 Bias Description 123 Am I Subject to Recency Bias? 125 Chapter 15: Information Processing Bias #7: Recency Bias 129 Bias Description 129 Example of Recency Bias 130 Am I Subject to Recency Bias? 134 Investment Advice 135 Part IV: Emotional Biases Defined and Illustrated 137 Chapter 16: Emotional Bias #1: Loss Aversion Bias 139 Bias Description 139 Example of Loss Aversion Bias 140 Am I Subject to Loss Aversion Bias? 142 Investment Advice 144 Chapter 17: Emotional Bias #2: Overconfidence Bias 145 Bias Description 145 Examples of Overconfidence Bias 146 Am I Subject to Overconfidence Bias? 148 Investment Advice 151 A Final Word on Overconfidence 153 Chapter 18: Emotional Bias #3: Self-Control Bias 155 Bias Description 155 Example of Self-Control Bias 156 Am I Subject to Self-Control Bias? 159 Investment Advice 160 Chapter 19: Emotional Bias #4: Status Quo Bias 163 Bias Description 163 Example of Status Quo Bias 164 Am I Subject to Status Quo Bias? 165 Investment Advice 167 Chapter 20: Emotional Bias #5: Endowment Bias 169 Bias Description 169 Example of Endowment Bias 170 Am I Subject to Endowment Bias? 172 Investment Advice 173 Chapter 21: Emotional Bias #6: Regret Aversion Bias 175 Bias Description 175 Example of Regret Bias 176 Am I Subject to Regret Bias? 179 Advice 180 Chapter 22: Emotional Bias #7: Affinity Bias 183 Bias Description 183 Example of Affinity Bias 184 Am I Subject to Affinity Bias? 186 Investment Advice 188 Part V: Behavioral Investor Types 189 Chapter 23: Staying on Target to Reach Financial Goals is Hard 191 Non-Financial Examples of Self-Defeating Behavior 192 Financial Examples of Self-Defeating Behavior 196 Chapter 24: Introduction to Behavioral Investor Types 201 Introduction 201 What is My Behavioral Investor Type? 204 Step 1: BIT Orientation Quiz 205 Step 2: Bias Identification Quiz 210 Step 3: Advice for Each BIT 216 Summary 216 Chapter 25: Preserver Behavioral Investor Type 217 Upside/Downside Analysis 219 Bias Analysis of Preservers 220 Advice for Preservers 224 Chapter 26: Follower Behavioral Investor Type 225 Upside/Downside Analysis 227 Bias Analysis of Followers 228 Other Important Follower Biases: Hindsight, Cognitive Dissonance and Regret 232 Advice for Followers 233 Chapter 27: Independent Behavioral Investor Type 235 Upside/Downside Analysis 237 Bias Analysis of Independents 238 Self-Attribution 240 Conservatism Bias 241 Representative Bias 242 Advice for Independents 242 Chapter 28: Accumulator Behavioral Investor Type 243 Upside/Downside Analysis 245 Accumulator Bias Analysis 246 Advice for Accumulators 251 Chapter 29: Asset Allocation Case Studies for Each Behavioral Investor Type 253 Part VI: Behavioral Aspects of Portfolio Implementation 271 Chapter 30: Behavioral Finance Aspects of the Active versus Passive Debate 273 The Logic of Passive Management 274 The Potential Benefits of Active Management 274 Advice: Use the Best Practical Allocation for Your Portfolio 277 Chapter 31: Behaviorally Aware Portfolio Construction 279 Introduction 279 Goals-based Investing 280 Consolidating Accounts into a Portfolio View 281 Portfolio Approach 282 Chapter 32: Behavioral Finance and Market Corrections 285 The Most Recent Panic 286 Index 291

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Book SynopsisTable of ContentsIntroduction 1 About This Book 1 Foolish Assumptions 2 Icons Used in This Book 3 Beyond the Book 3 Where to Go from Here 3 Part 1: Getting Started with Investing 5 Chapter 1: Making Sense of Your Investing Options 7 Growing Your Money in Ownership Investments 7 Sharing in corporate growth and profits: Stocks 8 Profiting from real estate 9 Succeeding in small business 10 Making “riskier” choices: Options, cryptocurrencies, and so on 10 Keeping Money in Lending Investments 10 Understanding Risks and Returns 11 Realizing risks 11 Managing risks 13 Making sense of returns 14 Where to Invest and Get Advice 15 Finding the best fund companies and brokers 15 Finding an acceptable advisor 16 Chapter 2: Using Investments to Accomplish Your Goals 19 Setting and Prioritizing Your Shorter-Term Goals 19 Accumulating a rainy-day fund 20 Saving for large purchases 21 Investing for a small business or home 21 Saving for kids’ higher educational costs 22 Investing short-term money 23 Investing in Retirement Accounts 23 Understanding retirement account perks 23 Grappling with retirement account concerns 24 Taking advantage of retirement accounts 25 Surveying retirement account choices 26 Selecting retirement account investments 29 Assessing Your Risk-Taking Desires 29 Chapter 3: Setting Your Return Expectations 31 Estimating Your Investments’ Returns 32 Money market funds and savings account returns 32 Bond returns 33 Stock returns 34 Real estate returns 35 Small-business returns 36 Compounding Your Returns 36 The value of getting a few extra percent 37 Considering your goals 38 Chapter 4: Minimizing Your Taxes When Investing 39 Understanding Investment Taxes 40 Tracking taxation of investment distributions 40 Determining your tax bracket 41 Highlighting the Tax Cuts and Jobs Act bill .42 Devising tax-reduction strategies 44 Reducing Your Taxes When Selling Investments 45 Weighing nontax issues 45 Tuning in to tax considerations 46 Part 2: Preparing Your Investing Foundation 51 Chapter 5: Laying Out Your Financial Plans 53 First Priorities: Paying Off High-Cost Debt and Building a Safety Reserve 54 Paying off high-cost consumer debt 54 Establishing an emergency reserve 55 What about Paying Down Other Debts? 56 Assessing student loans 56 Considering paying down mortgage debt 58 Sorting Out Your Financial Plans 58 Considering your investment options and desires 59 Assessing your savings rate 60 Investing regularly with dollar cost averaging 61 Knowing the Impact of Investing for College Costs 62 Paying for college 63 Considering educational savings account options 64 Investing money earmarked for college 65 Securing Proper Insurance 65 Chapter 6: Starting Out with Bank and Credit Union Accounts 67 Understanding FDIC Bank Insurance 68 Investing in Banking Account and Savings Vehicles 68 Bank checking accounts and debit cards 69 Savings accounts and certificates of deposit 70 Negotiating with Bankers 71 Feeling Secure with Your Bank 72 Evaluating any bank 72 Protecting yourself when banking online 73 Exploring Alternatives to Bank Accounts 75 Credit union accounts and benefits 75 Brokerage cash management accounts 76 Money market mutual funds 77 Chapter 7: Managing Money Market Funds 79 Defining Money Market Mutual Funds 79 Making sense of the appeal of money market funds 80 Understanding the drawback of money market funds 81 Looking at Money Market Fund Holdings 81 Protecting and Accessing Your Money in Money Funds 83 Protecting your money 83 Accessing your money 83 Using Money Market Funds in Your Investment Plan 84 Shopping for the Best Money Funds 86 Discovering traits of leading money funds 86 Naming good money funds 87 Alternatives to Money Market Mutual Funds 88 Part 3: Investing in Stocks, Bonds, and Funds 91 Chapter 8: Getting Your Slice of Capitalism with Stocks 93 What Are Stocks? 94 How (and Why) You Can Make Money with Stocks 95 Understanding the importance of corporate profits 95 Making sense of how you profit with stocks 96 Timing Your Stock Buying and Selling 97 Following market indexes 97 Using price/earnings ratios to value stocks 99 Avoiding temptations and hype 100 Getting past the gloom 101 Sidestepping common investing minefields 102 Highlighting How to Invest in Stocks 103 Investing in stock mutual funds and exchange-traded funds 103 Picking your own stocks 104 Maximizing Your Stock Market Returns 108 Chapter 9: Securing Investment Income and Principal with Bonds 109 Defining Bonds 110 Understanding bond issuers 110 Considering credit (default) risk 113 Making sense of bond maturities 113 Using Bonds in a Portfolio 114 Finding uses for bonds 115 Comparing other lending investments with bonds 116 How and Where to Invest in Bonds 119 Choosing between bond funds and individual bonds 120 Investing in Treasury bonds 120 Investing in non-Treasury individual bonds 121 Evaluating individual bonds you currently hold 122 Chapter 10: Fund Investing: Mutual Funds and Exchange-Traded Funds 123 Understanding the Advantages of Funds 124 Maximizing Your Chances for Fund Investing Success 126 Understanding the importance of performance and risk 126 Examining fund management experience 127 Keeping costs down 127 Understanding and using index funds 128 Understanding exchange-traded funds: Index funds that trade 129 Creating and Managing a Fund Portfolio 131 Identifying the Best Mutual Funds and ETFs 133 Investing in the best ETFs 133 Picking the best stock funds 134 Balancing your act: Funds that combine stocks and bonds 136 Finding the best bond funds 137 Considering Alternatives to Investing in Funds 142 Creating your own fund 142 Robo advisors 142 Unit investment trusts 143 Brokerage managed accounts 143 Hedge funds for the wealthier 144 Chapter 11: Understanding Investment Brokers 145 Getting Your Money’s Worth: Discount Brokers 145 Assessing the high-commission salespeople’s arguments 146 Selecting a discount broker 147 Checking Out Online Brokers 149 Considering “free” online trades 149 Examining your online trading motives 150 Taking other costs into account 151 Looking at service quality 151 Listing the best online brokers 152 Part 4: Investing in Real Estate, Small Business, and Other Investments 153 Chapter 12: Seeking Shelter and Appreciation in Real Estate 155 Comparing Owning a Home to Renting 156 Weighing financial considerations 156 Considering costs and your time frame 157 Deciding when to buy 158 Figuring Your Home-Buying Budget 160 Getting your financial house in order 160 Determining your down payment 160 Doing lenders’ calculations 161 Shopping for Your Home 163 Understanding your housing options 164 Researching communities 165 Checking out and valuing a home 166 Investing in Investment Real Estate 167 Understanding real estate investment’s appeal 168 Sizing up real estate investment options 169 Conducting real estate investing research 172 Chapter 13: Financing and Putting Together Real Estate Investment Deals 175 Financing Your Real Estate Deals 175 Achieving loan approval 176 Debating fixed-rate versus adjustable-rate mortgages 179 Deciding between fixed and adjustable mortgages 181 Finding your best fixed-rate mortgage 182 Landing an appropriate adjustable-rate mortgage 183 Understanding other mortgage fees 187 Finding the best lenders 187 Refinancing for a better deal 189 Working with Real Estate Agents 191 Recognizing agent conflicts of interest 191 Selecting a good agent 192 Putting Your Deal Together 194 Negotiating basics 194 Inspecting the property 195 Shopping for title insurance and escrow services 196 Selling Real Estate 197 Negotiating real estate agents’ contracts 197 Selling without an agent 199 Chapter 14: Taking Your Talents to the Small-Business Arena 201 Investing in Your Career 202 Deciding to Start Your Own Business 203 Weighing your options 203 Entrepreneuring at a company 204 Turning a Business Idea into Reality 204 Drawing up your business plan 204 Plotting to leave your job 207 Financing your business 208 Considering Small-Business Investment Options 210 Buying an existing business 210 Investing in someone else’s business 211 Looking at franchises 212 Beware the pitfalls of multilevel marketing companie 213 Chapter 15: Exploring Other Investment Vehicles 215 Calling on Options 215 Considering Gold and Other Precious Metals 216 Should You Invest in Currencies and Cryptocurrencies? 218 Contemplating Collectibles 220 Understanding the allure of collectibles 221 Seeing the realities of collectibles and their returns 221 Considering advice on buying collectibles 222 Understanding Annuities and Cash-Value Life Insurance 223 Availing yourself of annuities 223 Considering cash-value life insurance 224 Part 5: The Part of Tens 227 Chapter 16: Ten Things to Know about Investing Resources 229 Get Educated to Discern the Best from the Rest 229 Beware “Free” 230 Understand the Influence of Advertising 230 Value Quality over Quantity 231 Know How to Check Out a Resource 232 Beware Hype and Exaggeration 232 Don’t Assume Quoted Experts Know Their Stuff 233 Investigate Gurus’ Claims 233 Don’t Believe Investment-Newsletter Claims 234 Check Out and Keep Up with My Favorite Resources 234 Chapter 17: Ten Essential Tips for Investing Success 237 Regularly Save and Invest 5 Percent to 10 Percent of Your Income 237 Understand and Use Your Employee Benefits 238 Thoroughly Research Before You Invest 238 Shun Investments with High Commissions and Expenses 239 Invest the Majority of Your Long-Term Money in Ownership Investments 239 Avoid Making Emotionally Based Financial Decisions 239 Make Investing Decisions Based on Your Plans and Needs 240 Tap Information Sources with High Quality Standards 240 Trust Yourself First 241 Invest in Yourself and Others 241 Chapter 18: Ten Things to Know about Investing Apps 243 Beware of the General Dangers of Putting Apps on Your Cell Phone 244 Use Apps Only from Proven Companies with Good Reputations and Longevity 244 Consider the Alternatives to an App 245 Use thpaee Best Personal Finance Apps to Have More to Invest 245 Be Skeptical of Investing Apps Offering “Free” Trading 246 Review Current and Historic Financial and Economic Data 246 Invest with Leading Fund Providers 247 Tap into the Best Investment Brokerage Firms 247 Examine the Best Real Estate Apps 247 Seek out Good Small-Business Apps 247 Bonus Chapter: Taking Care With Health Insurance 249 Index 261

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Book SynopsisGet a practical and thoroughly updated look at investment and portfolio management from an accomplished veteran of the discipline In Modern Portfolio Management: Moving Beyond Modern Portfolio Theory, investment executive and advisor Dr. Todd E. Petzel delivers a grounded and insightful exploration of developments in finance since the advent of Modern Portfolio Theory. You'll find the tools and concepts you need to evaluate new products and portfolios and identify practical issues in areas like operations, decision-making, and regulation. In this book, you'll also: Discover why Modern Portfolio Theory is at odds with developments in the field of Behavioral FinanceExamine the never-ending argument between passive and active management and learn to set long-term goals and objectivesFind investor perspectives on perennial issues like corporate governance, manager turnover, fraud risks, and ESG investing Perfect for institutional and individual investors, investment committee members, and fiduciaries responsible for portfolio construction and oversight, Modern Portfolio Management is also a must-read for fund and portfolio managers who seek to better understand their investors.Table of ContentsPreface (to come) 1 Introduction 1.1 Why another book on wealth management? 1.2 How has thinking evolved? 1.3 How did “accepted wisdom” let investors down in 2007-2009? 1.4 Make sure the focus of investing portfolios is consistent with the goals of the individual or institution. SECTION A The Foundation of a Modern Portfolio 2 Setting Objectives 2.1 What are the goals of the investment process? 2.2 Sleep-well-at-night money 2.3 Long-term growth portfolios 2.3.1 The power of compound interest 2.3.2 More risk should mean more return 2.3.3 Losing 100% is “game over” 2.4 Beta – the power of the markets to grow 2.5 Stocks versus bonds as a source of beta – what is the beta of hedge funds? 2.6 Liquidity and access to the credit markets 2.7 Not-for-profits and spending rules 3 The Pillars of Portfolio Theory and their Limitations 3.1 Risk premiums across assets 3.2 The “Free Lunch” of diversification 3.3 Owning the “market” is the most risk efficient portfolio 3.4 The Efficient Market Hypothesis in its many forms; rational expectations 3.5 Modigliani-Miller 3.6 Riskless/Costless Market Arbitrage Pricing 3.7 Advances in Behavioral Finance 4 Building a Modern Portfolio in the Real World; defining your strategy 4.1 The Sleep-Well-at-Night portfolio 4.1.1 Defining how much is enough. 4.1.2 How to preserve wealth and maybe make a little bit along the way 4.1.3 The temptation to reach for yield 4.2 The Basics of the Growth Portfolio 4.2.1 Bonds 4.2.2 Stocks 4.2.3 Alternative Investments 4.2.4 Real Assets 4.2.5 Further variation across the investment landscape – currencies, credit, etc. 4.3 The Fundamental Liquidity Question Why liquidity matters: your situation changes; the market changes; you simply change your mind; the credit market is not always there when you want it. Giving up liquidity in PE partnerships and hedge funds must be done in terms of alternative opportunities. 4.4 Establishing a portfolio mix and a strategy objective 4.4.1 Determining the goals for return and risk 4.4.2 Broad assumptions about the risk and return of investment options 4.4.3 The fallacy of relying on Optimizers 4.4.4 The fallacy of relying on Simulators 4.4.5 Establishing the Target Growth Portfolio SECTION B Building the Modern Portfolio 5 Executing the Plan: The Devil is in the Details 5.1 How Much Diversification is Right? 5.1.1 Questioning the Efficient Markets Hypothesis? Do you have special information or skills? 5.1.2 Can you “own the market?” Do you want to given the tools available? 5.1.3 Real Diversification versus owning a bunch of different names 5.1.4 Real Diversification versus owning offsetting (and expensive) trades 5.2 Active managers versus the Index 5.2.1 What is alpha and how can you identify its presence? Sources of alpha 5.2.1.1 Better information 5.2.1.2 Better processing of information 5.2.1.3 More Efficient Execution 5.2.2 Beta and the reality of costs 5.2.3 Bucketing strategies and managers into narrow categories. What is achieved and at what cost? 5.2.4 Passive investing is great IF you want to own the index at that point in time. 5.2.5 Smart Beta – a quasi-active strategy 5.2.6 Active managers can avoid major pitfalls if they are not benchmark constrained. 5.3 Luck versus Skill among active managers 5.3.1 Evaluating managers, against benchmarks, against each other 5.3.2 Classic performance measures and their limitations 5.3.2.1 Compounded returns 5.3.2.2 Standard Deviation 5.3.2.3 Beta 5.3.2.4 Correlation 5.3.2.5 Autocorrelation 5.3.2.6 Sharpe 5.3.2.7 Information Ratio 5.3.2.8 Sortino 5.3.2.9 Omega Ratio 5.3.2.10 Final Comment on the Section 5.3.3 IRR Calculations and Multiples of Capital Returned 5.3.4 Peer groupings 5.3.5 Shaping your own expectation for managers and their role in the portfolio 5.4 Portfolio Construction and Market Trading Realities: High Frequency Trading, 5.5 Manager Due Diligence and Selection 5.5.1 Understanding the investment thesis 5.5.2 Determining the sources of returns and risks 5.5.3 Alpha versus beta, factor decomposition 5.5.4 Do the returns justify the risk? 5.5.5 Getting to know the team 5.5.6 What is the business model of the manager? Are interests even remotely aligned? 5.5.7 Reporting: Results, attribution, risk and position transparency 5.5.8 Operational due diligence 5.5.8.1 trading and trade allocation 5.5.8.2 brokerage relationships and soft dollars 5.5.8.3 ISDA relationships and OTC derivatives 5.5.8.4 custody 5.5.8.5 cash movement 5.5.8.6 pricing of securities and the calculation of the NAV 5.5.8.7 audits – historical financials for firm and funds 5.5.8.8 legal and regulatory 5.5.8.8.1 PPM 5.5.8.8.2 LP Agreement 5.5.8.8.3 ADV II 5.5.8.8.4 Articles of Incorporation 5.5.8.8.5 Subscription Document 5.5.8.9 anti-money laundering 5.5.8.10 internal compliance 5.5.8.11 technology 5.5.8.12 cybersecurity 5.5.8.13 disaster recovery 5.5.9 Background checks: public and private sources 5.5.10 Character and confidence: At the end of the day, do you want to associate with the manager and firm under consideration? Are you completely comfortable trusting them? 5.6 Ongoing Manager Evaluation 5.6.1 Evaluating returns on a regular basis. Positive and negative “outliers.” 5.6.2 Is the manager beating benchmarks? Peers? Your expectations? Is it luck, skill or excess risk taking? 5.6.3 Deal breakers – time to terminate 5.6.3.1 prolonged deviation from expected return performance. Is the process broken? 5.6.3.2 change in investment/risk profile from what was advertised and agreed to 5.6.3.3 loss of key people 5.6.3.4 radical departure from expected/agreed upon client relationships (liquidity provisions, fees, etc.) 5.6.3.5 questionable legal issues 5.7 The Issue of Fraud 5.7.1 Unfortunately, no amount of due diligence will ever eliminate the chance to be victimized by a fraud. 5.7.2 The goal is to have as many safeguards in place as possible so that if fraud occurs, it is detected early when its impact is small. 5.7.3 Investors are not compensated with higher returns by assuming fraud risk. The only safety precaution is through diversification. 5.8 Funds of Funds versus Direct Investment 5.8.1 Advantages: 5.8.1.1 Seasoned judgment of FoF PM 5.8.1.2 Portfolio diversification in a single product 5.8.1.3 Access to resources to do extensive due diligence and portfolio evaluation 5.8.1.4 Consolidated reporting 5.8.1.5 Possibly improved access to managers 5.8.2 Negatives: 5.8.2.1 Fees 5.8.2.2 Perhaps less than ideal portfolio mix. 5.8.2.3 Due diligence does not go away, it just changes focus 5.8.2.4 A Cautionary Tale 5.9 Rebalancing 5.9.1 Across asset classes 5.9.2 Among managers 5.10 Investment Advisers: Getting help when you need it 5.10.1 Different advisory models: 5.10.1.1 Brokerage/product driven advisers 5.10.1.2 Institutional consultants 5.10.1.3 Special case of the Outsourced CIO 5.10.1.4 Independent advisers 5.10.1.5 Robo advisers 5.10.2 The question of discretion 5.10.3 Deciding the best option 5.10.3.1 Alignment of emotions and objectives 5.10.3.2 Costs once again 5.10.3.3 Evaluating performance 6 Tactics for Enhancing Yield 6.1 Market Timing 6.2 Volatility, The Ignored Dimension 6.2.1 Covered calls 6.2.2 Fully collateralized short puts 6.3 Tax loss harvesting 6.4 More Challenged strategies 6.4.1 Extending durations in low interest rate environments 6.4.2 Substituting credit risk for bond allocations 6.4.3 “Insured” portfolios 6.4.4 Portable alpha 6.4.5 Leveraging small alphas to reach acceptable returns 6.4.6 Writing uncovered options to sell time 6.4.7 Blindly buying out-of-the-money options to capture tail events 7 Black Swan Portfolio Positions 7.1 Tail Risk in an Overall Portfolio 7.2 Protective Puts 7.3 CDS 7.4 Other Macro Tail Bets 7.5 The Value of Insurance comes from the Impact on Lifestyle when you don’t have it 8 Market Bubbles and Crashes SECTION C The Building Blocks for a Modern Portfolio 9 Traditional Portfolio Investments 9.1 Cash 9.2 Fixed Income 9.2.1 Forms of Fixed Income Instruments 9.2.2 Duration and credit risks; bond pricing, convexity and spreads 9.2.3 Sovereign Debt 9.2.4 Agency Debt 9.2.5 Municipal Debt 9.2.6 Corporate Debt 9.2.7 Bank Loans 9.2.8 Mortgages 9.2.9 Direct Loans 9.2.10 Cat Bonds 9.2.11 Mutual Funds 9.2.12 ETFs and ETNs 9.3 Credit 9.4 The Curious Case of Negative interest Rates 9.5 Currencies 9.6 Equities 9.6.1 Individual equities 9.6.2 Preferred stock 9.6.3 Convertible bonds 9.6.4 Accessing the Equity Market 9.6.4.1 Mutual funds, open and closed end (discussion of tax efficiency) 9.6.4.2 ETFs and ETN’s 9.6.4.3 Completion funds 9.7 Hedge Funds 9.7.1 Long/short equity oriented 9.7.2 130/30 funds 9.7.3 Convertible Arb and other Cap Structure funds 9.7.4 Event oriented hedge funds 9.7.5 Credit funds 9.7.6 Macro 9.7.7 Multi-strategy 9.7.8 Commodity Trading Advisers 9.7.9 Quantitative Trading Strategies 9.7.10 Insurance and Litigation Funds 9.7.11 Risk Parity Funds 9.7.12 Volatility Funds 9.7.13 Replication Funds 9.7.14 Hedge mutual funds and liquid alternatives 9.8 Private Equity Partnerships 9.8.1 Venture Capital 9.8.2 Growth Equity 9.8.3 Buy-out 9.8.4 Credit-Equity Hybrid Funds 9.8.5 Secondary Funds 9.8.6 Co-investment Funds 9.9 Real Estate 9.9.1 Direct ownership of property; residential and commercial 9.9.2 Real estate partnerships 9.9.3 Real Estate Investment Trusts (REITs) 9.10 Other Real Assets/ Commodities 9.10.1 Direct ownership of commodities (usually only precious metals, jewels) 9.10.2 Commodity based businesses – metals, energy, farm land, timber. 9.10.3 Synthetic ownership of commodities and commodity index funds 9.10.4 Esoteric Real Assets; Water Rights 9.11 Collectables 9.12 The Question of Currencies from a Global Portfolio Perspective once again 9.13 Cryptocurrencies 10 Derivatives 10.1 Futures 10.1.1 Original and Variation Margins 10.1.2 The Price Basis 10.1.3 TheDealer Community 10.2 Exchange Traded Options 10.2.1 Basics of Calls 10.2.2 Simple Call Strategies 10.2.2.1 Long at-the-money Calls 10.2.2.2 Long out-of-the-money Calls 10.2.2.3 Simple Short Calls 10.2.2.4 Simple Call Spreads 10.2.2.5 Call Calendar Spreads 10.2.3 Basics of Puts 10.2.3.1 Put Spreads 10.2.4 Combinations of Calls and Puts 10.2.4.1 Straddles and Strangles 10.3 Swaps 10.3.1 Interest rate hedging 10.3.2 Portable alpha 10.4 Swaptions 10.5 Credit Default Swaps 11 Investment structures and packages 11.1 Asset Backed Securities 11.2 CDO’s and CLO’s 11.3 Insurance wrappers 11.4 Annuities 11.5 Retail Structured Products SECTION D Governance, Regulation, and a Look into the Future 12 Investment Decision Making and Governance 12.1 The family 12.2 Not-for-profit boards and committees 12.3 Pension plans 12.4 Corporate Investments 12.5 Socially Responsible Investing 13 Regulation of Investment Activity 13.1 Capital Raising 13.2 Secondary Markets 13.3 Investment Companies 13.4 Investment Advisers 13.5 Summary 14 Looking ahead 15 10 Lessons Abbreviations Glossary Index

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Book SynopsisA wide-ranging overview of the use of machine learning and AI techniques in financial risk management, including practical advice for implementation Risk Modeling: Practical Applications of Artificial Intelligence, Machine Learning, and Deep Learning introduces readers to the use of innovative AI technologies for forecasting and evaluating financial risks. Providing up-to-date coverage of the practical application of current modelling techniques in risk management, this real-world guide also explores new opportunities and challenges associated with implementing machine learning and artificial intelligence (AI) into the risk management process. Authors Terisa Roberts and Stephen Tonna provide readers with a clear understanding about the strengths and weaknesses of machine learning and AI while explaining how they can be applied to both everyday risk management problems and to evaluate the financial impact of extreme events such as global pandemics and chanTable of ContentsAcknowledgments xi Preface xiii Chapter 1 Introduction 1 Risk Modeling: Definition and Brief History 4 Use of AI and Machine Learning in Risk Modeling 7 The New Risk Management Function 7 Overcoming Barriers to Technology and AI Adoption with a Little Help from Nature 10 This Book: What It Is and Is Not 11 Endnotes 12 Chapter 2 Data Management and Preparation 15 Importance of Data Governance to the Risk Function 18 Fundamentals of Data Management 20 Other Data Considerations for AI, Machine Learning, and Deep Learning 22 Concluding Remarks 29 Endnotes 30 Chapter 3 Artificial Intelligence, Machine Learning, and Deep Learning Models for Risk Management 31 Risk Modeling Using Machine Learning 35 Definitions of AI, Machine, and Deep Learning 40 Concluding Remarks 52 Endnotes 52 Chapter 4 Explaining Artificial Intelligence, Machine Learning, and Deep Learning Models 55 Difference Between Explaining and Interpreting Models 57 Why Explain AI Models 59 Common Approaches to Address Explainability of Data Used for Model Development 61 Common Approaches to Address Explainability of Models and Model Output 62 Limitations in Popular Methods 68 Concluding Remarks 69 Endnotes 69 Chapter 5 Bias, Fairness, and Vulnerability in Decision-Making 71 Assessing Bias in AI Systems 73 What Is Bias? 76 What Is Fairness? 77 Types of Bias in Decision-Making 78 Concluding Remarks 89 Endnotes 89 Chapter 6 Machine Learning Model Deployment, Implementation, and Making Decisions 91 Typical Model Deployment Challenges 93 Deployment Scenarios 98 Case Study: Enterprise Decisioning at a Global Bank 101 Practical Considerations 102 Model Orchestration 103 Concluding Remarks 104 Endnote 104 Chapter 7 Extending the Governance Framework for Machine Learning Validation and Ongoing Monitoring 105 Establishing the Right Internal Governance Framework 108 Developing Machine Learning Models with Governance in Mind 109 Monitoring AI and Machine Learning 112 Compliance Considerations 122 Further Takeaway 125 Concluding Remarks 126 Endnotes 127 Chapter 8 Optimizing Parameters for Machine Learning Models and Decisions in Production 129 Optimization for Machine Learning 131 Machine Learning Function Optimization Using Solvers 133 Tuning of Parameters 136 Other Optimization Algorithms for Risk Models 141 Machine Learning Models as Optimization Tools 143 Concluding Remarks 147 Endnotes 148 Chapter 9 The Interconnection between Climate and Financial Instability 149 Magnitude of Climate Instability: Understanding the "Why" of Climate Change Risk Management 152 Interconnected: Climate and Financial Stability 157 Assessing the impacts of climate change using AI and machine learning 158 Using scenario analysis to understand potential economic impact 160 Practical Examples 170 Concluding Remarks 172 Endnotes 172 About the Authors 175 Index 177

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Book SynopsisTable of ContentsPreface xxiii Acknowledgments xxix Part One Middle Market Overview 1 Chapter 1 The Middle Market 3 Performance and Impact 4 Definition 5 Characteristics of Middle Market Companies 7 Ownership 7 Access to and Use of Capital 8 Organization 8 Chapter 2 Private Capital Markets 11 Segmented Markets 12 How Market Players View Risk 17 Capital Providers 17 Owners’ and Managers’ Views of Risk/Return 18 Buyers 20 Market Activity 26 Chapter 3 Valuation Perspectives for the Private Markets 31 Private Business Valuation Can Be Viewed Through Different Standards of Value 32 Market Value 34 Investment Value 37 Fair Market Value 37 Fair Value 37 Incremental Business Value 38 Owner Value 38 LBO Value 39 Collateral Value 39 Book Value 39 Valuing Intangibles 39 Why the Different Versions of Value? 41 Valuation as a Range Concept 42 Value Worlds and Deals 43 Part Two For the Business Owner/Operator and Entrepreneur 45 Chapter 4 Transition, Succession, and Exit Planning 47 A Decision Framework 49 1. Owner Ambitions and Goals 50 2. Industry Cycle 51 3. Business Cycle 52 4. Company Foundation 53 A Team Approach 53 Chapter 5 Value Growth and Optimization 55 Increasing the Return on Invested Capital 57 Strategic Position 58 Customer Base 59 Cost Structure and Scalability 60 Working Capital 60 Human Capital 61 Reducing the Risk of Investment 62 Awareness and Planning 63 Growth Plans and Relative Position 63 Leadership Team 63 Predictability of Revenues and Earnings 65 Concentrations 65 Compliance 66 Keeping Current 67 Ease the Transfer of Ownership 67 Financial Information 68 Contracts 69 Title to Assets 69 Corporate Structure and Attributes 70 Don’t Lose Focus on the Core Business 70 Summary 71 Formula Definitions 72 Part Three The M&A Practice and Processes 75 Chapter 6 Practice Management 77 Primary M&A Advisors 78 Marketing the M&A Practice 80 Target Audience 80 Networking 81 Marketing and Advertising 81 Pretransaction Consulting 82 Valuation Services 82 Other Consulting Services 82 Becoming an Expert 82 Client Acceptance 83 Confidentiality 84 Client Engagement 84 Identification of the Parties 85 Scope of Service 85 Limitations and Disclosures 86 Fees— Selling Advisor 86 Example Fee Structures 88 Termination and Tail 89 Buy-Side Engagements 89 Licensure Issues in the M&A Business 90 Chapter 7 Sell-Side Representation and Process 93 Selling Process Overview 93 Step 1: Preliminary Discussions with Seller 94 What Is the Transaction? 95 Value Expectations 95 Process 96 Step 2: Data Collection 97 Step 3: Industry Research and Identifying Buyers 100 Research Market Buyers 101 Step 4: The Marketing Book 101 Preparation 103 Seller Motivation 104 Financial Disclosures 105 Specific EBITDA Presentations 105 Balance Sheet Presentation 105 Other Financial Disclosures 106 Prospective Financial Presentation 106 Step 5: Marketing Process 106 Clear the List with the Seller 107 Initiate Contact with Buyers 107 Obtain Nondisclosure Agreements 108 Distribute the Book 108 Follow Up, Discuss, and Set Expectations 108 Step 6: The Auction Dynamic and Negotiations 109 Negotiated Sale 109 Private Auction 111 Public Auction 112 Step 7: Buyer Interest and Transaction Structure 113 Term Sheets 114 Indication of Interest (IOI) 114 Letters of Intent 114 Deal Structure 116 Asset versus Stock Structure 116 Other Tax Deferral Techniques 117 Step 8: Due Diligence 120 Step 9: Definitive Agreements 121 Step 10: Closing Process 122 Price and Valuation Changes 123 Terms and Conditions Changes 123 Third-Party Challenges 123 Allocation of Risk 124 Other Preclosing Mistakes 124 Postsale Integration 124 Chapter 8 Corporate Development and the Buy-Side Process 127 Why Acquire? 129 The Dismal Ds 130 Alternatives 131 The Acquisition Process 132 The Pipeline and Filter 133 Approaching the Target 134 The Balance between a Deep Dive and Locking In the Deal 135 Lower-Middle Market versus Middle Market Deals 136 Valuation from a Strategic’s Perspective 137 Structuring the Transaction 140 The Bid 141 Due Diligence 141 Integration 144 Practical Tips and What Causes Deals to Fail 146 What Should We Acquire? 146 Why Are We Doing This? 147 Alignment of Interests 147 Recruit the Right Advisors Early 148 Allocate Enough Resources 148 Every Interaction Is a Negotiation 149 If It Can Go Wrong, It Will Go Wrong 149 Chapter 9 Buy-Side Representation 151 Buyer Clients 151 Strategy 152 The Filter 153 Financing 154 Quality of Earnings 154 Coordination 156 Integration 156 Chapter 10 Technology in the M&A Process 157 Virtual Data Room 158 Market Insight and Data 159 Deal Sourcing and Exchanges 162 Due Diligence Software 163 Project Management Software 164 Comprehensive M&A Software 164 Supporting Tools 165 Artificial Intelligence and Technology Trends 165 Technology Providers 167 Chapter 11 Professional Standards and Ethics 169 Holistic Advice 171 Ethical and Professional Standards 172 Competence and Professionalism (Reputation) 173 Best Practices (Activities) 173 Ethics (Behavioral Boundaries) 174 The Middle Market Standard 175 Part Four M&A Technical Discussions 177 Chapter 12 Financial Analysis 179 Financial Reporting Motivation 179 Ebitda 181 Balance Sheet Analysis 184 Working Capital 185 Normalization 190 Chapter 13 Market Valuation 195 Reasons for Appraisal 196 Determine the Value Subworld 196 Calculate the Benefit Stream 197 Synergies 203 Determine Private Return Expectation 205 Specific Investor Return 206 General Acquisition Selling Multiples 207 Derive Value 208 Chapter 14 Deal Structure 213 Structural Priorities 213 Business and Economic Terms 214 Tax Structure 218 Legal Structure 222 Mergers 224 Initial Analysis of Both Entities 224 Strategic Rationale 225 Valuation Modeling 225 Understanding Cost, Operational, and Cultural Differences 226 Developing the Integration Plan 227 Deal Structure and Negotiations 227 Chapter 15 Financing Sources and Capital Structure 229 Perspective 229 Financing Primer 230 Capital Structure 230 Factors Shaping the Capital Structure 234 Basic Deals 237 Buyouts 237 Recapitalizations 242 Acquisitions 243 Sources and Types of Funding 245 Debt 246 Private Equity 249 Personal Guarantees 250 Chapter 16 Due Diligence 255 Due Diligence Process 256 The Diligence Team 256 Traditional Due Diligence 257 Financial Matters 258 Quality of Earnings Analysis 258 Balance Sheet Analysis 260 Ratio Analysis 260 Other Risks 261 Audited Financial Statements 261 GAAP Compliance 262 Tax Structuring and Compliance 262 Compensation and Benefits 263 Legal 264 Technical Due Diligence 266 Business Due Diligence 267 Chapter 17 Tax Provisions Used in M&A 271 Tax Fundamentals 272 Transaction Tax Basics 275 Asset Transactions 275 Stock Transactions 277 Stock versus Asset Sale Example 278 Asset Transaction Details 280 Buyer Tax Issues 285 Detailed Tax Structuring 287 Installment Sales 287 Risk of Forfeiture 288 Assets That Qualify for Installment Treatment 288 Installment Planning Opportunity 289 Partnership M&A 289 General Partnership Doctrine 290 Partnership versus S Corporation 290 Partnership Gain Tracking Rules 292 Purchase Price Allocation for Partnership Buyers 293 Corporate M&A Issues 293 Contributions to Corporations 294 Stock/Asset Sale Election: Section 338 295 Mergers and Reorganizations 296 S Corporation Issues 300 Tax Glossary and Reference 302 Chapter 18 Legal Documentation 309 The Attorney’s Role 309 Preliminary Legal Documents 311 Nondisclosure and Confidentiality Agreement 311 Letter of Intent 312 Acquisition Agreements 316 Structure of the Deal 316 Stock Sale/Merger 316 Asset Purchase 317 Representations and Warranties 318 Qualifications to Representations and Warranties 319 Indemnification 320 Transaction Statistics 321 Consulting and Employment Agreements 322 Regulatory Compliance 322 Chapter 19 Regulation and Compliance 323 Protecting Investors: Securities Act of 1933 324 Exemptions under the 33 Act 326 Commonly Used Private Placement Exemptions 327 Keeping The Markets Honest: Securities Exchange Act of 1934 329 Requirements and Rules 329 Williams Act 330 Antitrust Issues and Laws You May Encounter in the Deal 331 Hart-Scott-Rodino Act 332 Transactions Involving Foreign Investors, Foreign Trade, and National Defense Matters 333 Other Regulatory Issues and Laws You May Encounter in the Deal 334 Bulk Sales Laws 334 The WARN Act 335 The Investment Banker’s Perspective 336 SEC Provisions Regulating Broker-Dealers 336 M&A Brokers No-Action Letter 338 Finders 344 Investment Advisers Act and Investment Company Act of 1940 345 FINRA Provisions for Broker-Dealers 347 The Company’s Perspective 350 Process of Issuing, Selling, or Exchanging Securities for a Deal 351 State Blue-Sky Laws 354 Considerations for Public Companies 355 Chapter 20 Cross-Border Considerations 359 Is Cross-Border M&A the Right Move? 360 Culture 361 Country Risk 365 Financial Risk 365 Market and Operational Risks 367 The Legal Environment 367 Labor and Employment 370 Negotiations 371 Due Diligence 372 Integration 372 Summary 375 Glossary 377 Notes 417 About the Authors 423 About the Contributors and Reviewers 427 Index 445

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Book SynopsisCraft your complete retirement plan with help from this straightforward and robust blueprint In the newly revised Third Edition of The New Retirement: The Ultimate Guide to the Rest of Your Life, best-selling and award-winning retirement author Jan Cullinane delivers an organized, engaging, and holistic treatment of retirement planning. With extensive updates and additions throughout, the book includes surveys, questionnaires, and worksheets to help readers understand and apply the critical steps affecting retirement planning. In this book, you'll also find: Fresh and informative examples from real people about all aspects of their retirement journey, from savings and tax issues to location selection to second careers/remote work, and leaving a legacy Thorough explorations of niche retirement lifestyles, established locations, and new retirement communities Discussions of critical issues affecting potential and current retirees, includiTable of ContentsForeword Acknowledgments Introduction Chapter 1 What Makes Retirement Successful? Chapter 2 168 Hours a Week Chapter 3 Working in Retirement: It’s Not an Oxymoron Chapter 4 What and Where Is Home? Chapter 5 Locations, Locations, Locations Chapter 6 Forever Young Chapter 7 Dollars and Sense Chapter 8 The Taxman Cometh Chapter 9 Money Saving Tricks and Tips Chapter 10 The Final Chapter References About the Author Index

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Book SynopsisExplore different measures ofex-postrisk-adjusted performance measurementand learn to choose the correct one In the newly revised Second Edition ofPractical Risk-Adjusted Performance Measurement,accomplished riskand investment expert Carl R. Bacon deliversan insightful, accessible, and real-world guide to ex-post risk measurement. The author bridges the gap between theory and practice, showing you how to apply the former to the latter without introducing unnecessary mathematical complexity. The book describes the fundamentals of risk in the asset management context and the descriptive statistics used to describe it.It builds on that foundation with detailed examinations ofconcepts like regression, drawdown, and partial moments, before moving on to topics like fixed income riskand Prospect Theory. Withhelpfuladditionsthat includerecently developed measuresof risk,supplementaryexplanatory sections, and sixbrand-new chapters,this book also offers:Table of ContentsChapter 1 Introduction 15 Definition of risk 15 Risk types 15 Risk management v Risk control 18 Risk aversion 19 Ex-post and ex-ante 19 Dispersion 20 Chapter 2 Descriptive statistics 21 Mean (or arithmetic mean) 21 Annualised return 22 Continuously compounded returns (or log returns) 22 Winsorised mean 23 Mean absolute deviation (or mean deviation) 24 Variance 25 Mean difference (absolute mean difference or Gini mean difference) 30 Relative mean difference 31 Bessel’s correction (population or sample, n or n-1) 31 Sample variance 35 Standard deviation (variability or volatility) 36 Annualised risk (or time aggregation) 37 The Central Limit Theorem 38 Frequency and number of data points 38 Alternative risk annualisation methods 39 Normal (or Gaussian) distribution 40 Histograms 42 Skewness (Fisher’s or moment skewness) 43 Sample skewness 44 Kurtosis (Pearson’s kurtosis) 45 Excess kurtosis (or Fisher’s kurtosis) 47 Sample kurtosis 47 Bera-Jarque statistic (or Jarque-Bera) 48 Covariance 53 Sample covariance 54 Correlation (𝜌) 54 Sample correlation 55 Autocovariance 55 Autocorrelation (or serial correlation) 57 Annualised variability if returns are autocorrelated 60 Chapter 3 APPRAISAL MEASURES 62 Performance appraisal 62 Sharpe ratio (reward to variability, Sharpe index) 63 Roy ratio 65 Risk-free rate 66 Alternative Sharpe ratio 66 Revised Sharpe ratio 67 Adjusted Sharpe Ratio 68 Skew-adjusted Sharpe Ratio 69 Skewness-Kurtosis ratio 74 Alternative adjusted Sharpe Ratios 74 Smoothing-adjusted Sharpe Ratio 75 MAD ratio 76 Gini ratio 76 Relative risk 77 Tracking error (or tracking risk, relative risk, active risk) 77 Relative skewness 78 Relative kurtosis 79 Information ratio 79 Geometric information ratio 80 Modified information ratio 87 Adjusted information ratio 88 Skew-adjusted information ratio 88 Chapter 4: Regression Analysis 94 Regression analysis 94 Regression equation 95 Regression alpha 95 Regression beta 95 Regression epsilon 95 Capital Asset Pricing Model (CAPM) 96 Beta (𝛽) (systematic risk or volatility) 97 Jensen’s alpha (Jensen’s measure or Jensen’s differential return or ex-post alpha) 97 Annualised alpha 98 Bull beta (𝛽+) 106 Bear beta (𝛽-) 106 Beta timing ratio 106 Market timing 107 Systematic risk 115 Correlation 115 R2(or coefficient of determination) 116 Specific (or residual) risk 117 The Geometry of Risk 120 Treynor ratio (Reward to volatility) 124 Modified Treynor ratio 124 Appraisal ratio (or Treynor-Black ratio) 125 Modified Jensen 126 Fama decomposition 126 Selectivity 127 Diversification 127 Net selectivity 127 Fama-French three factor model 128 Three factor alpha (or Fama-French alpha) 129 Carhart four factor model 129 Four factor alpha (or Carhart’s alpha) 130 Types of Alpha 130 Multi-factor Models 131 Chapter 5 Drawdown 132 Drawdown 132 Average drawdown 132 Maximum drawdown 133 Largest individual drawdown 133 Recovery time (or drawdown duration) 133 Drawdown deviation 134 Ulcer index 134 Pain index 135 Calmar ratio (or Drawdown ratio) 136 MAR ratio 136 Sterling ratio 136 Sterling-Calmar ratio 137 Burke ratio 138 Modified Burke ratio 138 Martin ratio (or Ulcer performance index) 138 Pain ratio 138 Active (or relative) Drawdown 143 Chapter 6 Partial Moments 148 Downside risk (or semi-standard deviation) 148 Downside potential 149 Pure downside risk 149 Half variance (or semi-variance) 149 Upside risk (or upside uncertainty) 150 Mean absolute moment 150 Omega ratio (Ω) 151 Bernardo & Ledoit (or gain–loss) ratio 151 d ratio 151 Omega-Sharpe ratio 152 Sortino ratio 153 Reward to half-variance 153 Downside risk Sharpe ratio 154 Downside information ratio 154 Sortino-Satchell ratio 155 Kappa ratio 155 Upside potential ratio 156 Volatility skewness 156 Variability skewness 157 Farinelli- Tibiletti Ratio 160 Gain-loss skewness 160 Downside Skewness & Kurtosis 161 Sortino Ratio with higher order moments 161 Chapter 7 Prospect Theory 165 Prospect ratio 165 New Prospect ratio 166 Omega-Prospect ratio 166 Chapter 8 Extreme Risk 170 Extreme events 170 Extreme value theory 170 Value at Risk (VaR) 170 Relative VaR 171 Ex-post VaR 171 Potential upside (gain at risk) 172 Percentile rank 172 VaR calculation methodology 175 Parametric VaR 175 Modified VaR 176 Historical simulation (or non-parametric) 177 Monte Carlo simulation 177 Which methodology for calculating VaR should be used? 178 VaR Interpretation 178 Frequency and time aggregation 180 Time horizon 180 Window length 181 Reward to VaR 181 Reward to relative VaR 182 Double VaR ratio 183 Conditional VaR (expected shortfall, tail loss, tail VaR or average VaR) 183 Upper CVaR or CVaR+ 184 Lower CVaR or CVaR- 184 Tail gain (expected gain or expected upside) 186 Conditional Sharpe ratio (STARR ratio or reward to conditional VaR) 191 Modified Sharpe ratio (reward to modified VaR) 191 Tail risk 191 Tail ratio 192 Rachev ratio (or R ratio) 192 Generalised Rachev ratio 194 Drawdown at risk 194 Conditional drawdown at risk 194 Reward to conditional drawdown 195 Generalised Z ratio 195 Chapter 9 Fixed Income Risk 197 Pricing fixed income instruments 197 Redemption yield (yield to maturity) 197 Weighted average cash flow 197 Duration (effective mean term, discounted mean term or volatility) 198 Macaulay duration 198 Macaulay-Weil duration 199 Modified duration 199 Portfolio duration 200 Effective duration (or option-adjusted duration) 202 Duration to worst 204 Convexity 204 Modified convexity 205 Effective convexity 205 Portfolio convexity 207 Bond returns 207 Duration beta 209 Reward to duration 209 Chapter 10 miscellaneous Risk Measures 210 Upside Capture Ratio (or up capture indicator) 210 Downside capture ratio (or down capture indicator) 210 Up/down capture (or Capture ratio) 211 Up number ratio 216 Down number ratio 216 Up percentage ratio 217 Down percentage ratio 217 Percentage gain ratio 217 Batting Average (or Relative Batting Average) 217 Hurst index (or Hurst exponent) 218 Relative Hurst Index (or Active Hurst) 225 Bias ratio 231 Active Share 237 K ratio 239 Chapter 11 Risk-adjusted Return 248 Risk-adjusted return 248 M2 248 M2 excess return 250 Differential return 250 GH1 (Graham & Harvey 1) 252 GH2 (Graham & Harvey 2) 252 Correlation and risk-adjusted return M3 253 Return adjusted for downside risk 253 Adjusted M2 257 Skew-adjusted M2 257 Omega excess return 258 Chapter 12: A Periodic Table of Risk Measures 259 A Periodic Table of Risk Measures 259 Periodic Table Design 260 Filling the Periodic Table 261 Notation 264 Chapter 13: Risk-adjusted Performance Fees 269 Performance Fees 269 Asymmetric or Symmetric 269 Performance Fees in Practice 273 Chapter 14: Performance Dashboards 276 Effective dashboards 276 Data visualisation tools 277 Chapter 15: Manager Selection 279 Asset Manager Selection 279 Manager Evaluation 280 Portfolio Evaluation 281 Monitoring and Control 282 Chapter 16: The Four Dimensions of Performance 284 Ex-post Return (The traditional dimension) 285 Ex-post Risk (The neglected dimension) 285 Ex-ante Return (The unknown dimension) 285 Ex-ante Risk (The “sexy” dimension) 286 Risk efficiency ratio 286 Performance efficiency 287 Ex-ante Risk Standards 287 Consistency in calculations and comparison 288 Disclosure 288 Recognition of adherence to best practice 288 More robust internal process and control 288 Chapter 17: Which Risk Measure to Use? 291 Why measure ex-post risk? 291 Which risk measures to use? 291 Hedge funds 295 Smoothing 296 Outliers 299 Data mining 300 Risk measures and the Global Investment Performance Standards (GIPS®) 300 Fund rating systems 303 Which measures are actually used? 304 Which risk measures should really be used? 309 Common Errors to avoid 310 Chapter 18: Risk Control 311 Regulations in the investment risk area 311 Risk control structure 312 Risk management 313 Glossary of Key Terms 318 Appendix A – Composite Internal Risk Measures 321 Bibliography 323

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Book SynopsisTEN LAWS OF OPERATIONAL RISK Unlike credit and market risk, operational risk currently lacks an overarching theory to explain how and why losses occur. As a result, operational risk managers have been forced to use unsatisfactory tools and processes that fail to add sufficient commercial value. In Ten Laws of Operational Risk: Understanding its Behaviours to Improve its Management, Michael Grimwade delivers an insightful discussion of the nature of operational risk and a groundbreaking redesign of the profession???s existing tools. The author???s Ten Laws are grounded on the business profiles of firms and the human and institutional behaviours that drive operational risk. They are underpinned by taxonomies for the causes; the inadequacies or failures that constitute both control failures and events; and the impacts of operational risks. Drawing on twenty-five years of first-hand experience and research, this book explains the patterns and trends that are apparent in the historical data and offers solutions to the persistent problems inherent in risk appetite, RCSAs, scenario analysis, reputational risk, stress testing, capital modeling, and insurance. It also provides fresh insights into the everyday activities of risk managers with respect to predictive key risk and control indicators, root cause analysis, why controls fail, the risks posed by change, and product risk profiles. Ten Laws of Operational Risk presents a structured and evidence-based approach to identifying emerging risks and predicting future behaviours related to pandemics, climate change, cybercrime, artificial intelligence, and machine learning. It includes revealing industry data, in-depth case studies, and real-world examples that shed light on recurring and obstinate problems in operational risk management. A must-read resource for Chief Risk Officers and other risk professionals, as well as regulators, management consultants, and students and scholars of operational risk, Ten Laws of Operational Risk provides an invaluable new, systematic, and rigorous approach to operational risk management. PRAISE FOR TEN LAWS OF OPERATIONAL RISK ???Operational Risk can no longer be described as a new concept, but as a discipline few attempts have been made to really understand its behaviour. In his book Michael does this very successfully, blending extensive practical experience with analytical thought leadership to propose a set of laws that explain why and how Operational Risks arise, and what can be done to manage them. Assertions are evidence based, with numerous real examples used to underpin his hypotheses. This is a valuable addition to Operational Risk thinking and is recommended for experienced professionals and novices alike.?????? Dr Luke Carrivick, Director of Research & Information, ORX ???Michael has established himself as one of Operational Risk???s foremost thinkers. His ability to use historical data to analyse events is unrivalled. In this must-read book, he identifies ten fundamental laws that provide every Operational Risk practitioner with a clear set of rules they can use to understand current events and predict their impacts.?????? Andrew Sheen, former Head of the FSA???s Operational Risk Review team ???Michael is one of the most prominent thinkers in Operational Risk. He combines a long career in Operational Risk management and measurement with a deep, long-standing reflection on the fundamental causes, dynamics and patterns in the manifestation of Operational Risk events. He produces, with this book, a remarkable synthesis of his insightful and innovative work.?????? Dr Ariane Chapelle, Honorary Reader, University College London; Managing Partner, Chapelle Consulting ???Michael is a highly respected expert in the field of Operational Risk, who has developed some ground-breaking frameworks for analysing this risk and guiding better risk management decisions. As a working practitioner in the field he brings many insights that will appeal to other practitioners as well as regulators, students and scholars.??? ??? Professor Elizabeth Sheedy, Macquarie Business School ???Michael???s views and analysis challenge the traditional Basel II views of Operational Risk and are genuinely thought-provoking. His book on the Ten Laws of Operational Risk will give financial services clarity and a practical view, where it has been previously lacking, on how best to manage such risks.?????? Tin Lau, Group Head of Financial and Strategic Risk, TP ICAPTable of ContentsAbout the Author x Introduction xii Part 1 Ten Laws of Operational Risk (Grimwade, 2020) 1 Chapter 1 Patterns in the Behaviour of Operational Risk 5 Chapter 2 The Occurrence and Severity of Loss Events 15 Chapter 3 Concentration and Systemic Operational Risk Events (SOREs) 51 Chapter 4 Homeostasis, Risk Transference, Transformation and Conservation, and Active Risk Taking 63 Chapter 5 Three Taxonomies: Inadequacies or Failures, Impacts and Causes 75 Chapter 6 Conclusions – How and Why 97 Part 2 Operational Risk Management Tools Designed for Success 115 Chapter 7 Defining and Cascading Operational Risk Appetites 119 Chapter 8 Risk & Control Self-Assessments 135 Chapter 9 Scenario Analysis 147 Chapter 10 Operational Risk Capital Modelling 165 Chapter 11 Stress Testing 181 Chapter 12 Reverse Stress Testing and the Transfer of Risks via Insurance 211 Chapter 13 Day-to-Day Operational Risk Management 229 Chapter 14 Conclusions 267 Part 3 Predictions of the Future Behaviours of Operational Risk 275 Chapter 15 Identifying Emerging Risks 277 Chapter 16 Predictions of the Future Behaviours of Operational Risk in Response to Four Emerging Threats 283 Part 4 Conclusions 329 Chapter 17 Conclusions and Operational Risk Strategy 331 Appendices Appendix I Taxonomy of Inadequacies or Failures: Events and Control Failures 349 Appendix II Impact Taxonomy and Their Relative Scales and Velocities 359 Appendix III Causal Taxonomy Based Upon a Review of Large, Well-Documented Events 363 Appendix IV Risk Taxonomies for Cybercrime and IT Operational Risks Based on Analysis of Actual Loss Events 369 Glossary 377 Bibliography 381 Index 387

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Book SynopsisTHE EXPERTS AND THE EVIDENCE A PRACTICAL GUIDE TO STOCK INVESTING Explore and apply celebrated investing strategies with practical tools from an expert team of finance professors In The Experts and the Evidence: A Practical Guide to Stock Investing, a veteran team of finance researchers and practitioners delivers a one-of-a-kind explanation of how to use data and analytics tools to test and implement the philosophies and strategies of well-known investing experts. Combining a comprehensive discussion of the investment philosophies of renowned investors with rigorous testing and implementation, the authors provide a hands-on tool for starting and maintaining a diversified portfolio. Readers will also find: Quantitative explorations of popular investing strategies. Useful tools for systematically exploring different investment approaches. Discussions of value, growth, contrarian, portfolio, and factor invesTable of ContentsList of Practical Applications 3 Acknowledgements 4 About the Authors 5 Chapter 1. Introduction – Experts and Evidence 7 Chapter 2. Warren Buffett – The Greatest Investor? 14 Chapter 3. Philip Fisher – Growth Investor 36 Chapter 4. David Dreman – The Master Contrarian? 66 Chapter 5. Harry Markowitz – The Father of Portfolio Theory 88 Chapter 6. Behavioural Finance – Some Useful Insights 114 Chapter 7. Technical Analysis 138 Chapter 8. Quants and Alternative Investments 173 Appendix I. Introduction to BLOOMBERG PROFESSIONAL® 195 Appendix II. Methods of Valuation 198 About the Companion Website 210 Index 211

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Book SynopsisLearn how to make informed decisions through statistical reasoning! Using a qualitative approach to introduce statistical reasoning, The Numerate Leader: How to Pull Game-Changing Insights from Statistical Data is a cutting-edge book that helps the reader extract information from unfamiliar data sets. Combining introductory statistics with a few ideas from the philosophy of science, this work helps generalists find patterns that may be expected to recur in the future. Identifying one or two such relationships can be a game-changer for the reader and their employer or client. Thomas A. King''s revelatory writing is easy to understand and conversational in tone. King makes the complex, tedious topics that you studied in the classroombut likely didn''t yet understandeasily comprehensible. Historical examples and humorous anecdotes illuminate technical concepts so that readers may pull insights from data sets and then explain conclusions reached through effective storyTable of ContentsPreface vii 1. Numeracy 1 2. Zero [0] 13 3. Sample size [n] 25 4. Sample mean [x] 39 5. Sample standard deviation [s] 53 6. Normal distribution [N(x,s)] 67 7. z-score [z] 83 8. Correlation coefficient [r] 97 9. Coefficient of determination [r2] 111 10. Population mean [μ] 121 11. Central Limit Theorem [CLT] 135 12. Standard error [s/√n] 147 13. Null hypothesis [H0] 163 14. p-value [p] 179 15. Slope [r(sY/sX)] 191 16. Causation 205 17. Science 221 18. Questions 231 Appendix A – Glossary 241 Appendix B – Ten math facts numerate people should know 253 References 263About the author 267 Index 269

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Book SynopsisYour empowerment tool to consistently winning in the stock market In Unloved Bull Markets: Getting Rich the Easy Way by Riding Bull Markets, a seasoned, award-winning professional money manager delivers an eye-opening and insightful take on a frequently overlookedand critically importantinvesting strategy. The author walks readers through a crash-course in how to take full advantage of the greatest opportunity for wealth accumulation: a bull market. With an emphasis on seizing investment opportunities when they actually arise, instead of just watching them recede in the rearview mirror, Unloved Bull Markets explores: The economic indicators that can disguise, fuel, or end a bull market, including inflation and interest rates, the Fed and monetary policy, and unemployment Six common pieces of bad information that lead investors astray and can result in missing out on some of the best market opportunities to come along in decades Table of ContentsPreface vii Acknowledgments ix About the Author xi Introduction 1 Chapter 1 “Unloved” Bull Markets 7 Chapter 2 Was the Bull Market Sensible? 25 Chapter 3 News and Stock Prices 39 Chapter 4 Economic Setting 47 Chapter 5 Inflation and Interest Rates 55 Chapter 6 The Federal Reserve and Monetary Policy 73 Chapter 7 Unemployment 89 Chapter 8 Betting on a Lackluster Stock Market and Higher Interest Rates 101 Chapter 9 Volatility Events 105 Chapter 10 Six Pieces of Bad Information 117 Chapter 11 Active-Passive 143 Chapter 12 Strategies 161 Chapter 13 Human Behavior 177 Chapter 14 And Then It Ended with a Crash 187 Chapter 15 I Want My Money Back 193 Chapter 16 Conclusion 215 Index 221

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Book SynopsisLearn how to give the young adults in your life the knowledge, confidence, and motivation to make adult money decisions, and create their own strong financial foundation and independence, so you can all live richer lives. In Launching Financial Grownups, popular personal finance expert and Certified Financial Planner Bobbi Rebell gets candid about the very real-life challenges of getting young adults to choose to be financial grownups and develop their own financial foundation and security. She shares her own personal setbacks and solutions (both from her own past, and as a parent), and walks readers through the ups and downs of financial adulting milestones. Rebell has put together a practical and specific adulting launch plan for parents of young adults along with tips on how to open money discussions, the questions to ask your children, the most effective listening strategies, when to step in to stop them from making mistakes, and when to let them learn from theTable of ContentsForeword vii Preface xi Introduction 1 Section 1: Prerequisites 9 Chapter 1 Orientation 11 Chapter 2 The Family Ecosystem 23 Chapter 3 Blind Spots 31 Section 2: Core Curriculum 43 Chapter 4 D Is For Debt 45 Chapter 5 Career Foundations 57 Chapter 6 Homeroom 69 Chapter 7 (Lifestyle) Inflation 77 Section 3: Graduate Studies 83 Chapter 8 Exit Strategy: Getting Your Kids To Pay Their Own Bills 85 Chapter 9 Paycheck 101 97 Chapter 10 Jobs with Benefits 105 Chapter 11 Grownup Investing 125 Chapter 12 Grownup Home Economics 139 Section 4: Electives 149 Chapter 13 Generosity 151 Chapter 14 Driver’s Ed 155 Chapter 15 Cultural Studies 163 Section 5: Exmissions 171 Chapter 16 Til Death Do Us Part 173 Chapter 17 Stepping Back: A Parental Pep Talk 183 Epilogue 191 Notes 197 Acknowledgments 199 About the Author 201 Index 203

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Book SynopsisDiscover howthe author transformed a massive government department in just a few yearsand fixed seemingly unfixable problems InTransforming a Federal Agency: Management Lessons from HUD's Financial Reconstruction,financeand strategy expert Irving(Irv)L.Dennisdelivers an insightful and eye-opening exploration ofthe lessons he learnedinbringing private sector experience tothe transformation ofthe US Department of Housing and Urban Development's financial systems. Pulled out of retirement after a 37-year career at Ernst & Young(EY), the author's tenure at HUD involved a rapid and surgical rejuvenation of their financial infrastructure. The book details the tenmanagementareashe focused onand alsoincludes: The transformation process and the barriers and roadblocks the author encountered on his journeyEnsuringan enduring transformation evenafter changesin administrationFunctional differences between the private sector and governmental organizationsHow the author approached his first 100 days as Chief Financial Officer of the DepartmentInsights into the innerworkings of the Executive Branch of government Perfect for government employees, finance professionals in the public and private sectors, and business students,Transforminga Federal Agencyis asimultaneously fascinating and instructive journey through the remediation of seemingly intractable financial mismanagement.Table of ContentsForeword from Former Secretary of HUD, Dr. Ben Carson xi Introduction: What the Reader Can Expect xvii Part I The Beginning 1 The Nomination Process 3 2 About HUD 21 3 HUD’s State of Affairs 43 Part II The Evaluation Process 4 My First Hundred Days 55 5 Evaluation of Governance, People, Processes, and Technology (GPPT) 75 6 Understanding How It Got This Bad 87 7 Barriers to Success 95 Part III The Transformation Process 8 Building the Platform for Success 113 9 Financial and IT Modernization 139 10 Coordination with Critical Service Providers 161 11 The Results—Where We Were in 2020 173 12 Making HUD’s Transformation Sustainable 201 Part IV Observations And Reflections 13 Differences Between the Private and Public Sectors 211 14 Final Thoughts—An Experience of a Lifetime 227 Acknowledgments 251 About the Author 255 Appendix 257 Appendix A Acronyms and Definitions 259 Appendix B History of HUD 267 Appendix C Summary of HUD’s 2020 Enacted Budget 271 Appendix D CFO Letters in the Agency Financial Report 273 Appendix E My Resignation Letter 289 Appendix F List of HUD’s Accomplishments in 2018 and 2019 291 Index 311

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Book SynopsisTable of ContentsForeword xvii Preface xix Acknowledgments xxi About the CFA Institute Investment Series xxiii Chapter 1 Derivative Markets and Instruments 1 Learning Outcomes 1 1. Derivatives: Introduction, Definitions, and Uses 1 2. The Structure of Derivative Markets 5 2.1. Exchange-Traded Derivatives Markets 6 2.2. Over-the-Counter Derivatives Markets 8 3. Types of Derivatives: Introduction, Forward Contracts 10 3.1. Forward Commitments 10 4. Types of Derivatives: Futures 14 5. Types of Derivatives: Swaps 18 6. Contingent Claims: Options 22 6.1. Options 22 7. Contingent Claims: Credit Derivatives 30 8. Types of Derivatives: Asset-Backed Securities and Hybrids 33 8.1. Hybrids 35 9. Derivatives Underlyings 36 9.1. Equities 36 9.2. Fixed-Income Instruments and Interest Rates 36 9.3. Currencies 37 9.4. Commodities 37 9.5. Credit 37 9.6. Other 37 10. The Purposes and Benefits of Derivatives 39 10.1. Risk Allocation, Transfer, and Management 40 10.2. Information Discovery 41 10.3. Operational Advantages 41 10.4. Market Efficiency 42 11. Criticisms and Misuses of Derivatives 42 11.1. Speculation and Gambling 43 11.2. Destabilization and Systemic Risk 43 12. Elementary Principles of Derivative Pricing 45 12.1. Storage 46 12.2. Arbitrage 47 Summary 52 Problems 54 Chapter 2 Basics of Derivative Pricing and Valuation 61 Learning Outcomes 61 1. Introduction 62 2. Basic Derivative Concepts, Pricing the Underlying 62 2.1. Basic Derivative Concepts 62 2.2. Pricing the Underlying 64 3. The Principle of Arbitrage 68 3.1. The (In)Frequency of Arbitrage Opportunities 69 3.2. Arbitrage and Derivatives 69 3.3. Arbitrage and Replication 70 3.4. Risk Aversion, Risk Neutrality, and Arbitrage-Free Pricing 71 3.5. Limits to Arbitrage 72 4. Pricing and Valuation of Forward Contracts: Pricing vs. Valuation; Expiration; Initiation 74 4.1. Pricing and Valuation of Forward Commitments 75 5. Pricing and Valuation of Forward Contracts: Between Initiation and Expiration; Forward Rate Agreements 79 5.1. A Word about Forward Contracts on Interest Rates 80 6. Pricing and Valuation of Futures Contracts 82 7. Pricing and Valuation of Swap Contracts 84 8. Pricing and Valuation of Options 87 8.1. European Option Pricing 88 9. Lower Limits for Prices of European Options 94 10. Put–Call Parity, Put–Call–Forward Parity 97 10.1. Put–Call–Forward Parity 101 11. Binomial Valuation of Options 103 12. American Option Pricing 107 Summary 110 Problems 111 Chapter 3 Pricing and Valuation of Forward Commitments 117 Learning Outcomes 117 1. Introduction to Pricing and Valuation of Forward Commitments 117 1.1. Principles of Arbitrage-Free Pricing and Valuation of Forward Commitments 118 1.2. Pricing and Valuing Generic Forward and Futures Contracts 119 2. Carry Arbitrage 124 2.1. Carry Arbitrage Model When There Are No Underlying Cash Flows 124 2.2. Carry Arbitrage Model When Underlying Has Cash Flows 131 3. Pricing Equity Forwards and Futures 135 3.1. Equity Forward and Futures Contracts 135 3.2. Interest Rate Forward and Futures Contracts 138 4. Pricing Fixed-Income Forward and Futures Contracts 147 4.1. Comparing Forward and Futures Contracts 153 5. Pricing and Valuing Swap Contracts 154 5.1. Interest Rate Swap Contracts 156 6. Pricing and Valuing Currency Swap Contracts 163 7. Pricing and Valuing Equity Swap Contracts 171 Summary 176 Problems 179 Chapter 4 Valuation of Contingent Claims 187 Learning Outcomes 187 1. Introduction and Principles of a No- Arbitrage Approach to Valuation 188 1.1. Principles of a No- Arbitrage Approach to Valuation 188 2. Binomial Option Valuation Model 190 3. One- Period Binomial Model 192 4. Binomial Model: Two- Period (Call Options) 199 5. Binomial Model: Two- Period (Put Options) 203 6. Binomial Model: Two- Period (Role of Dividends & Comprehensive Example) 207 7. Interest Rate Options & Multiperiod Model 213 7.1. Multiperiod Model 215 8. Black–Scholes–Merton (BSM) Option Valuation Model, Introduction and Assumptions of the BSM Model 216 8.1. Introductory Material 216 8.2. Assumptions of the BSM Model 216 9. BSM Model: Components 218 10. BSM Model: Carry Benefits and Applications 222 11. Black Option Valuation Model and European Options on Futures 226 11.1. European Options on Futures 226 12. Interest Rate Options 228 13. Swaptions 232 14. Option Greeks and Implied Volatility: Delta 234 14.1. Delta 235 15. Gamma 238 16. Theta 241 17. Vega 242 18. Rho 243 19. Implied Volatility 244 Summary 247 Problems 249 Chapter 5 Credit Default Swaps 255 Learning Outcomes 255 1. Introduction 255 2. Basic Definitions and Concepts 255 2.1. Types of CDS 257 3. Important Features of CDS Markets and Instruments, Credit and Succession Events, and Settlement Proposals 258 3.1. Credit and Succession Events 260 3.2. Settlement Protocols 261 3.3. CDS Index Products 262 3.4. Market Characteristics 264 4. Basics of Valuation and Pricing 265 4.1. Basic Pricing Concepts 265 4.2. The Credit Curve and CDS Pricing Conventions 268 4.3. CDS Pricing Conventions 269 4.4. Valuation Changes in CDS during Their Lives 270 4.5. Monetizing Gains and Losses 271 5. Applications of CDS 272 5.1. Managing Credit Exposures 273 6. Valuation Differences and Basis Trading 277 Summary 279 Problems 280 Chapter 6 Introduction to Commodities and Commodity Derivatives 285 Learning Outcomes 285 1. Introduction 285 2. Commodity Sectors 286 2.1. Commodity Sectors 288 3. Life Cycle of Commodities 290 3.1. Energy 291 3.2. Industrial/Precious Metals 292 3.3. Livestock 294 3.4. Grains 295 3.5. Softs 295 4. Valuation of Commodities 296 5. Commodities Futures Markets: Participants 298 5.1. Futures Market Participants 298 6. Commodity Spot and Futures Pricing 302 7. Theories of Futures Returns 306 7.1. Theories of Futures Returns 306 8. Components of Futures Returns 313 9. Contango, Backwardation, and the Roll Return 317 10. Commodity Swaps 320 10.1. Total Return Swap 322 10.2. Basis Swap 323 10.3. Variance Swaps and Volatility Swaps 323 11. Commodity Indexes 324 11.1. S&p Gsci 327 11.2. Bloomberg Commodity Index 327 11.3. Deutsche Bank Liquid Commodity Index 327 11.4. Thomson Reuters/CoreCommodity CRB Index 327 11.5. Rogers International Commodity Index 328 11.6. Rebalancing Frequency 328 11.7. Commodity Index Summary 328 Summary 329 References 331 Problems 331 Chapter 7 Currency Management: An Introduction 339 Learning Outcomes 339 1. Introduction 340 2. Review of Foreign Exchange Concepts 340 2.1. Spot Markets 341 2.2. Forward Markets 343 2.3. FX Swap Markets 346 2.4. Currency Options 347 3. Currency Risk and Portfolio Risk and Return 347 3.1. Return Decomposition 347 3.2. Volatility Decomposition 350 4. Strategic Decisions in Currency Management: Overview 353 4.1. The Investment Policy Statement 354 4.2. The Portfolio Optimization Problem 354 4.3. Choice of Currency Exposures 356 5. Strategic Decisions in Currency Management: Spectrum of Currency Risk Management Strategies 359 5.1. Passive Hedging 359 5.2. Discretionary Hedging 359 5.3. Active Currency Management 360 5.4. Currency Overlay 360 6. Strategic Decisions in Currency Management: Formulating a Currency Management Program 363 7. Active Currency Management: Based on Economic Fundamentals, Technical Analysis, and the Carry Trade 365 7.1. Active Currency Management Based on Economic Fundamentals 365 7.2. Active Currency Management Based on Technical Analysis 367 7.3. Active Currency Management Based on the Carry Trade 368 8. Active Currency Management: Based on Volatility Trading 370 9. Currency Management Tools: Forward Contracts, FX Swaps, and Currency Options 375 9.1. Forward Contracts 376 9.2. Currency Options 383 10. Currency Management Strategies 385 10.1. Over- /Under- Hedging Using Forward Contracts 386 10.2. Protective Put Using OTM Options 387 10.3. Risk Reversal (or Collar) 387 10.4. Put Spread 388 10.5. Seagull Spread 388 10.6. Exotic Options 389 10.7. Section Summary 390 11. Hedging Multiple Foreign Currencies 393 11.1. Cross Hedges and Macro Hedges 393 11.2. Minimum- Variance Hedge Ratio 397 11.3. Basis Risk 397 12. Currency Management Tools and Strategies: A Summary 400 13. Currency Management for Emerging Market Currencies 404 13.1. Special Considerations in Managing Emerging Market Currency Exposures 404 13.2. Non- Deliverable Forwards 406 Summary 407 References 409 Problems 410 Chapter 8 Options Strategies 421 Learning Outcomes 421 1. Introduction 422 2. Position Equivalencies 422 2.1. Synthetic Forward Position 423 2.2. Synthetic Put and Call 426 3. Covered Calls and Protective Puts 428 3.1. Investment Objectives of Covered Calls 428 4. Investment Objectives of Protective Puts 436 4.1. Loss Protection/Upside Preservation 437 4.2. Profit and Loss at Expiration 439 5. Equivalence to Long Asset/Short Forward Position 441 5.1. Writing Puts 442 6. Risk Reduction Using Covered Calls and Protective Puts 444 6.1. Covered Calls 445 6.2. Protective Puts 445 6.3. Buying Calls and Writing Puts on a Short Position 445 7. Spreads and Combinations 448 7.1. Bull Spreads and Bear Spreads 448 8. Straddle 457 8.1. Collars 460 8.2. Calendar Spread 463 9. Implied Volatility and Volatility Skew 465 10. Investment Objectives and Strategy Selection 469 10.1. The Necessity of Setting an Objective 469 10.2. Criteria for Identifying Appropriate Option Strategies 470 11. Uses of Options in Portfolio Management 472 11.1. Covered Call Writing 472 11.2. Put Writing 474 11.3. Long Straddle 475 11.4. Collar 478 11.5. Calendar Spread 478 12. Hedging an Expected Increase in Equity Market Volatility 480 12.1. Establishing or Modifying Equity Risk Exposure 482 Summary 485 Problems 487 Chapter 9 Swaps, Forwards, and Futures Strategies 493 Learning Outcomes 493 1. Managing Interest Rate Risk with Swaps 493 1.1. Changing Risk Exposures with Swaps, Futures, and Forwards 494 2. Managing Interest Rate Risk with Forwards, Futures, and Fixed- Income Futures 498 2.1. Fixed- Income Futures 500 3. Managing Currency Exposure 506 3.1. Currency Swaps 506 3.2. Currency Forwards and Futures 510 4. Managing Equity Risk 511 4.1. Equity Swaps 511 4.2. Equity Forwards and Futures 513 4.3. Cash Equitization 516 5. Volatility Derivatives: Futures and Options 517 5.1. Volatility Futures and Options 518 6. Volatility Derivatives: Variance Swaps 520 7. Using Derivatives to Manage Equity Exposure and Tracking Error 523 7.1. Cash Equitization 524 8. Using Derivatives in Asset Allocation 525 8.1. Changing Allocations between Asset Classes Using Futures 525 8.2. Rebalancing an Asset Allocation Using Futures 528 8.3. Changing Allocations between Asset Classes Using Swaps 529 9. Using Derivatives to Infer Market Expectations 531 9.1. Using Fed Funds Futures to Infer the Expected Average Federal Funds Rate 531 9.2. Inferring Market Expectations 533 Summary 534 Problems 535 Chapter 10 Introduction to Risk Management 543 Learning Outcomes 543 1. Introduction 543 2. The Risk Management Process 545 3. The Risk Management Framework 547 4. Risk Governance − An Enterprise View 554 4.1. An Enterprise View of Risk Governance 554 5. Risk Tolerance 556 6. Risk Budgeting 558 7. Identification of Risk − Financial and Non- Financial Risk 561 7.1. Financial Risks 561 7.2. Non- Financial Risks 563 8. Identification of Risk − Interactions Between Risks 567 9. Measuring and Modifying Risk − Drivers and Metrics 571 9.1. Drivers 571 9.2. Metrics 572 10. Methods of Risk Modification − Prevention, Avoidance, and Acceptance 576 10.1. Risk Prevention and Avoidance 577 10.2. Risk Acceptance: Self- Insurance and Diversification 578 11. Methods of Risk Modification − Transfer, Shifting, Choosing a Method for Modifying 579 11.1. Risk Shifting 581 11.2. How to Choose Which Method for Modifying Risk 583 Summary 585 Problems 587 Chapter 11 Measuring and Managing Market Risk 591 Learning Outcomes 591 1. Introduction 592 1.1. Understanding Value at Risk 592 2. Estimating VaR 596 3. The Parametric Method of VaR Estimation 598 4. The Historical Simulation Method of VaR Estimation 602 5. The Monte Carlo Simulation Method of VaR Estimation 605 6. Advantages and Limitations of VaR and Extensions of VaR 608 6.1. Advantages of VaR 608 6.2. Limitations of VaR 609 6.3. Extensions of VaR 611 7. Other Key Risk Measures − Sensitivity Risk Measures; Sensitivity Risk Measures 613 7.1. Sensitivity Risk Measures 614 8. Scenario Risk Measures 618 8.1. Historical Scenarios 618 8.2. Hypothetical Scenarios 620 9. Sensitivity and Scenario Risk Measures and VaR 623 9.1. Advantages and Limitations of Sensitivity Risk Measures and Scenario Risk Measures 624 10. Using Constraints in Market Risk Management 627 10.1. Risk Budgeting 628 10.2. Position Limits 629 10.3. Scenario Limits 629 10.4. Stop- Loss Limits 630 10.5. Risk Measures and Capital Allocation 630 11. Applications of Risk Measures 632 11.1. Market Participants and the Different Risk Measures They Use 632 12. Pension Funds and Insurers 637 12.1. Insurers 639 Summary 641 Reference 643 Problems 643 Chapter 12 Risk Management for Individuals 651 Learning Outcomes 651 1. Introduction 652 2. Human Capital, Financial Capital, and Economic Net Worth 652 2.1. Human Capital 653 2.2. Financial Capital 656 2.3. Economic Net Worth 661 3. A Framework for Individual Risk Management 661 3.1. The Risk Management Strategy for Individuals 661 3.2. Financial Stages of Life 662 4. The Individual Balance Sheet 665 4.1. Traditional Balance Sheet 665 4.2. Economic (Holistic) Balance Sheet 666 4.3. Changes in Economic Net Worth 668 5. Individual Risk Exposures 671 5.1. Earnings Risk 671 5.2. Premature Death Risk 672 5.3. Longevity Risk 673 5.4. Property Risk 674 5.5. Liability Risk 674 5.6. Health Risk 675 6. Life Insurance: Uses, Types, and Elements 676 6.1. Life Insurance 677 7. Life Insurance: Pricing, Policy Cost Comparison, and Determining Amount Needed 680 7.1. Mortality Expectations 680 7.2. Calculation of the Net Premium and Gross Premium 682 7.3. Cash Values and Policy Reserves 684 7.4. Consumer Comparisons of Life Insurance Costs 685 7.5. How Much Life Insurance Does One Need? 687 8. Other Types of Insurance 688 8.1. Property Insurance 690 8.2. Health/Medical Insurance 692 8.3. Liability Insurance 693 8.4. Other Types of Insurance 693 9. Annuities: Types, Structure, and Classification 694 9.1. Parties to an Annuity Contract 694 9.2. Classification of Annuities 695 10. Annuities: Advantages and Disadvantages of Fixed and Variable Annuities 698 10.1. Volatility of Benefit Amount 698 10.2. Flexibility 699 10.3. Future Market Expectations 699 10.4. Fees 700 10.5. Inflation Concerns 700 10.6. Payout Methods 700 10.7. Annuity Benefit Taxation 701 10.8. Appropriateness of Annuities 701 11. Risk Management Implementation: Determining the Optimal Strategy and Case Analysis 703 11.1. Determining the Optimal Risk Management Strategy 703 11.2. Analyzing an Insurance Program 705 12. The Effect of Human Capital on Asset Allocation and Risk Reduction 712 12.1. Asset Allocation and Risk Reduction 716 Summary 718 References 720 Problems 720 Chapter 13 Case Study in Risk Management: Private Wealth 727 Learning Outcomes 727 1. Introduction and Case Background 727 1.1. Background of Eurolandia 728 1.2. The Schmitt Family in Their Early Career Stage 730 Summary 772 Problems 773 Chapter 14 Integrated Cases in Risk Management: Institutional 777 Learning Outcomes 777 1. Introduction 777 2. Financial Risks Faced by Institutional Investors 778 References 831 Glossary 833 About the Editors and Authors 845 Index 849

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Book SynopsisTable of ContentsForeword xv Preface xvii Acknowledgments xix About the CFA Institute Investment Series xxi Chapter 1 Introduction to Corporate Governance and Other ESG Considerations 1 Learning Outcomes 1 1. Introduction and Overview of Corporate Governance 2 1.1. Corporate Governance Overview 2 2. Stakeholder Groups 4 2.1. Stakeholder Groups 4 3. Principal– Agent and Other Relationships in Corporate Governance 7 3.1. Shareholder and Manager/Director Relationships 8 3.2. Controlling and Minority Shareholder Relationships 8 3.3. Manager and Board Relationships 9 3.4. Shareholder versus Creditor Interests 9 3.5. Other Stakeholder Conflicts 10 4. Overview and Mechanisms of Stakeholder Management 10 4.1. Overview of Stakeholder Management 10 4.2. Mechanisms of Stakeholder Management 11 5. Mechanisms to Mitigate Associated Stakeholder Risks 15 5.1. Employee Laws and Contracts 16 5.2. Contractual Agreements with Customers and Suppliers 17 5.3. Laws and Regulations 17 6. Company Boards and Committees 18 6.1. Composition of the Board of Directors 18 6.2. Functions and Responsibilities of the Board 19 6.3. Board of Directors Committees 20 7. Relevant Factors in Analyzing Corporate Governance and Stakeholder Management 22 7.1. Market Factors 22 7.2. Non- Market Factors 24 8. Risks and Benefits of Corporate Governance and Stakeholder Management 25 8.1. Risks of Poor Governance and Stakeholder Management 26 8.2. Benefits of Effective Governance and Stakeholder Management 27 9. Factors Relevant to Corporate Governance and Stakeholder Management Analysis 28 9.1. Economic Ownership and Voting Control 29 9.2. Board of Directors Representation 29 9.3. Remuneration and Company Performance 30 9.4. Investors in the Company 31 9.5. Strength of Shareholders’ Rights 31 9.6. Managing Long- Term Risks 32 9.7. Summary of Analyst Considerations 32 10. ESG Considerations for Investors and Analysts 33 10.1. Introduction to Environmental, Social, and Governance issues 33 10.2. ESG Investment Strategies 34 10.3. ESG Investment Approaches 35 10.4. Catalysts for Growth in ESG Investing 38 10.5. ESG Market Overview 39 10.6. ESG Factors in Investment Analysis 39 Summary 42 Chapter 2 Introduction to Alternative Investments 45 Learning Outcomes 45 1. Introduction 45 1.1. Why Investors Consider Alternative Investments 46 1.2. Categories of Alternative Investments 47 2. Investment Methods 49 2.1. Methods of Investing in Alternative Investments 49 2.2. Advantages and Disadvantages of Direct Investing, Co- investing, and Fund Investing 51 2.3. Due Diligence for Fund Investing, Direct Investing, and Co- investing 54 3. Investment and Compensation Structures 56 3.1. Partnership Structures 56 3.2. Compensation Structures 58 3.3. Common Investment Clauses, Provisions, and Contingencies 59 4. Hedge Funds 62 4.1. Characteristics of Hedge Funds 62 4.2. Hedge Fund Strategies 66 4.3. Hedge Funds and Diversification Benefits 71 5. Private Capital 71 5.1. Overview of Private Capital 71 5.2. Description: Private Equity 72 5.3. Description: Private Debt 76 5.4. Risk/Return of Private Equity 79 5.5. Risk/Return of Private Debt 79 5.6. Diversification Benefits of Investing in Private Capital 81 6. Natural Resources 82 6.1. Overview of Natural Resources 82 6.2. Characteristics of Natural Resources 83 6.3. Risk/Return of Natural Resources 87 6.4. Diversification Benefits of Natural Resources 90 6.5. Instruments 95 7. Real Estate 96 7.1. Overview of the Real Estate Market 96 7.2. Characteristics: Forms of Real Estate Ownership 98 7.3. Characteristics: Real Estate Investment Categories 103 7.4. Risk and Return Characteristics 105 7.5. Diversification Benefits 108 8. Infrastructure 110 8.1. Introduction and Overview 110 8.2. Description 112 8.3. Risk and Return Characteristics 114 8.4. Diversification Benefits 117 9. Issues in Performance Appraisal 118 9.1. Overview of Performance Appraisal for Alternative Investments 118 9.2. Common Approaches to Performance Appraisal and Application Challenges 119 9.3. Private Equity and Real Estate Performance Evaluation 122 9.4. Hedge Funds: Leverage, Illiquidity, and Redemption Terms 124 10. Calculating Fees and Returns 128 10.1. Alternative Asset Fee Structures and Terms 129 10.2. Custom Fee Arrangements 129 10.3. Alignment of Interests and Survivorship Bias 134 Summary 136 Chapter 3 Real Estate Investments 145 Learning Outcomes 145 Section A. Overview of Types of Real Estate Investment 146 1. Introduction and Basic Forms of Real Estate Investment 146 1.1. Real Estate Market Size 147 1.2. Real Estate Investment: Basic Forms 147 1.3. Characteristics 150 1.4. Risk Factors 153 2. Economic Value Drivers, Role in Portfolio, and Risk/Return of Real Estate Investments Relative to Stocks and Bonds 157 2.1. Economic Drivers 157 2.2. Role of Real Estate in an Investment Portfolio 160 2.3. Real Estate Risk and Return Relative to Stocks and Bonds 163 2.4. Classifications 166 2.5. Investment Characteristics by Property Type 168 3. Considerations in Analysis and Due Diligence 173 4. Indexes 175 4.1. Appraisal- Based Indexes 175 4.2. Transaction- Based Indexes 176 4.3. Advantages and Disadvantages of Appraisal- Based and Transaction- Based Indexes 177 4.4. Real Estate Security Indexes 179 Section B. Investments in Real Estate through Private Vehicles 179 5. Introduction to Valuation Approaches 179 5.1. Highest and Best Use 181 6. The Income Approach to Valuation: Discount Rates and the Direct Capitalization of NOI and DCF Methods 182 6.1. Similarities in Approaches 183 6.2. The Direct Capitalization Method 183 7. The DCF Method, the Relationship between Discount Rate and Cap Rate, and the Terminal Capitalization Rate 187 7.1. The Relationship between the Discount Rate and the Cap Rate 187 7.2. The Terminal Capitalization Rate 189 8. Private Market Real Estate Debt 194 Section C. Investments in Real Estate Through Publicly Traded Securities 197 9. Types of Publicly Traded Real Estate Securities 197 9.1. REIT Structures 198 9.2. Market Size 199 9.3. Benefits and Disadvantages of Investing in REITs 200 10. Valuation: Net Asset Value Approach 203 10.1. Accounting for Investment Properties 203 10.2. Net Asset Value per Share: Calculation 204 10.3. Net Asset Value per Share: Application 206 11. Valuation: Relative Value (Price Multiple) Approach 208 11.1. Relative Value Approach to Valuing REIT Stocks 208 11.2. Funds from Operations and Adjusted Funds from Operations 209 11.3. P/FFO and P/AFFO Multiples: Advantages and Drawbacks 214 12. REIT Mini Case Study: Example of Disclosures and Valuation Analysis 215 12.1. Selection of Valuation Methods 221 13. Private versus Public: A Comparison 223 Summary 224 General Characteristics of Real Estate 225 Private Equity Real Estate 226 Publicly Traded Real Estate Securities 226 Chapter 4 Private Equity Investments 239 Learning Outcomes 239 1. Introduction 239 2. Introduction to Valuation Techniques in Private Equity Transactions 241 2.1. How Is Value Created in Private Equity? 244 2.2. Using Market Data in Valuation 247 3. Contrasting Venture Capital and Buyout Investments 248 4. LBO model for valuation of Buyout Transactions 249 4.1. The LBO Model 250 5. VC Method for valuation of Venture Capital Transactions 1 253 5.1. Expected Exit Valuation 254 5.2. Required Rate of Return 254 5.3. Option Pools 255 5.4. Stage Financing 256 6. Exit Routes: Return Cash to Investors 258 6.1. Exit Routes: Summary 259 7. Risks and Costs of investing in Private Equity 260 7.1. What Are the Risks and Costs of Investing in Private Equity? 260 8. Private Equity Fund Structures and Terms 261 8.1. Economic Terms 263 8.2. Corporate Governance Terms 264 8.3. Due Diligence Investigations by Potential Investors 266 8.4. Private Equity Fund Valuation 266 9. Evaluating Fund Performance and Concept in Action: Evaluating a Private Equity Fund 267 9.1. Analysis of IRR since Inception 267 9.2. Analysis of Return Multiples 268 Summary 272 Chapter 5 Introduction to Commodities and Commodity Derivatives 279 Learning Outcomes 279 1. Introduction 279 2. Commodity Sectors 280 2.1. Commodity Sectors 282 3. Life Cycle of Commodities 284 3.1. Energy 285 3.2. Industrial/Precious Metals 286 3.3. Livestock 287 3.4. Grains 288 3.5. Softs 289 4. Valuation of Commodities 290 5. Commodities Futures Markets: Participants 292 5.1. Futures Market Participants 292 6. Commodity Spot and Futures Pricing 295 7. Theories of Futures Returns 300 7.1. Theories of Futures Returns 300 8. Components of Futures Returns 306 9. Contango, Backwardation, and the Roll Return 311 10. Commodity Swaps 313 10.1. Total Return Swap 315 10.2. Basis Swap 315 10.3. Variance Swaps and Volatility Swaps 316 11. Commodity Indexes 317 11.1. S&p Gsci 319 11.2. Bloomberg Commodity Index 320 11.3. Deutsche Bank Liquid Commodity Index 320 11.4. Thomson Reuters/CoreCommodity CRB Index 320 11.5. Rogers International Commodity Index 321 11.6. Rebalancing Frequency 321 11.7. Commodity Index Summary 321 Summary 322 Chapter 6 Hedge Fund Strategies 331 Learning Outcomes 331 1. Introduction and Classification of Hedge Fund Strategies 331 1.1. Classification of Hedge Funds and Strategies 333 2. Equity Strategies: Long/Short Equity 336 2.1. Long/Short Equity 337 3. Equity Strategies: Dedicated Short Selling and Short- Biased 340 3.1. Investment Characteristics 340 3.2. Strategy Implementation 342 4. Equity Strategies: Equity Market Neutral 344 4.1. Investment Characteristics 345 4.2. Strategy Implementation 346 5. Event- Driven Strategies: Merger Arbitrage 348 5.1. Merger Arbitrage 348 6. Event- Driven Strategies: Distressed Securities 351 6.1. Investment Characteristics 352 6.2. Strategy Implementation 353 7. Relative Value Strategies: Fixed Income Arbitrage 355 7.1. Fixed- Income Arbitrage 355 8. Relative Value Strategies: Convertible Bond Arbitrage 359 8.1. Investment Characteristics 360 8.2. Strategy Implementation 361 9. Opportunistic Strategies: Global Macro Strategies 363 9.1. Global Macro Strategies 364 10. Opportunistic Strategies: Managed Futures 367 10.1. Investment Characteristics 367 10.2. Strategy Implementation 368 11. Specialist Strategies 371 11.1. Volatility Trading 371 11.2. Reinsurance/Life Settlements 375 12. Multi- Manager Strategies 378 12.1. Fund- of- Funds 378 12.2. Multi- Strategy Hedge Funds 380 13. Analysis of Hedge Fund Strategies using a Conditional Factor Risk Model 384 13.1. Conditional Factor Risk Model 385 14. Evaluating Equity Hedge Fund Strategies: Application 389 15. Evaluating Multi- manager Hedge Fund Strategies: Application 394 16. Portfolio Contribution of Hedge Fund Strategies 397 16.1. Performance Contribution to a 60/40 Portfolio 397 16.2. Risk Metrics 400 Summary 403 Chapter 7 Capital Market Expectations: Forecasting Asset Class Returns 415 Learning Outcomes 415 1. Introduction 415 2. Overview of Tools and Approaches 416 2.1. The Nature of the Problem 416 2.2. Approaches to Forecasting 416 3. Forecasting Fixed Income Returns 418 3.1. Applying DCF to Fixed Income 418 3.2. The Building Block Approach to Fixed- Income Returns 420 4. Risks in Emerging Market Bonds 426 4.1. Economic Risks/Ability to Pay 426 4.2. Political and Legal Risks/Willingness to Pay 427 5. Forecasting Equity Returns 428 5.1. Historical Statistics Approach to Equity Returns 429 5.2. DCF Approach to Equity Returns 430 5.3. Risk Premium Approaches to Equity Returns 432 5.4. Risks in Emerging Market Equities 437 6. Forecasting Real Estate Returns 438 6.1. Historical Real Estate Returns 438 6.2. Real Estate Cycles 439 6.3. Capitalization Rates 440 6.4. The Risk Premium Perspective on Real Estate Expected Return 441 6.5. Real Estate in Equilibrium 442 6.6. Public versus Private Real Estate 442 6.7. Long- Term Housing Returns 443 7. Forecasting Exchange Rates 445 7.1. Focus on Goods and Services, Trade, and the Current Account 446 7.2. Focus on Capital Flows 448 8. Forecasting Volatility 453 8.1. Estimating a Constant VCV Matrix with Sample Statistics 453 8.2. VCV Matrices from Multi- Factor Models 454 8.3. Shrinkage Estimation of VCV Matrices 455 8.4. Estimating Volatility from Smoothed Returns 456 8.5. Time- Varying Volatility: ARCH Models 457 9. Adjusting a Global Portfolio 459 9.1. Macro- Based Recommendations 459 9.2. Quantifying the Views 461 Summary 462 Chapter 8 Asset Allocation to Alternative Investments 475 Learning Outcomes 475 1. Introduction and The Role of Alternative Investments in a Multi- asset Portfolio 475 1.1. The Role of Alternative Investments in a Multi- asset Portfolio 476 2. Diversifying Equity Risk 483 2.1. Volatility Reduction over the Short Time Horizon 483 2.2. Risk of Not Meeting the Investment Goals over the Long Time Horizon 486 3. Traditional Approaches to Asset Classification 488 3.1. Traditional Approaches to Asset Classification 488 4. Risk- Based Approaches to Asset Classification and Comparing Risk- Based and Traditional Approaches 491 4.1. Illustration: Asset Allocation and Risk- Based Approaches 495 4.2. Comparing Risk- Based and Traditional Approaches 497 5. Risk Considerations, Return Expectations and Investment Vehicle 499 5.1. Risk Considerations 499 5.2. Return Expectations 500 5.3. Investment Vehicle 501 6. Liquidity 502 6.1. Liquidity Risks Associated with the Investment Vehicle 503 6.2. Liquidity Risks Associated with the Underlying Investments 505 7. Fees and Expenses, Tax Considerations, and Other Considerations 506 7.1. Tax Considerations 507 7.2. Other Considerations 507 8. Suitability Considerations 510 8.1. Investment Horizon 510 8.2. Expertise 510 8.3. Governance 511 8.4. Transparency 511 9. Asset Allocation Approaches and Statistical Properties and Challenges of Asset Returns 513 9.1. Statistical Properties and Challenges of Asset Returns 514 10. Monte Carlo Simulation 519 10.1. Simulating Skewed and Fat- Tailed Financial Variables 520 10.2. Simulation for Long- Term Horizon Risk Assessment 522 11. Portfolio Optimization 526 11.1. Mean– Variance Optimization without and with Constraints 526 11.2. Mean– CVaR Optimization 528 12. Risk Factor- Based Optimization 532 13. Liquidity Planning and Achieving and Maintaining the Strategic Asset Allocation 535 13.1. Achieving and Maintaining the Strategic Asset Allocation 536 14. Managing the Capital Calls and Preparing for the Unexpected 542 14.1. Preparing for the Unexpected 542 15. Monitoring the Investment Program 547 15.1. Overall Investment Program Monitoring 547 15.2. Performance Evaluation 547 15.3. Monitoring the Firm and the Investment Process 549 Summary 551 Chapter 9 Integrated Cases in Risk Management: Institutional 563 Learning Outcomes 563 1. Introduction 563 2. Financial Risks Faced by Institutional Investors 564 2.1. Long- Term Perspective 564 2.2. Dimensions of Financial Risk Management 564 2.3. Risk Considerations for Long- Term Investors 567 2.4. Risks Associated with Illiquid Asset Classes 569 2.5. Managing Liquidity Risk 573 2.6. Enterprise Risk Management for Institutional Investors 575 3. Environmental and Social Risks Faced by Institutional Investors 577 3.1. Universal Ownership, Externalities, and Responsible Investing 577 3.2. Material Environmental Issues for an Institutional Investor 578 3.3. Material Social Issues for an Institutional Investor 584 Case Study 586 1. Case Study: Introduction 586 2. Case Study: Background 586 3. R- SWF’S Investments: 1.0 586 Investment Committee Meeting 1.0 592 4. R- SWF’S Investments: 2.0 603 Investment Committee Meeting 2.0 608 5. R- SWF’S Investments: 3.0 616 References 617 Glossary 619 About the Editors and Authors 627 Index 631

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Book SynopsisTable of ContentsPart I Learning Objectives, Summary Overview, and Problems Chapter 1 Introduction to Corporate Governance and Other ESG Considerations 3 Learning Outcomes 3 Summary Overview 4 Problems 5 Chapter 2 Introduction to Alternative Investments 7 Learning Outcomes 7 Summary Overview 7 Problems 10 Chapter 3 Real Estate Investments 17 Learning Outcomes 17 Summary Overview 18 Problems 20 Chapter 4 Private Equity Investments 33 Learning Outcomes 33 Summary Overview 33 Problems 34 Chapter 5 Introduction to Commodities and Commodity Derivatives 41 Learning Outcomes 41 Summary Overview 42 Problems 43 Chapter 6 Hedge Fund Strategies 51 Learning Outcomes 51 Summary Overview 51 Problems 54 Chapter 7 Capital Market Expectations: Forecasting Asset Class Returns 63 Learning Outcomes 63 Summary Overview 64 Problems 66 Chapter 8 Asset Allocation to Alternative Investments 75 Learning Outcomes 75 Summary Overview 75 Problems 78 Chapter 9 Integrated Cases in Risk Management: Institutional 87 Learning Outcomes 87 Part II Solutions Chapter 1 Introduction to Corporate Governance and Other ESG Considerations 91 Solutions 91 Chapter 2 Introduction to Alternative Investments 93 Solutions 93 Chapter 3 Real Estate Investments 101 Solutions 101 Chapter 4 Private Equity Investments 109 Solutions 109 Chapter 5 Introduction to Commodities and Commodity Derivatives 113 Solutions 113 Chapter 6 Hedge Fund Strategies 117 Solutions 117 Chapter 7 Capital Market Expectations: Forecasting Asset Class Returns 129 Solutions 129 Chapter 8 Asset Allocation to Alternative Investments 137 Solutions 137

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Book SynopsisTable of ContentsAcknowledgments ix About the Authors xiii Introduction 1 Chapter 1 Introduction to Alternatives 5 1.1 What Are Alternatives? 6 1.2 Investing in Alternatives 8 1.3 Diversification 34 1.4 Regulation 36 1.5 Summary 41 Notes 42 Chapter 2 Traditional Alternatives 45 2.1 Venture Capital 46 2.2 Private Equity 55 2.3 Hedge Funds 66 2.4 Infrastructure 79 2.5 Land and Commodities 82 2.6 Funds of Funds 88 2.7 Summary 89 Notes 90 Chapter 3 Real Estate 93 3.1 The Global Real Estate Market 93 3.2 Structure of This Chapter 94 3.3 Characteristics of Real Estate 95 3.4 Classifying Real Estate Segments 96 3.5 Real Estate Valuation 101 3.6 Due Diligence 105 3.7 The Four Quadrants of Real Estate Investment 106 3.8 Future Trends in Real Estate 113 Chapter 4 Modern Alternatives 119 4.1 Private Credit and Alternative Finance 119 4.2 Insurance- Related Finance 128 4.3 Impact Investing 132 4.4 Blockchain, Coins, and Non- Fungible Tokens 136 4.5 Real Estate Tokenization and the Metaverse 143 4.6 Collectibles 151 4.7 Other Opportunities 159 Notes 163 Chapter 5 Building Portfolios 167 5.1 The Portfolio Management Process 167 5.2 Traditional Portfolios 170 5.3 Mean- Variance Optimization 171 5.4 Adding Alternative Investments 173 5.5 The Endowment Model 174 5.6 Risk Budgets, Risk Parity 174 5.7 Summary 176 Notes 177 Appendix Real Estate Investments 179 A.1 The Characteristics of Real Estate as an Asset Class 179 A.2 Classifying Real Estate Segments 183 A.3 Analyzing the Real Estate Segments 186 A.4 Real Estate Valuation 214 A.5 Due Diligence 228 A.6 The Four Quadrants of Real Estate Investment 229 Notes 272 About the Website 273 Index 275

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