Investment and securities Books

Book SynopsisThe book on hedge fund basics, completely updated to reflect today's post-crisis industry The hedge fund industry has been reeling in the wake of recent Ponzi schemes and insider trading scandals as well as the loss of billions of dollars in assets under management due to fund closures. Getting Started in Hedge Funds, Third Edition focuses on the current state of the industry; how hedge funds did or did not survive the subprime and subsequent credit crisis; and, what the future holds for investors. Getting Started in Hedge Funds, Third Edition also provides readers with a brief overview of the industry''s history, and describes the inner-workings of these complex investment vehicles, including how to start a hedge fund, and what new regulations means for managers and investors. Profiles 10 highly successful hedge fund managers Addresses the Madoff scandal, as well as other lesser known Ponzi schemes, and analyzes the ripple effect felt throTable of ContentsAcknowledgments viii Introduction Why Hedge Funds Now and Forever? xi Chapter 1 Hedge Fund Basics 1 The Near Collapse of Long-Term Capital Management 4 The Credit Crisis and Hedge Funds 13 A Brief History of Hedge Funds 17 The Current State of the Hedge Fund Industry 21 Alfred Winslow Jones—The Original Hedge Fund Manager 24 Chapter 2 How Hedge Funds Operate 33 Starting a Hedge Fund 36 Hedge Fund Regulations and Structures 53 How Hedge Funds Use Leverage 62 Patriarchs of the Hedge Fund World 62 Hedge Funds Take All the Heat 66 George Soros—The World’s Greatest Investor 68 Chapter 3 The Managers 71 Guy Wyser-Pratte—Wyser-Pratte 74 Bill Michaelcheck—Mariner Investment Group 80 Nancy Havens—Havens Advisors LLC 85 Steve Cohen—SAC Capital 89 Chapter 4 Hedge Fund Investing 95 The Role of an Investment Adviser 98 An Institutional Investor 99 Third-Party Marketers 103 An Individual Investor 105 A Consulting Firm 108 A Manager of Managers 111 Conclusion 117 Appendix A Hedge Fund Strategies 121 Appendix B Example of Material Included in an Onshore Document 125 Overview 125 Important General Considerations 128 Summary of Offering and Partnership Terms 130 Management 146 Appendix C Example of Material Included in a Cayman-Based Fund for Tax-Exempt Investors 149 Part 1: Establishing an Offshore Fund Domiciled in the Cayman Islands 149 Part 2: Summary of Key Disclosures for Cayman Islands Offering Document 154 Glossary 161 Notes 171 About the Author 175 Index 177

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Book SynopsisThe ultimate guide to investor relations Your one-stop resource for everything pertaining to your company''s dealings with the investment community, Running an Effective Investor Relations Department provides investor relations professionals with essential day-to-day information. From creating and properly communicating a company''s investment story, to dealing with both the sell side and buy side of the investment community, to providing guidance, and the form and frequency of that guidance, this authoritative resource covers it all. Addresses every possible area of the investor relations profession Includes chapters covering disclosure, forward-looking statements, guidance, event management, and twenty other topics Other titles by Bragg: The Vest Pocket Controller, Accounting Best Practices, Sixth Edition, and Just-in-Time Accounting, Third Edition Practical and thorough, this book offers the world-class guidTable of ContentsPreface xi About the Author xiii Chapter 1: Managing Investor Relations 1 Why Have an Investor Relations Department? 1 Investor Relations Objectives and Goals 2 Investor Relations Tools 3 Investor Relations Budget 6 Float Management 8 Managing Bad News 10 Responding to Rumors 14 Summary 15 Chapter 2: Investor Relations Officer Position 16 Key Aspects of the IRO Position 16 IRO Job Description 19 Investor Relations Team 21 IRO as Management Representative 22 Summary 23 Chapter 3: Creating the Company Story 24 Creating the Story 24 Packaging the Story 26 Strategic Credibility 29 Clarifying and Mitigating Risk 30 Company Reputation 32 Matching the Company to the Story 34 Duration of the Story 34 Coordination with Public Relations 35 Summary 35 Chapter 4: Event Management 37 Conference Call 37 Road Show 41 Non-Deal Road Show 46 Annual Meeting 47 Plant Tour 49 Annual Analyst Meeting 49 Analyst and Industry Conferences 50 Podcast Dissemination 50 Video Dissemination 52 Blog Dissemination 52 Event Disclosure Issues 53 Practicing for Events 54 Summary 55 Chapter 5: Public Communications 57 Constructing a Press Release 57 Dealing with the Media 63 Dealing with Electronic Message Boards 66 Investor Relations Advertising 67 Summary 68 Chapter 6: Publications 69 Fact Sheet 69 Annual Report 74 Product Pipeline Report 77 Company-Paid Research Reports 78 Independent Research Reports 78 Welcome Kit 79 Videos 79 Other Publications 80 Information Tracking Systems for Publications 81 Legal Liability 82 Summary 82 Chapter 7: Investor Relations Web Site 83 Basic Investor Relations Web Site 83 Intermediate Investor Relations Web Site 84 Advanced Investor Relations Web Site 87 Web Site Layout 90 Hyperlink Liability 91 Sample Web Sites 92 Summary 93 Chapter 8: Management Discussion and Analysis Section 94 MD&A Reporting Requirements 94 SEC Guidance 98 Examples of Enhanced MD&A Disclosure 99 A Case for Full Disclosure 101 Summary 102 Chapter 9: Disclosure 103 Form 8-K 104 Disclosure of Non-GAAP Information 111 Regulation FD 114 Disclosure Policy 115 Disclosure Procedure 117 Ensuring Compliance with Disclosure Rules 118 Disclosure During an Initial Public Offering 120 Summary 121 Chapter 10: Forward-Looking Statements 122 Basis for Class Action Lawsuits 122 Private Securities Litigation Reform Act 123 Forward-Looking Statements 124 Legal Liability for Past Statements 127 Summary 127 Chapter 11: Providing Guidance 128 Whether to Provide Guidance 128 Form of Guidance Issued 130 Frequency and Timing of Guidance 132 Aggressiveness of Guidance 133 Guidance Policy 134 Summary 135 Chapter 12: Dealing with the Sell Side 136 Analyst’s Perspective 136 Finding the Right Analyst 139 Dealing with Analysts 140 Negative Analyst Report 144 Dealing with Brokers 145 Pump and Dump 147 Dealing with Investment Bankers 148 Dealing with Sell-Side Specialists 149 Summary 149 Chapter 13: Dealing with the Buy Side 151 Types of Investors 151 Dealing with Institutional Investors 153 Travel Requirements for Meetings with Institutional Investors 156 Dealing with Individual Investors 158 Dealing with Investment Clubs 160 Dealing with Foreign Investors 161 Investor Presentation 162 Managing a Private Investment in Public Equity 164 Accredited Investor 164 Dividend Reinvestment 165 Direct Stock Purchase Plans 165 Summary 166 Chapter 14: Dealing with Credit Rating Agencies 167 Credit Rating Agency Relationship 167 Summary 169 Chapter 15: Dealing with Short Sellers and Activist Investors 170 How Short Sellers Operate 170 How to Handle Short Sellers 172 Monitoring Short Sellers 174 Dealing with Activist Investors 174 Summary 175 Chapter 16: Dealing with the Board of Directors 177 IRO and the Board of Directors 177 Investor Relations Board Packet 182 Summary 182 Chapter 17: Major Stock Exchanges 183 Listing Process 183 American Stock Exchange 184 Overview of the NASDAQ 187 NASDAQ Capital Market 187 NASDAQ Global Market 188 New York Stock Exchange 190 Comparing the Stock Exchanges 191 Summary 193 Chapter 18: Monitoring the Market 194 Monitoring through Internet Services 194 Monitoring through Individuals 195 Surveying Investors 196 Locating Investors 199 Monitoring through a Stock Surveillance Service 200 Monitoring through a Stock Transfer Agent 201 Bloomberg Terminals 201 Electronic Message Boards 201 Activity Caused by Trading Strategies 202 Summary 204 Chapter 19: Blue Sky Laws 206 Blue Sky Law Requirements and Implications 206 Blue Sky Advice for the IRO 208 Chapter 20: Proxy Solicitations 209 Proxy Solicitation Concepts 209 Online Proxy Voting 215 Proxy Distribution Process 218 NYSE Rule 452 222 Summary 223 Chapter 21: Dividends and Stock Buy-Backs 224 Transition to a Dividend 224 Dividend Policy 225 Stock Buy-Back Alternative 227 SEC Conditions on Stock Buy-Backs 228 Disclosure of a Stock Buy-Back Program 229 Odd-Lot Shareholdings 231 Summary 232 Chapter 22: Outsourcing Investor Relations 233 Skill Set of an Investor Relations Consultant 233 Managing the Consultant Relationship 236 National Investor Relations Institute 237 Summary 237 Chapter 23: Investor Relations Metrics 239 Internal and Financial Metrics 239 Peer Metrics 244 Company-Specific Metrics 245 Metrics Consistency 246 Explaining Results 247 Summary 249 Index 250

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Book SynopsisPraise for Don''t Count On It! This collection of Jack Bogle''s writings couldn''t be more timely. The clarity of his thinkingand his insistence on the relevance of ethical standardsare totally relevant as we strive to rebuild a broken financial system. For too many years, his strong voice has been lost amid the cacophony of competing self-interests, misdirected complexity, and unbounded greed. Read, learn, and support Jack''s mission to reform the industry that has been his life''s work. PAUL VOLCKER, Chairman of the President''s Economic Recovery Advisory Board and former Chairman of the Federal Reserve (19791987) Jack Bogle has given investors throughout the world more wisdom and plain financial ''horse sense'' than any person in the history of markets. This compendium of his best writings, particularly his post-crisis guidance, is absolutely essential reading for investors and those who care about the future of our society. ARTHUR LEVITrade Review“Don’t Count on It! is a wise book. As most traders and investors remain convinced that they can beat the market, it’s always sobering to hear a compelling voice from the other side.” (Seeking Alpha) "If Bogle writes it, it’s worth reading. His latest, Don’t Count On It, is a collection of 35 essays, every one of them filled with wisdom and insight. . . While I have read Bogle’s views on these issues many times, I’m always impressed with the quality of his writing (Where else can you read quotations from Adam Smith to Winston Churchill to Cato?), the wit and humility he shows and his passion to help investors. The book is a compelling read, one that in effect tells the story and mission of a great man. We’re lucky and privileged to have him fighting on our side. As Bogle noted in his book, Machiavelli “described the accumulation of worldly ‘glory’ as the motivating principle that drives leaders to undertake ‘great enterprises’ and do ‘great things’ on behalf of their fellow citizens and not just themselves.” Hard to find a better description of Bogle himself." (MarketWatch) “Mr Bogle’s prescription for a better system is relatively simple: to demand proper fiduciary management from money managers. They must prioritise client interests, act as responsible corporate citizens, charge reasonable fees and eliminate conflicts of interest. Amen to that. It may sound like nostalgia from an old-timer, or idealism from a visionary. But without such changes, investors and society will continue to be short-changed as the financial community carries on regardless.” (Financial Times) “In Don’t Count on It! Reflections on Investment Illusions, Capitalism, “Mutual” Funds, Indexing, Entrepreneurship, Idealism, and Heroes, Bogle hammers at what he labels the cost matters hypothesis: Whether markets are efficient or inefficient, investors as a group must fall short of the market return by precisely the amount of the aggregate costs they incur. It is the central fact of investing. Not surprisingly, the book deals extensively with the low-cost innovation for which Vanguard is best known: the stock index mutual fund. When the company first made indexing available to small investors in 1975, critics derided the notion as “Bogle’s folly.” To Bogle, however, the benefits to investors were irrefutable. . . The impact of indexing has been so great that a second, hugely important contribution by Vanguard has been overshadowed. Vanguard originated the now standard segmentation of bond funds into short-, intermediate-, and long-term varieties. Bogle was enshrined in the Fixed Income Analysts Society Hall of Fame for this innovation. The author of Don’t Count on It! does not dwell on such honors, which include being named one of the world’s 100 most powerful and influential people by Time magazine. In fact, Bogle devotes the final section of his book to tributes to four of his own heroes: Walter Morgan, economist Paul Samuelson, investment guru Peter Bernstein, and Dr. Bernard Lown, a Nobel laureate whom he credits with keeping him alive in defiance of a mystifying heart ailment. Bogle also shows modesty in sharing credit for his contributions to the field and in downplaying his own theoretical expertise. His unashamed display of such old-fashioned virtues, as well as his heretical view that running a business is not entirely about maximizing the wealth of the owners, has earned him the nickname ‘St. Jack.’” (Financial Analysts Journal)Table of ContentsForeword xi Introduction xv A Note to the Reader xxxi Part One. Investment Illusions 1 Chapter 1 Don’t Count on It! The Perils of Numeracy 5 Chapter 2 The Relentless Rules of Humble Arithmetic 25 Chapter 3 The Telltale Chart 49 Chapter 4 A Question So Important That It Should Be Hard to Think about Anything Else 71 Chapter 5 The Uncanny Ability to Recognize the Obvious 87 Part Two. The Failure of Capitalism 97 Chapter 6 What Went Wrong in Corporate America? 101 Chapter 7 Fixing a Broken Financial System 123 Chapter 8 Vanishing Treasures: Business Values and Investment Values 137 Chapter 9 A Crisis of Ethic Proportions 157 Chapter 10 Black Monday and Black Swans 161 Chapter 11 The Go-Go Years 187 Part Three. What’s Wrong with “Mutual” Funds 203 Chapter 12 Re-Mutualizing the Mutual Fund Industry: The Alpha and the Omega 207 Chapter 13 A New Order of Things: Bringing Mutuality to the “Mutual” Fund 237 Chapter 14 The Fiduciary Principle: No Man Can Serve Two Masters 273 Chapter 15 Mutual Funds at the Millennium: Fund Directors and Fund Myths 297 Chapter 16 “High Standards of Commercial Honor . . . Just and Equitable Principles of Trade . . . Fair Dealing with Investors” 317 Part Four. What’s Right with Indexing 347 Chapter 17 Success in Investment Management: What Can We Learn from Indexing? 351 Chapter 18 As the Index Fund Moves from Heresy to Dogma, What More Do We Need to Know? 369 Chapter 19 “The Chief Cornerstone” 393 Chapter 20 Convergence! The Great Paradox: Just as Active Fund Management Becomes More and More Like Passive Indexing, So Passive Indexing Becomes More and More Like Active Fund Management 409 Part Five. Entrepreneurship and Innovation 435 Chapter 21 Capitalism, Entrepreneurship, and Investing: The 18th Century versus the 21st Century 439 Chapter 22 Seventeen Rules of Entrepreneurship 455 Chapter 23 “Vanguard: Saga of Heroes” 469 Chapter 24 When Does Innovation Go Too Far? 493 Part Six. Idealism and the New Generation 507 Chapter 25 Business as a Calling 511 Chapter 26 The Right Kind of Success 517 Chapter 27 “This Above All: To Thine Own Self Be True” 521 Chapter 28 “Enough” 529 Chapter 29 If You Can Trust Yourself . . . 535 Chapter 30 The Fifth “Never” 543 Chapter 31 “When a Man Comes to Himself ” 549 Part Seven. Heroes and Mentors 557 Chapter 32 Walter L. Morgan 563 Chapter 33 Paul A. Samuelson 569 Chapter 34 Peter L. Bernstein 575 Chapter 35 Bernard Lown, MD 581 Index 587

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Book SynopsisUnfairly reviled, and much misunderstood, private equity differs from all other asset classes in various important respects, not least the way in which its fund mechanisms operate, and the way in which its returns are recorded and analysed. Sadly, high level asset allocation decisions are frequently made on the basis of prejudice and misinformation, rather than a proper appreciation of the facts. Guy Fraser-Sampson draws upon more than twenty years of experience of the private equity industry to provide a practical guide to mastering the intricacies of this highly specialist asset class. Aimed equally at investors, professionals and business school students, it starts with such fundamental questions as 'what is private equity?' and progresses to detailed consideration of different types of private equity activity such as venture capital and buyout. Rapid and significant changes in the environment during the recent financial crisis have prompted the need for a new edition. SeTable of ContentsAbout the Author xi Acknowledgements xiii Introduction xv 1 What is Private Equity? 1 What is Private Equity? 2 Fund investing versus direct investing 3 Co-investment 4 Terminology 6 Different types of Private Equity investment 7 Summary 13 2. What are Private Equity Funds, and How do They Work? 15 Capital: Allocated, Committed, Drawn Down and Invested 17 How do Private Equity Funds Work? 18 Structure 18 Cash flow 20 Investment 22 Fundraising 23 Private Equity Funds Distinguished from Other Fund Types 25 Hedge funds 25 Infrastructure 27 Private (Equity) Real Estate 28 A Note on International Issues 28 Summary 29 3. Private Equity Returns – The Basics 31 Understanding the J-curve and Compound Returns 31 Upper Quartile Figures 37 Median Returns 38 Average Returns 39 Pooled Returns 41 Using Vintage Year Returns for Benchmarking Purposes 41 Time-weighted Returns 42 Summary 43 4 Private Equity Returns – Multiples and Muddles 45 Multiples 45 Distributed over paid in (DPI) 47 Paid in to committed capital (PICC) 47 Residual value to paid in (RVPI) 47 Total value to paid in (TVPI) 48 Use of multiples in industry research 48 Muddles, Muggles and Markowitz 51 Returns 52 Risk 54 Liquidity 56 Summary 58 5 Buyout 59 Types of Buyout Transaction 59 Mbo 59 Mbi 60 Bimbo 60 Lbo 60 Take Private (P2P) 61 Roll-up 62 Secondary Buyouts 62 Other ‘Buyout’ Activity 62 PIPEs 63 How do Buyouts Work? 63 Characteristics of Buyout 67 Established businesses 67 Debt 69 Earnings 70 Size 71 Control 74 Barriers to entry 75 Summary 77 6 How to Analyse Buyouts 79 Earnings 80 Ebit 81 Ebitda 82 Earnings Growth 83 Multiple 84 Multiple increase (sometimes called multiple arbitrage) 85 Leverage 88 Recapitalisation 89 Timing 89 Modelling and Analysing Buyout Funds 91 Enterprise value 91 Summary 94 7 Buyout Returns 97 US versus European Buyout 97 Buyout skill bases 100 Imperfect markets 100 Earnings multiples 101 Earnings growth 104 Leverage 105 Contribution of different drivers 106 Fund size 107 Summary 112 8 Venture Capital 113 What is Venture Capital? 113 Backing New Applications, Not New Technology 114 Classification by Sector 115 It 116 Telecoms 118 Life Science 120 Classification by Stage 123 Seed stage 124 Early stage 127 Mid and late stages 128 Summary 128 9 How to Analyse Venture 129 The Fundamentals (1) – Money Multiples 129 The Fundamentals (2) – Valuation 131 Valuation as an element of stated returns 131 Differences in valuation approach between Europe and the US 132 Variability of Venture valuations 133 Pre-money and post-money valuations 135 Share classes 136 The Fundamentals (3) – Cost and Value 136 IRRs and multiples 138 Going in equity (GI%) 139 Percentage of the holding within the fund 139 The Impact of Home Runs 139 Summary 142 10 Venture Returns 145 US Outperformance versus Europe 145 Money multiples drive IRRs 145 Home runs and the golden circle 147 Market conditions 149 European Venture – Is it as Bad as it Seems? 151 Returns and Fund Size 154 Venture returns by stage 158 What of the Future? 159 Summary 161 11. Growth and Development Capital 163 The PLC and the BCG Growth Matrix 164 Development Capital 166 Target companies 166 Money in deals 166 Money out deals 167 Objectives 167 Growth Capital 168 Target companies 168 Objectives 169 Growth capital and late-stage Venture 170 Common Issues 171 Minority protection 171 Exit protection 173 The Future 174 Summary 175 12. Secondary Private Equity Fund Investing 177 Why do People Buy Secondaries? 178 Time and the J-curve 178 Diversification by time 180 Diversification by geography and sector 181 Treasury and Portfolio Secondaries 181 Why do People Sell Secondaries? 182 Change of strategy/leaving the asset class 182 Overconcentration by time, sector or geography 183 Unexpected need for cash 183 Housekeeping 184 Dissatisfaction with the GP 184 Restrictions on Transfer 184 Stapled primaries 185 Secondary Methodology 186 Tails 187 Fees etc. 188 Secondary Buyouts – A Warning 189 Summary 189 13. Due Diligence 191 Buyout Funds 193 Venture Funds 194 Co-investors 196 Cross-fund Investing 197 Buyout Companies 198 Venture Companies 199 Funds of Funds 200 Growth and Development Capital 201 Monitoring Private Equity Funds 202 The Changing Nature of Due Diligence 204 Summary 204 14. Planning Your Investment Programme 207 Cash Flow Planning 207 Allocated, Committed and Invested Capital 208 Diversification by Time 209 Proper Commitment Levels 210 Diversification by Sector and Geography 212 Total Return 215 How to deal with uninvested capital 215 Towards a New World of Private Equity Programmes? 218 Summary 219 15. Trends and Issues 221 Financial Crisis 222 Credit 222 Valuation 224 Holding periods 225 Secondaries 227 Emerging Markets 228 Concluding Thoughts 229 Track record 230 Returns 230 Fee structures 231 Private Equity at a Crossroads? 232 Summary 233 Glossary of Private Equity Terms 235 Index 259

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Book SynopsisThis book covers the subject of Credit Derivatives from a real world perspective, tackling issues such as liquidity, poor data, and credit spreads, to the latest innovations in portfolio products, hedging and risk management techniques.Table of ContentsPreface to the First Edition xvii Preface to the Second Edition xix Acknowledgements xxi Disclaimer xxiii Table of Spreadsheet Examples and Software xxvii About the Author xxix Part I Credit Background and Credit Derivatives 1 1 Credit Debt and Other Traditional Credit Instruments 3 1.1 Bonds and Loans; Libor Rates and Swaps; ‘REPO’ and General Collateral Rates 3 1.1.1 Bonds and Loans 3 1.1.2 BBA Libor and Swaps 4 1.1.3 Collateralised Lending and Repo 4 1.1.4 Repo as a Credit Derivative 6 1.2 Credit Debt Versus ‘Risk-Free’ Debt 6 1.3 Issue Documents, Seniority and the Recovery Process 6 1.3.1 Issue Documents and Default 6 1.3.2 Claim Amount 7 1.3.3 The Recovery Process and Recovery Amount 8 1.3.4 Sovereign versus Corporate Debt 9 1.4 Valuation, Yield and Spread 10 1.5 Buying Risk 10 1.6 Marking to Market, Marking to Model and Reserves 11 1.7 The ‘Credit Crunch’ and Correlation 12 1.8 Parties Involved in the Credit Markets and Key Terminology 13 2 Default and Recovery Data; Transition Matrices; Historical Pricing 15 2.1 Recovery: Ultimate and Market-Value-Based Recovery 15 2.1.1 Ultimate Recovery 15 2.1.2 Market Recovery 16 2.1.3 Recovery Rates and Industry Sector 18 2.1.4 Recovery and Default Rates and the Economic Cycle 18 2.1.5 Modelling Recovery Rates 18 2.2 Default Rates: Rating and Other Factors 21 2.3 Transition Matrices 21 2.4 ‘Measures’ and Transition Matrix-Based Pricing 22 2.5 Spread Jumps and Spread Volatility Derived from Transition Matrices 26 2.6 Adjusting Transition Matrices 27 3 Asset Swaps and Asset Swap Spread; z-Spread 29 3.1 ‘Par–Par’ Asset Swap Contracts 29 3.1.1 Contract Description and Hedging 29 3.1.2 Hedging 29 3.1.3 Default of the Reference Name 30 3.2 Asset Swap Spread 30 3.3 Maturity and z-Spread 30 3.4 Callable Asset Swaps; ‘Perfect’ Asset Swaps 32 3.4.1 Callable Asset Swaps 33 3.4.2 ‘Perfect’ Asset Swaps 33 3.5 A Bond Spread Model 33 4 Liquidity, the Credit Pyramid and Market Data 35 4.1 Bond Liquidity 35 4.2 The Credit Pyramid 35 4.3 Engineered and Survey Data 37 4.3.1 Survey Data 37 4.3.2 Engineered Data 38 4.4 Spread and Rating 39 5 Traditional Counterparty Risk Management 41 5.1 Vetting 41 5.2 Collateralisation and Netting 41 5.3 Additional Counterparty Requirements for Credit Derivative Counterparties 42 5.4 Internal Capital Charge 42 6 Credit Portfolios and Portfolio Risk 43 6.1 VaR and counterpartyVaR 43 6.2 Distribution of Forward Values of a Credit Bond 43 6.3 Correlation and the Multi-Factor Normal (Gaussian) Distribution 45 6.4 Correlation and the Correlation Matrix 46 7 Introduction to Credit Derivatives 49 7.1 Products and Users 49 7.1.1 ‘Traditional’ Credit Instruments 49 7.1.2 ‘Single Name’ Credit Derivatives 49 7.1.3 Credit-Linked Notes 50 7.1.4 Portfolio Credit Derivatives 50 7.2 Market Participants and Market Growth 51 Part II Credit Default Swaps and other Single Name Products 55 8 Credit Default Swaps; Product Description and Simple Applications 57 8.1 CDS Product Definition 57 8.1.1 Contract Description and Example 57 8.1.2 Market CDS Quotes and Premium Payment 58 8.1.3 Related Products 59 8.1.4 CDS on Loans: LCDS 60 8.2 Documentation 60 8.2.1 ISDA Documentation and Insurance Contract Differences 60 8.2.2 Reference Obligations, ‘Markit RED’ and CreditIDs 63 8.3 Credit Triggers for Credit Derivatives 65 8.3.1 Credit Events 65 8.3.2 Restructuring 66 8.4 CDS Applications and Elementary Strategies 67 8.4.1 Single Names 67 8.4.2 Sector/Portfolio Trades 68 8.4.3 Income Generation 69 8.4.4 Regulatory Capital Reduction 70 8.5 Counterparty Risk: PFE for CDS 71 8.6 CDS Trading Desk 71 8.6.1 Mechanics of Transacting a CDS Deal 71 8.6.2 Trade Monitoring, Credit Events, Unwinds 72 8.6.3 CDS Desk Interactions and Organisation 73 8.7 CDS Contract and Convention Changes 2009 73 8.7.1 Credit Derivatives: Review 73 8.7.2 Overview of Recent Changes 74 8.7.3 Contract Changes 74 8.7.4 Convention Changes 79 9 Valuation and Risk: Basic Concepts and the Default and Recovery Model 81 9.1 The Fundamental Credit Arbitrage – Repo Cost 81 9.2 Default and Recovery Model; Claim Amount 82 9.2.1 Claim Amount 82 9.2.2 Recovery Modelling 83 9.2.3 Hazard (Default) Rate Model 85 9.2.4 Choice of Hazard Rate Function/Interpolation Process 85 9.3 Deterministic Default Rate Model 87 9.3.1 CDS Valuation 88 9.3.2 Accrued Interest and the Delivery Option 90 9.3.3 CDS Under Constant Hazard Rate 91 9.3.4 Up-front Premiums 91 9.3.5 Bond Valuation 91 9.3.6 Bond Price Under a Constant Hazard Rate 92 9.3.7 Limiting Cases of the Bond Price 92 9.3.8 Risky Zero Coupon Bonds 93 9.3.9 CDS and Bond Sensitivities 93 9.4 Stochastic Default Rate Model; Hazard and Pseudo-Hazard Rates 94 9.5 Calibration to Market Data 97 9.5.1 Calibrating to CDSs and to Bonds 97 9.5.2 Implied Hazard Rates 98 9.5.3 Calibrating to Bonds: Multiple Solutions for the Hazard Rate 98 9.5.4 Calibrating to Bonds: Implied Recovery and Hazard Rates 98 9.5.5 Implied Hazard Rate Curve and No-Arbitrage 101 9.5.6 Syndicated Loans 101 9.6 CDS Data/Sources 102 9.6.1 Survey Data 102 9.6.2 Data Engineering 104 9.7 Model Errors and Tests 105 9.7.1 Recovery Assumption 105 9.7.2 Interest and Hazard Rate Correlation 106 9.7.3 Reference Name and Counterparty Hazard Rate Correlation 106 9.7.4 Interpolation Assumptions, and the Pseudo-Hazard Rate versus Stochastic Hazard Rate 108 9.8 CDS Risk Factors; Reserves and Model Risk 108 9.8.1 Captured and Hidden Risks 108 9.8.2 Limits 109 9.8.3 Reserves against Implementation Errors 109 9.8.4 Model Reserves 111 10 CDS Deal Examples 113 10.1 A CDS Hedged Against Another CDS 113 10.1.1 Cross-Currency Default Swap Pricing and Hedging 113 10.1.2 Back-to-Back Trades, Default Event Hedges and Curve Trades 118 10.1.3 Hedging Both Credit Event and Spread Risk Simultaneously 120 10.1.4 Seniority Mismatch 122 10.1.5 Trade Level Hedging and Book Basis Hedging 123 10.2 Introduction to Bond Hedging 124 10.2.1 Default Event Hedging 124 10.2.2 Spread Hedging 125 10.2.3 Convertible Bonds and Equity Risk 125 10.3 Hedge and Credit Event Examples 126 11 CDS/Bond Basis Trading 131 11.1 Bond Versus CDS: Liquidity 131 11.2 Bond Repo Cost 132 11.3 Bond Spread Measurement – z-Spread not Asset Swap Spread 133 11.4 Bond Price Impact 133 11.5 Embedded Options in Bonds and Loans 134 11.6 Delivery Option in CDSs 135 11.7 Payoff of Par 136 11.8 Trigger Event Differences 136 11.9 Embedded Repo Option 137 11.10 Putting it All Together 138 12 Forward CDS; Back-to-Back CDS, Mark to Market and CDS Unwind 139 12.1 Forward CDS 139 12.2 Mark-to-Market and Back-to-Back CDS 140 12.3 Unwind Calculation; Off-Market Trade Valuation and Hedging 141 12.4 ‘Double-Trigger CDS’ 142 13 Credit-Linked Notes 145 13.1 CLN Set-Up; Counterparty or Collateral Risk 145 13.2 Embedded Swaps and Options 147 13.3 Costs 148 13.4 Applications 148 13.5 CLN Pricing 149 13.5.1 Basic Pricing 149 13.5.2 CLN Pricing Model 149 13.6 Capital Guaranteed Note 150 14 Digital or ‘Fixed Recovery’ CDS 155 14.1 Product Description 155 14.2 Pricing, Hedging, Valuation and Risk Calculations 155 14.2.1 Simple Pricing 155 14.2.2 Recovery Assumptions 156 14.2.3 Valuation and Hedging 156 14.3 Trigger Event Differences 157 15 Spread Options, Callable/Puttable Bonds, Callable Asset Swaps, Callable Default Swaps 159 15.1 Product Definitions 159 15.1.1 Vanilla Spread Options and Variations 159 15.1.2 Related Embedded Products 160 15.1.3 Bond Price Options 161 15.1.4 Applications 162 15.2 Model Alternatives and a Stochastic Default Rate Model for Spread Option Pricing 162 15.2.1 Model Approaches 162 15.2.2 Hazard Rate Tree 163 15.2.3 Callable High Yield Bonds 164 15.3 Sensitivities and Hedging 164 16 Total Return Swaps 167 16.1 Product Definition and Examples 167 16.2 Applications 167 16.3 Hedging and Valuation 168 16.3.1 Pricing and Hedging 168 16.3.2 Valuation 169 17 Single Name Book Management 171 17.1 Risk Aggregation 171 17.2 CreditVaR for CDSs 173 18 CDS and Simulation 175 18.1 The Poisson Model and Default Times 175 18.2 Valuation by Monte Carlo Simulation 175 18.3 Sensitivity 178 Part III Portfolio Products 181 19 Portfolio Product Types 183 19.1 Nth-to-Default Baskets 184 19.1.1 First-to-Default Product Definition and Example 184 19.1.2 Documentation and Takeovers 185 19.1.3 Second-(and Higher)-to-Default 187 19.1.4 Applications 187 19.2 ‘Synthetic’ CDOs 188 19.2.1 Standard Indices: Markit iTraxx and Markit cdx 188 19.2.2 Index Options and Modelling Spread 192 19.2.3 CDO Structures on Standard Indices 194 19.2.4 Bespoke Synthetic CDOs 195 19.2.5 Managed Synthetic CDOs: Compliance Tests (OC and IC Tests; WARF; Diversity Score) and Substitutions 200 19.2.6 CDO Squared 203 19.2.7 Funded (CLN) and Unfunded (CDS) Tranches 205 19.2.8 Relationship to nth-to-Default 206 19.2.9 Applications 207 19.2.10 Portfolio Optimisation 208 19.3 Cashflow CDOs 210 19.3.1 Reference Pools 211 19.3.2 Income and Capital Waterfalls: Reserve Accounts 211 19.3.3 Funding and SPVs 213 19.3.4 Balance Sheet CDOs 215 19.3.5 Diversification and Risk Reduction Trades; Credit Bank 218 19.4 Credit Securitisations 220 19.5 Rating 222 19.6 Alternative Levered Credit Portfolio Products 222 19.6.1 Cppi 223 19.6.2 Cpdo 224 19.6.3 Advantages of Market Value CDS Products 226 20 The Normal Copula and Correlation 227 20.1 Default Time Correlation 227 20.1.1 Generating Correlated Default Times 227 20.1.2 Intuitive Understanding of Default Time Correlation 227 20.1.3 Implications of 100% Default Time Correlation 229 20.1.4 N2D, Zero Correlation Case – Exact Pricing and Hedging Formulas 230 20.1.5 N2D, 100% Correlation – Exact Pricing and Hedging Formulas 234 20.1.6 N2D, Recovery Uncertainty 235 20.2 Normal Copula 236 20.2.1 Generating Correlated Default Times under the Normal Copula 237 20.2.2 Correlation Types: Pairwise, Tag, Tranche/Compound and Base Correlation; Factor Correlation 238 20.2.3 Simulation Pricing 239 20.2.4 Variance Reduction Techniques 242 20.2.5 Semi-Closed Form (SCF) Pricing 242 20.3 Correlation 244 20.3.1 Sources of Correlation 244 20.3.2 Constraints: What Makes a Correlation Matrix? 245 20.3.3 Spread Correlation 246 20.3.4 Asset and Equity Correlation 247 20.3.5 Estimation from Historical Data 248 20.3.6 Factor Analysis and Factor Correlation; Tag Correlation 248 20.3.7 Impact on Hedging of Using Historical or Implied Correlations 251 20.3.8 Implied Correlation 251 21 Correlation in Practice 253 21.1 Tranche Correlation 253 21.1.1 Valuation and Key Features 253 21.1.2 Implied Tranche Correlation 256 21.1.3 CDS Curve Adjustment 257 21.1.4 Bid–Offer Impact 257 21.2 Base Correlation 257 21.2.1 Valuation and Key Features 258 21.2.2 Implied Base Correlation 259 21.2.3 Interpolating Base Correlation 260 21.3 Correlated Recoveries 261 21.4 Correlation Regime Change and Other Modelling Approaches 262 21.4.1 Stochastic Correlation: Regime Change Models 262 21.4.2 Spread Factor 263 22 Valuation and Hedging 265 22.1 Valuation Examples 265 22.1.1 F2D Baskets 265 22.1.2 CDO Pricing: Change of Correlation 265 22.1.3 CDO Pricing: Change of Tranching 267 22.1.4 CDO Pricing: Change of Underlying 268 22.1.5 CDO Pricing: Change of Maturity 269 22.1.6 Managed CDO: Substitution and Change of Subordination 269 22.2 Sensitivity Calculation and Hedging 270 22.2.1 Dynamic Hedging: Spread Risk 271 22.2.2 Static Hedging: Default Event Risk 277 22.2.3 Correlation Risk 279 22.2.4 Recovery Risk 280 22.2.5 Convexity Risks 281 22.3 Pricing More Complex Structures 282 22.3.1 CDO Squared 282 22.3.2 Cashflow CDOs 282 22.4 Model Errors and Tests; Alternative Models 284 22.4.1 Captured and Hidden Risks 284 22.4.2 Spread Models 284 22.4.3 Reserves 285 23 Alternative Copulas 289 23.1 Student’s t-Distribution 289 23.2 Copulas in General 290 23.3 Archimedean Copulas: Clayton, Gumbel 291 23.4 Clayton at θ = 0 and θ = ∞ 293 23.5 Model Risk 293 24 Correlation Portfolio Management 297 24.1 Static and Dynamic Hedges 297 24.2 Correlation Book Management 298 24.3 CreditVaR and CounterpartyVaR 300 Part IV Default Swaps Including Counterparty Risk 303 25 Single Name CDS 303 25.1 Non-Correlated Counterparty 305 25.2 100% Correlation 306 25.3 Correlated Counterparty: Pricing and Hedging 308 25.4 Choice of Copula 309 25.5 Collateralised Deals and CDS Book Management 309 26 Counterparty CDSs 313 26.1 Pricing 313 26.2 Counterparty CDS (CCDS) Book Management 313 Part V Systems Implementation and Testing 317 27 Mathematical Model and Systems Validation 319 27.1 Testing Procedures 319 27.2 Implementation and Documentation 321 28 System Implementation 323 28.1 Anatomy of a CDO 323 28.1.1 Reference Pool Data 323 28.1.2 Tranche Data 324 28.1.3 Deal Details 324 28.2 Management 325 28.2.1 What is Happening? 325 28.2.2 What Has Happened? 326 28.2.3 What is Likely to Happen and What is the Worst that can Happen? 326 28.2.4 What Opportunities do I Have? 327 28.2.5 Reporting 328 28.2.6 Limits 328 28.3 Valuation 329 28.4 IT Considerations 331 28.4.1 Why are Credit Derivatives Different? 331 28.4.2 Spreadsheet 332 28.4.3 Software Application 332 28.4.4 Buy versus Build 333 Part VI the Credit Crisis 335 29 Cause and Effect: Credit Derivatives and the Crisis of 2007 337 29.1 The Credit Markets Pre-Crisis 337 29.1.1 Bank Motivation 337 29.1.2 Fixed Income Investors 338 29.1.3 Risk Traders versus Risk Absorbers 338 29.1.4 Structured Investment Vehicles 339 29.1.5 Market Liquidity 340 29.2 The Events of MID- 2007 341 29.2.1 Sub-prime Mortgages 341 29.2.2 Investor Impact 342 29.2.3 Bank Impact 343 29.2.4 The Failure of Lehman Brothers and the Bailout of AIG 345 29.3 Issues to be Addressed 346 29.3.1 A Different Rating Agency Process 346 29.3.2 Standardised Nomenclature for Credit Ratings 347 29.3.3 Keeping a Percentage of Originated Risk on Balance Sheet 348 29.3.4 Undrawn Credit Facility Capital Charge 348 29.3.5 The Future of CDOs 349 29.3.6 Mitigating the Negative Impact of Mark-to-Market 349 29.4 Market Clearing Mechanisms 350 29.4.1 Central Credit Counterparty 351 29.4.2 Centralised Clearing and Systemic Risk 351 29.4.3 A Dedicated CCP for CDSs Alone 352 29.4.4 Conclusions 353 Appendix Markit Credit and Loan Indices 355 References 363 Index 365

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Book SynopsisA step-by-step guide to attracting all the investment funds you will ever need for your next real estate transaction As the sales of Real Estate Investing in Canada have proven, Canadians are looking to real estate investing to build wealth. In his bestselling book Real Estate Investing in Canada, Don R. Campbell introduces the Authentic Canadian Real Estate (ACRE) system, the first system of its kind to show ordinary Canadians how to profit from investing in residential real estate. Told as a narrative, a typical Canadian couple named Richard and Emma successfully buy their first properties and now are ready to leverage their equity into more properties. In order to achieve their goals, they are introduced to a joint-venture specialist and, with his guidance, they learn how joint-venture partnerships work and secrets and strategies for acquiring new properties that only the pros know. Richard and Emma build their portfolio -- and their confidence Table of ContentsMeet the Authors vi Meet the Real Estate Investment Network (REIN) vii Introduction viii Workshop #1: The Potential of JV Money 1 Let’s Get Started 3 What Do the Numbers Really Mean? 7 Get Real: Commit to Chasing Your Own Dream! 8 Commit to Systems, Win-Win Relationships and Follow-Through 11 Making the Leap to JV Deals 13 Acknowledge the Power of JV Money 16 Action Step: What Do You Want JV Money to Achieve for You? 17 Tutorial: What Is Your Personal Belize? 21 Insights from a Veteran Investor / Wade Graham 26 Workshop #2: Systems Make JV Success a Priority 29 Systems: The Foundation of Your Real Estate Investment Strategy 30 The Importance of Relationships 31 The Team Approach is the Only Approach 33 Follow-Through Means Taking Action 35 Don’t Let Analysis Paralysis Hold You Back 36 Action Step: Review Your Real Estate Investment Team 38 Tutorial: Relationships, Systems and Fundamentals 40 Insights from a Veteran Investor / Mark Loeffler 45 Workshop #3: Learn the Principles of JV Wealth Attraction 49 Why Is It Possible to Attract Money to JV Deals? 49 Commit to the Three JV Pillars 52 The Principles of JV Wealth Attraction 54 Action Step: Resolve to Do the Extra 10 Per Cent 62 Tutorial: Practice the Principles 64 Insights from a Veteran Investor / Cindy Wennerstrom 73 Workshop #4: How to Find JV Investors 77 Be a Money Magnet 79 From Circle of Influence to JV Partner 81 Action Step: Approach Your Inner Circle Contacts as JV Investment Gold 85 Tutorial: Recognizing JV Investment Gold 88 Insights from a Veteran Investor / Derek Peever 92 Workshop #5: How to Generate JV Leads with Superior Marketing 97 Solid Oak Marketing Rules 98 Put the Solid Oak Marketing Rules to Work 101 How to Generate Level 1 Leads 105 Generating Leads from Level 2 and Level 3 Investors 107 Action Step: Seek Out Sophisticated JV Investor Insight 109 Tutorial: Market Your Business Better 114 Insights from a Veteran Investor / Jared Hope 124 Workshop #6: How to Choose the Right JV Partner 129 Narrow the JV Field 129 Filter Potential Partners 131 Identify Your Ideal JV Partner 140 How to Present a Deal to a Potential JV Partner 142 Action Step: From Filter to Follow-Through, Always Use a JV Worksheet 148 Tutorial: How to Write a Letter of Intent 154 Insights from a Veteran Investor / Joe Ragona 165 Insights from a Veteran Investor / Monte Dobson 169 Workshop #7: Secure Commitment—Move Your Deal from Talk to Action 173 The Background Check 174 What’s Your Plan B? 178 When a Prospect Says No: Dealing with Rejection 180 Action Step: Real Estate Investment Is about Action 184 Tutorial: Study a Joint-Venture Agreement 186 Insights from a Veteran Investor / Jules & Ange McKenzie 196 Workshop #8: How to Structure JV Deals 199 Ownership Structure: Know Before You Buy 199 Five Canadian-Specific Ownership Structures 200 Action Step: If You Have a Question, Ask It 210 Tutorial: Review the Fundamentals of a JV Agreement 213 Insights from a Veteran Investor / Gary McGowan 219 Insights from a Veteran Investor / Ian Szabo 222 Workshop #9: Closing the Deal—How to Avoid Partner Pitfalls 225 Learn from the Mistakes of Others 226 A Proven System 227 20 Common Landmines to Avoid 229 Take Responsibility for Your Deals 249 Action Step: Walk in the Footsteps of Giants 249 Tutorial: The Top 5 Steps to Avoiding Landmines 251 Insights from a Veteran Investor / Michael Ponte 257 Workshop #10: Duplicating Success 261 The 7 Steps that Unlock the Vault of JV Secrets 261 Practice Makes Perfect 263 Built-in Flexibility 263 Get Your Deal Straight 264 Put Follow-up in Action 268 Make It Your Business to Know the Market 273 Action Step: Follow-up Communication Is Key 274 Tutorial: Taming the Paper Tiger and Using Accounting Strategies that Work 279 Insights from a Veteran Investor / Todd & Danielle Millar 289 Workshop Wrap-Up: Richard and Emma Look Ahead 293 Where to From Here? 293 Insights from a Veteran Investor / Jeff Gunther 296 Appendix A: Property Goldmine Score Card 300 B: REIN Property Analyzer 302 C: Prospective JV Partners—Follow-Up Letter 304 D: Potential-for-Relationship Questionnaire 305 E: Expression of Interest Letter 310 F: Rental Properties Monthly Statement 312 G: Rental Properties Monthly Statement—YTD Summary 314 Index 316

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Book SynopsisWhen I was a boy, my father often pulled me aside to convey lessons intended to build what we generally refer to as character. Often his advice was very simple - work hard, think for yourself, do right by others - but I believe those lessons provided the foundation for everything that has followed in my life.Trade Review"The wisdom packed into this little book is [in] 85 pages is wonderful." (Blog.III.co.uk, July 21st 2009)Table of ContentsPreface. Introduction. 1. Swim Your Own Races: Do Not Let Others Do Your Thinking for You. 2. Focus on What You Like. 3. Good Habits for Life and Investing. 4. Common Sense? Not So Common. 5. Your Education, Part I: Let the World Be a Part of Your Perspective. 6. Your Education, Part II: Learn Philosophy; Learn to "Think". 7. Your Education, Part III: Learn History! 8. Your Education, Part IV: Learn Languages (and Make Sure That Mandarin Is One of Them!) 9. It Is the Century of China. 10. Know Thyself by Understanding Your Weaknesses and Acknowledging Your Mistakes. 11. Recognize Change and Embrace It. 12. Look to the Future! 13. Lady Luck Smiles on Those Who Continue in Their Efforts. Epilogue. About the Author.

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Book SynopsisIn recent times, derivatives have been inaccurately labelled the financial weapons of mass destruction responsible for the worst financial crisis in recent history. Inherently complex and perilous for the ill-informed investment professional they can however also be gainfully harnessed. This book is a practical guide to the complexities of exotic products written in simple terms based on the premise that derivatives are not homogenous, and not necessarily dangerous. By exploring common themes behind the construction of various structured products in interest rates, equities and foreign exchange, and investigating the economic environment that promoted the explosive growth of these products, this book will help readers make sense of their relevance in this period of economic uncertainty. Subsequently, by explaining exotic products with simple mathematics, it will aid readers in understanding their potential use in certain investment strategies whilst having a firm control oveTable of ContentsForeword. Preface. Acknowledgements. Notes. 1 Derivatives in their Golden Days (1994 to 2007). 1.1 Uses of Derivatives. 1.2 Structured Notes. 2 Themes in Constructing Exotic Products. 2.1 Principal Protection. 2.2 Upside-Only Participation. 2.3 Protected Selling of Optionality for Yield. 2.4 Betting Against the Forward Curve. 2.5 Diversification. 2.6 Some Considerations in Hedging. 3 Basics of Derivatives. 3.1 The Forward Contract. 3.2 The Plain Vanilla Option. 3.3 No-Arbitrage Pricing. 3.4 The Black–Scholes Model. 3.5 The Volatility Surface. 3.6 Correlation. 3.7 Modelling Considerations. 4 Barriers. 4.1 Digitals. 4.2 Knockouts and Reverse Knockouts. 4.3 One-Touches and No-Touches. 4.4 Double Barriers and More. 5 Quantoes. 5.1 Some Motivation. 5.2 Multi-Currency Products. 5.3 Non-Deliverable Products. 5.4 Self-Quantoes (Auto-Quantoes). 5.5 Quantoes. 6 Swaps, Constant Maturity Swaps and Spreads. 6.1 The Swap. 6.2 Natural Payment Time and the Libor-in-Arrears. 6.3 The Swaption. 6.4 The Constant Maturity Swap. 6.5 Spread between Two CMS Rates. 6.6 Callable CMS. 7 Range Accruals. 7.1 Motivation. 7.2 Single Reference Accruals. 7.3 Multiple Reference Accruals. 8 Early Termination. 8.1 The Mindset of a Benchmark Investor. 8.2 Callables. 8.3 Triggers (Autocalls). 8.4 The Target Redemption Note. 8.5 Puttables. 8.6 Early Termination and Contingent Cashflows. 9 Pathwise Accumulators. 9.1 The One-Way Floater. 9.2 Skylines. 9.3 Snowballs. 10 Power Reverse Dual Currencies. 10.1 The Carry Trade. 10.2 Long-Dated Foreign Exchange. 10.3 Normal PRDCs. 10.4 The Redemption Strike. 10.5 Chooser PRDCs. 11 Baskets and Hybrids. 11.1 Baskets and the Benign Effect of Averaging. 11.2 Hybrid Baskets. 11.3 “Best of” Products and Hybrids. 11.4 Hybrids and Conditional Coupons. 11.5 Multiplying Assets. 12 Some Exotic Equity Products. 12.1 A Historical Perspective. 12.2 The Cliquet. 12.3 The Himalaya. 12.4 The Altiplano. 12.5 The Atlas. 12.6 The Everest. 12.7 Principal Protection or Lack Thereof. 13 Volatility and Correlation Products. 13.1 Variance and Volatility Swaps. 13.2 Options on Variance Swaps. 13.3 Correlation Swaps. 14 Fund Derivatives. 14.1 Fund Derivatives Products. 14.2 Constant Proportion Portfolio Insurance. 14.3 The Ideal Underlying Fund. 15 The Products Post-2008. 15.1 The Products Likely to Survive the Credit Crunch. 15.2 Incorporating Some Lessons Learned. 15.3 Credit Considerations. Some Final Thoughts. Glossary. Appendices. Bibliography. Index.

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Book SynopsisBuffett has generously endowed us all with a sensible and intelligent roadmap for investing. -- Robert G Hagstrom Warren Buffett -- The Oracle of Everything. He has been right about the stock market, rotten accounting, CEO greed, and corporate governance. The rest of us are just catching on.Trade Review"Über den legendären amerikanischen Investor Warren Buffet wurden breeits zahlreiche Bücher geschrieben - nun erscheint seine Biograhie erstmals als Comic. Die erstaunliche Karriere des ehemaligen Zeitungsträgers, der zum erfolgreichsten Einzelinvestor aller zeiten wurde, mutet als Fabel an. Das Buch des Japaners ayano Morio verleiht Buffett zusätzlich eine Superheld-Aura: Er trifft immer die richtigen Entscheidungen und löst jeeds Problem sofort - wie ein richtiger Superman des Finanzgewerbes. Fazit: unkritisch, aber amüsant." Der Handel, Februar 2005 "... Die englischen Texte sind leicht zu lesen, die Illustrationen sind witzig. Auch der Lernwert des Comics ist nicht zu unterschätzen ..." FAZ, 6. März 2005Table of ContentsINTRODUCTION VII CHAPTER 1 Getting Started 1 CHAPTER 2 Meeting Benjamin Graham 18 CHAPTER 3 Discovering Intangible Value: The Amex Affair 41 CHAPTER 4 The Warren and Charlie Show 49 CHAPTER 5 Buffett Dissolves the Partnerships 68 CHAPTER 6 See's Candies 72 CHAPTER 7 A Platonic Affair 80 CHAPTER 8 The Return to GEICO 86 CHAPTER 9 Buffett Saves Salomon Brothers 102 CHAPTER 10 Back Home 148 CHRONOLOGY 157 BIBLIOGRAPHY 159

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Book SynopsisThe credit derivatives market is booming and, for the first time, expanding into the banking sector which previously has had very little exposure to quantitative modeling. This phenomenon has forced a large number of professionals to confront this issue for the first time.Table of ContentsPreface. Acknowledgements. Abbreviations. Notation. 1. Introduction. 2. Credit Derivatives: Overview and Hedge-Based Pricing. 3. Credit Spreads and Bond Price-Based Pricing. 4. Mathematical Background. 5. Advanced Credit Spread Models. 6. Recovery Modelling. 7. Implementation of Intensity-Based Models. 8. Credit Rating Models. 9. Firm Value and Share Price-Based Models. 10. Models for Default Correlation. Bibliography. Index.

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Book SynopsisGives an introduction to market risk that is geared towards the needs of the postgraduate students studying financial risk management. This title includes a CD-ROM that contains Excel workbooks and a Matlab manual and software.Table of ContentsPreface xi Acknowledgements xix 1 The Risk Measurement Revolution 1 1.1 Contributory Factors 1 1.1.1 A Volatile Environment 1 1.1.2 Growth in Trading Activity 2 1.1.3 Advances in Information Technology 2 1.2 Risk Measurement Before VaR 3 1.2.1 Gap Analysis 3 1.2.2 Duration Analysis 4 1.2.3 Scenario Analysis 4 1.2.4 Portfolio Theory 5 1.2.5 Derivatives Risk Measures 6 1.3 Value at Risk 7 1.3.1 The Origin and Development of VaR 7 1.3.2 Attractions of VaR 10 1.3.3 Criticisms of VaR 11 1.4 Recommended Reading 12 2 Measures of Financial Risk 13 2.1 The Mean–Variance Framework for Measuring Financial Risk 13 2.1.1 The Normality Assumption 13 2.1.2 Limitations of the Normality Assumption 15 2.1.3 Traditional Approaches to Financial Risk Measurement 18 2.1.3.1 Portfolio Theory 18 2.1.3.2 Duration Approaches to Fixed-income Risk Measurement 18 2.2 Value at Risk 19 2.2.1 VaR Basics 19 2.2.2 Choice of VaR Parameters 24 2.2.3 Limitations of VaR as a Risk Measure 25 2.2.3.1 VaR Uninformative of Tail Losses 25 2.2.3.2 VaR Can Create Perverse Incentive Structures 26 2.2.3.3 VaR Can Discourage Diversification 27 2.2.3.4 VaR Not Sub-additive 27 2.3 Expected Tail Loss 28 2.3.1 Coherent Risk Measures 28 2.3.2 The Expected Tail Loss 29 2.4 Conclusions 33 2.5 Recommended Reading 33 3 Basic Issues in Measuring Market Risk 35 3.1 Data 35 3.1.1 Profit/Loss Data 35 3.1.2 Loss/Profit Data 35 3.1.3 Arithmetic Returns Data 36 3.1.4 Geometric Returns Data 36 3.2 Estimating Historical Simulation VaR 36 3.3 Estimating Parametric VaR 37 3.3.1 Estimating VaR with Normally Distributed Profits/Losses 38 3.3.2 Estimating VaR with Normally Distributed Arithmetic Returns 39 3.3.3 Estimating Lognormal VaR 40 3.4 Estimating Expected Tail Loss 42 3.5 Summary 44 Appendix: Mapping Positions to Risk Factors 45 A3.1 Selecting Core Instruments or Factors 46 A3.1.1 Selecting Core Instruments 46 A3.1.2 Selecting Core Factors 47 A3.2 Mapping Positions and VaR Estimation 47 A3.2.1 The Basic Building Blocks 47 A3.2.1.1 Basic FX Positions 47 A3.2.1.2 Basic Equity Positions 48 A3.2.1.3 Zero-coupon Bonds 50 A3.2.1.4 Basic Forward/Futures 51 A3.2.2 More Complex Positions 52 A3.3 Recommended Reading 53 4 Non-parametric VaR and ETL 55 4.1 Compiling Historical Simulation Data 55 4.2 Estimation of Historical Simulation VaR and ETL 56 4.2.1 Basic Historical Simulation 56 4.2.2 Estimating Curves and Surfaces for VaR and ETL 57 4.3 Estimating Confidence Intervals for Historical Simulation VaR and ETL 58 4.3.1 A Quantile Standard Error Approach to the Estimation of Confidence Intervals for HS VaR and ETL 58 4.3.2 An Order Statistics Approach to the Estimation of Confidence Intervals for HS VaR and ETL 58 4.3.3 A Bootstrap Approach to the Estimation of Confidence Intervals for HS VaR and ETL 59 4.4 Weighted Historical Simulation 61 4.4.1 Age-weighted Historical Simulation 62 4.4.2 Volatility-weighted Historical Simulation 63 4.4.3 Filtered Historical Simulation 64 4.5 Advantages and Disadvantages of Historical Simulation 66 4.5.1 Advantages 66 4.5.2 Disadvantages 67 4.5.2.1 Total Dependence on the Data Set 67 4.5.2.2 Problems of Data Period Length 68 4.6 Principal Components Approaches to VaR and ETL Estimation 68 4.7 Conclusions 69 4.8 Recommended Reading 70 5 Parametric VaR and ETL 71 5.1 Normal VaR and ETL 72 5.1.1 General Features 72 5.1.2 Disadvantages of Normality 76 5.2 The Student t-distribution 77 5.3 The Lognormal Distribution 78 5.4 Extreme Value Distributions 81 5.4.1 The Generalised Extreme Value Distribution 81 5.4.2 The Peaks Over Threshold (Generalised Pareto) Approach 82 5.5 The Multivariate Normal Variance–Covariance Approach 84 5.6 Conclusions 86 5.7 Recommended Reading 87 Appendix: Delta–Gamma and Related Approximations 88 A5.1 Delta–normal Approaches 88 A5.2 Delta–Gamma Approaches 90 A5.2.1 The Delta–Gamma Approximation 90 A5.2.2 The Delta–Gamma Normal Approach 90 A5.2.3 Wilson’s Delta–Gamma Approach 91 A5.2.4 Other Delta–Gamma Approaches 93 A5.3 Conclusions 94 A5.4 Recommended Reading 95 6 Simulation Approaches to VaR and ETL Estimation 97 6.1 Options VaR and ETL 97 6.1.1 Preliminary Considerations 97 6.1.2 An Example: Estimating the VaR and ETL of an American Put 98 6.1.3 Refining MCS Estimation of Options VaR and ETL 99 6.2 Estimating VaR by Simulating Principal Components 99 6.2.1 Basic Principal Components Simulation 99 6.2.2 Scenario Simulation 100 6.3 Fixed-income VaR and ETL 102 6.3.1 General Considerations 102 6.3.1.1 Stochastic Processes for Interest Rates 102 6.3.1.2 The Term Structure of Interest Rates 103 6.3.2 A General Approach to Fixed-income VaR and ETL 103 6.4 Estimating VaR and ETL under a Dynamic Portfolio Strategy 105 6.5 Estimating Credit-related Risks with Simulation Methods 107 6.6 Estimating Insurance Risks with Simulation Methods 109 6.7 Estimating Pensions Risks with Simulation Methods 110 6.7.1 Estimating Risks of Defined-benefit Pension Plans 111 6.7.2 Estimating Risks of Defined-contribution Pension Plans 113 6.8 Conclusions 115 6.9 Recommended Reading 115 7 Incremental and Component Risks 117 7.1 Incremental VaR 117 7.1.1 Interpreting Incremental VaR 117 7.1.2 Estimating IVaR by Brute Force: The ‘Before and After’ Approach 118 7.1.3 Estimating IVaR Using Marginal VaRs 119 7.1.3.1 Garman’s ‘delVaR’ Approach 119 7.1.3.2 Potential Drawbacks of the delVaR Approach 122 7.2 Component VaR 122 7.2.1 Properties of Component VaR 122 7.2.2 Uses of Component VaR 124 7.2.2.1 ‘Drill-down’ Capability 124 7.2.2.2 Reporting Component VaRs 125 7.3 Conclusions 126 7.4 Recommended Reading 126 8 Estimating Liquidity Risks 127 8.1 Liquidity and Liquidity Risks 127 8.2 Estimating Liquidity-adjusted VaR and ETL 128 8.2.1 A Transactions Cost Approach 128 8.2.2 The Exogenous Spread Approach 131 8.2.3 The Market Price Response Approach 132 8.2.4 Derivatives Pricing Approaches 132 8.2.5 The Liquidity Discount Approach 133 8.2.6 A Summary and Comparison of Alternative Approaches 134 8.3 Estimating Liquidity at Risk (LaR) 135 8.4 Estimating Liquidity in Crises 137 8.5 Recommended Reading 139 9 Backtesting Market Risk Models 141 9.1 Preliminary Data Issues 141 9.1.1 Obtaining Data 141 9.2 Statistical Backtests Based on the Frequency of Tail Losses 143 9.2.1 The Basic Frequency-of-tail-losses (or Kupiec) Test 143 9.2.2 The Time-to-first-tail-loss Test 145 9.2.3 A Tail-loss Confidence-interval Test 146 9.2.4 The Conditional Backtesting (Christoffersen) Approach 147 9.3 Statistical Backtests Based on the Sizes of Tail Losses 147 9.3.1 The Basic Sizes-of-tail-losses Test 147 9.3.2 The Crnkovic–Drachman Backtest Procedure 149 9.3.3 The Berkowitz Approach 151 9.4 Forecast Evaluation Approaches to Backtesting 153 9.4.1 Basic Ideas 153 9.4.2 The Frequency-of-tail-losses (Lopez I) Approach 154 9.4.3 The Size-adjusted Frequency (Lopez II) Approach 154 9.4.4 The Blanco–Ihle Approach 155 9.4.5 An Alternative Sizes-of-tail-losses Approach 155 9.5 Other Methods of Comparing Models 156 9.6 Assessing the Accuracy of Backtest Results 156 9.7 Backtesting with Alternative Confidence Levels, Positions and Data 157 9.7.1 Backtesting with Alternative Confidence Levels 158 9.7.2 Backtesting with Alternative Positions 159 9.7.3 Backtesting with Alternative Data 159 9.8 Summary 159 9.9 Recommended Reading 160 10 Stress Testing 161 10.1 Benefits and Difficulties of Stress Testing 163 10.1.1 Benefits of Stress Testing 163 10.1.2 Difficulties with Stress Tests 165 10.2 Scenario Analysis 167 10.2.1 Choosing Scenarios 167 10.2.1.1 Stylised Scenarios 167 10.2.1.2 Actual Historical Events 168 10.2.1.3 Hypothetical One-off Events 170 10.2.2 Evaluating the Effects of Scenarios 170 10.3 Mechanical Stress Testing 172 10.3.1 Factor Push Analysis 172 10.3.2 Maximum Loss Optimisation 174 10.4 Conclusions 175 10.5 Recommended Reading 175 11 Model Risk 177 11.1 Models and Model Risk 177 11.1.1 Models 177 11.1.2 Model Risk 178 11.2 Sources of Model Risk 179 11.2.1 Incorrect Model Specification 179 11.2.2 Incorrect Model Application 181 11.2.3 Implementation Risk 181 11.2.4 Other Sources of Model Risk 182 11.2.4.1 Incorrect Calibration 182 11.2.4.2 Programming Problems 182 11.2.4.3 Data Problems 183 11.3 Combating Model Risk 183 11.3.1 Combating Model Risk: Some Guidelines for Risk Practitioners 184 11.3.2 Combating Model Risk: Some Guidelines for Managers 184 11.3.3 Institutional Methods to Combat Model Risk 186 11.3.3.1 Procedures to Vet, Check and Review Models 186 11.3.3.2 Independent Risk Oversight 187 11.4 Conclusions 188 11.5 Recommended Reading 188 Toolkit 189 Bibliography 261 Author Index 271 Subject Index 275 Software Index 283

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Book SynopsisIf you buy a new BMW you may be surprised as much by the owner''s manual as by the car itself. Thin, personalized, and containing information only on the features you have selected in the language you speak, it is the result of a year''s collaboration with Xerox that has radically improved the product and decimated costs. It is just one example of the new organizational structures and processes being developed at leading companies to serve the global marketplace. As firms realize that dealing with global customers is not simply an extension of key account management, their most common response is to launch a formal global account management initiative. Done well this is powerful and effective; however without proper planning it can spell disaster. Drawing on widely accepted ''key success factors'' for global account management as well as new elements revealed by their research, David Hennessy and Jean-Pierre Jeannet redefine the process global account management around the premise thatTable of ContentsPreface. 1. Introduction . 2. Global Drivers. 3. Analyzing a Global Customer's Industry . 4. Analyzing the Global Logic of a Customer's Business . 5. Understanding the Client's Strategy. 6. Developing and Delivering the Value Proposition . 7. The Global Account Management Team . 8. Supporting and Implementing Global Account Management . Appendix: Global Account Management in Action: Xerox, Marriott International and Hewlett-Packard . Bibliography. Index.

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Book SynopsisThis textbook will be designed for fixed--incomesecurities courses taught on MSc Finance and MBAcourses. There is currently no suitable text thatoffers a 'Hull--type' book for the fixed income studentmarket. This book aims to fill this need. The bookwill contain numerous worked examples, excelspreadsheets, with a building block approachthroughout.Table of ContentsAbout the Authors xix Preface xxi Acknowledgments xxv Notation xxvii Part I Investment Environment 1 Bonds and Money-Market Instruments 3 1.1 Bonds 3 1.1.1 General Characteristics of Bonds 3 1.1.2 Bonds by Issuers 17 1.2 Money-Market Instruments 25 1.2.1 Definition 25 1.2.2 The Role of the Central Bank 25 1.2.3 T-Bills 26 1.2.4 Certificates of Deposit 28 1.2.5 Bankers’ Acceptances 29 1.2.6 Commercial Papers 29 1.2.7 Interbank Deposits 30 1.2.8 Repo and Reverse Repo Market Instruments 30 1.3 End of Chapter Summary 32 1.4 References and Further Reading 33 1.4.1 Books and Papers 33 1.4.2 Websites and Others 33 1.5 Problems 34 1.5.1 Problems on Bonds 34 1.5.2 Problems on Money-Market Instruments 36 1.6 Appendix: Sector Breakdown of the Euro, the UK and the Japan Corporate Bond Markets 37 2 Bond Prices and Yields 41 2.1 Introduction to Bond Pricing 41 2.2 Present Value Formula 43 2.2.1 Time-Value of Money 43 2.2.2 The Mathematics of Discounting 43 2.2.3 Nominal versus Real Interest Rates 45 2.2.4 Time Basis and Compounding Frequency Conventions 46 2.2.5 Continuous Compounding 47 2.3 Taxonomy of Rates 49 2.3.1 Coupon Rate and Current Yield 49 2.3.2 Yield to Maturity 49 2.3.3 Spot Zero-Coupon (or Discount) Rate 51 2.3.4 Forward Rates 52 2.3.5 Bond Par Yield 54 2.4 End of Chapter Summary 54 2.5 References and Further Reading 54 2.6 Problems 55 Part II Term Structure of Interest Rates 3 Empirical Properties and Classical Theories of the Term Structure 63 3.1 Definition and Properties of the Term Structure 63 3.1.1 What Kind of Shape Can It Take? 65 3.1.2 How Does It Evolve over Time? 68 3.2 Classical Theories of the Term Structure 81 3.2.1 The Pure Expectations Theory 82 3.2.2 The Pure Risk Premium Theory 83 3.2.3 The Market Segmentation Theory 85 3.2.4 The Biased Expectations Theory: An Integrated Approach 86 3.2.5 Illustration and Empirical Validation 86 3.2.6 Summary and Extensions 87 3.3 End of Chapter Summary 88 3.4 References and Further Reading 89 3.4.1 On the Empirical Behavior of the Yield Curve 89 3.4.2 On the Principal Component Analysis of the Yield Curve 90 3.4.3 On the Classical Theories of the Term Structure of Interest Rates 90 3.5 Problems 91 4 Deriving the Zero-Coupon Yield Curve 96 4.1 Deriving the Nondefault Treasury Zero-Coupon Yield Curve 96 4.1.1 How to Select a Basket of Bonds? 96 4.1.2 Direct Methods 97 4.1.3 Indirect Methods 103 4.2 Deriving the Interbank Zero-Coupon Rate Curve 130 4.2.1 How to Select the Basket of Instruments? 130 4.2.2 Interpolation Methods 132 4.2.3 Least Squares Methods Based on Rates 132 4.2.4 Least Squares Methods Based on Prices 133 4.3 Deriving Credit Spread Term Structures 136 4.3.1 Disjoint Methods 136 4.3.2 Joint Methods 137 4.4 End of Chapter Summary 142 4.5 References and Further Reading 144 4.6 Problems 146 4.7 Appendix: A Useful Modified Newton’s Algorithm 155 Part III Hedging Interest-Rate Risk 5 Hedging Interest-Rate Risk with Duration 163 5.1 Basics of Interest-Rate Risk: Qualitative Insights 163 5.1.1 The Five Theorems of Bond Pricing 163 5.1.2 Reinvestment Risk 164 5.1.3 Capital Gain Risk 165 5.1.4 Qualifying Interest-Rate Risk 166 5.2 Hedging with Duration 167 5.2.1 Using a One-Order Taylor Expansion 167 5.2.2 Duration, $Duration and Modified Duration 170 5.2.3 How to Hedge in Practice? 173 5.3 End of Chapter Summary 175 5.4 References and Further Reading 176 5.4.1 Books 176 5.4.2 Papers 176 5.5 Problems 177 6 Beyond Duration 182 6.1 Relaxing the Assumption of a Small Shift 182 6.1.1 Using a Second-Order Taylor Expansion 182 6.1.2 Properties of Convexity 185 6.1.3 Hedging Method 187 6.2 Relaxing the Assumption of a Parallel Shift 188 6.2.1 A Common Principle 188 6.2.2 Regrouping Risk Factors through a Principal Component Analysis 192 6.2.3 Hedging Using a Three-Factor Model of the Yield Curve 195 6.3 End of Chapter Summary 199 6.4 References and Further Reading 200 6.5 Problems 201 Part IV Investment Strategies 7 Passive Fixed-Income Portfolio Management 213 7.1 Straightforward Replication 213 7.2 Replication by Stratified Sampling 214 7.3 Tracking-Error Minimization 216 7.3.1 Optimization Procedure 216 7.3.2 Bond Return Covariance Matrix Estimation 217 7.4 Factor-Based Replication 226 7.5 Derivatives-Based Replication 229 7.6 Pros and Cons of Stratified Sampling versus Tracking-Error Minimization 230 7.7 End of Chapter Summary 230 7.8 References and Further Reading 231 7.8.1 Books and Papers 231 7.8.2 Websites 231 7.9 Problems 231 8 Active Fixed-Income Portfolio Management 233 8.1 Market Timing: Trading on Interest-Rate Predictions 233 8.1.1 Timing Bets on No Change in the Yield Curve or “Riding the Yield Curve” 234 8.1.2 Timing Bets on Interest-Rate Level 236 8.1.3 Timing Bets on Specific Changes in the Yield Curve 238 8.1.4 Scenario Analysis 251 8.1.5 Active Fixed-Income Style Allocation Decisions 255 8.2 Trading on Market Inefficiencies 268 8.2.1 Trading within a Given Market: The Bond Relative Value Analysis 269 8.2.2 Trading across Markets: Spread and Convergence Trades 276 8.3 End of Chapter Summary 282 8.4 References and Further Reading 283 8.4.1 On Active Fixed-Income Strategies 283 8.4.2 On Active Asset Allocation Decisions 284 8.4.3 Others 286 8.5 Problems 286 9 Performance Measurement on Fixed-Income Portfolios 293 9.1 Return Measures 293 9.1.1 Arithmetic Rate of Return 293 9.1.2 Geometric Rate of Return 294 9.2 Risk-Adjusted Performance Evaluation 295 9.2.1 Absolute Risk-Adjusted Performance Evaluation 296 9.2.2 Relative Risk-Adjusted Performance Evaluation 299 9.3 Application of Style Analysis to Performance Evaluation of Bond Portfolio Managers: An Example 309 9.3.1 Alpha Analysis 310 9.3.2 Passive Versus Active Managers 313 9.4 End of Chapter Summary 314 9.5 References and Further Reading 315 9.5.1 Books and Papers 315 9.5.2 Websites 316 9.6 Problems 316 Part V Swaps and Futures 10 Swaps 325 10.1 Description of Swaps 325 10.1.1 Definition 325 10.1.2 Terminology and Conventions 325 10.2 Pricing and Market Quotes 326 10.2.1 Pricing of Swaps 326 10.2.2 Market Quotes 333 10.3 Uses of Swaps 334 10.3.1 Optimizing the Financial Conditions of a Debt 335 10.3.2 Converting the Financial Conditions of a Debt 336 10.3.3 Creating New Assets Using Swaps 337 10.3.4 Hedging Interest-Rate Risk Using Swaps 339 10.4 Nonplain Vanilla Swaps 342 10.4.1 Accrediting, Amortizing and Roller Coaster Swaps 342 10.4.2 Basis Swap 343 10.4.3 Constant Maturity Swap and Constant Maturity Treasury Swap 343 10.4.4 Forward-Starting Swap 344 10.4.5 Inflation-Linked Swap 344 10.4.6 Libor in Arrears Swap 344 10.4.7 Yield-Curve Swap 345 10.4.8 Zero-Coupon Swap 345 10.5 End of Chapter Summary 346 10.6 References and Further Reading 346 10.6.1 Books and Papers 346 10.6.2 Websites 347 10.7 Problems 347 11 Forwards and Futures 353 11.1 Definition 353 11.2 Terminology, Conventions and Market Quotes 354 11.2.1 Terminology and Conventions 354 11.2.2 Quotes 356 11.3 Margin Requirements and the Role of the Clearing House 358 11.4 Conversion Factor and the Cheapest-to-Deliver Bond 359 11.4.1 The Cheapest to Deliver on the Repartition Date 360 11.4.2 The Cheapest to Deliver before the Repartition Date 361 11.5 Pricing of Forwards and Futures 362 11.5.1 Forward-Spot Parity or How to Price a Forward Contract? 362 11.5.2 The Forward Contract Payoff 364 11.5.3 Relation between Forward and Futures Prices 365 11.6 Uses of Forwards and Futures 365 11.6.1 Pure Speculation with Leverage Effect 365 11.6.2 Fixing Today the Financial Conditions of a Loan or Investment in the Future 366 11.6.3 Detecting Riskless Arbitrage Opportunities Using Futures 367 11.6.4 Hedging Interest-Rate Risk Using Futures 368 11.7 End of Chapter Summary 370 11.8 References and Further Reading 371 11.8.1 Books and Papers 371 11.8.2 Websites of Futures Markets and of the Futures Industry Association 371 11.9 Problems 372 11.10 Appendix: Forward and Futures Prices Are Identical When Interest Rates Are Constant 375 Part VI Modeling The Term Structure of Interest Rates and Credit Spreads 12 Modeling the Yield Curve Dynamics 381 12.1 The Binomial Interest-Rate Tree Methodology 382 12.1.1 Building an Interest-Rate Tree 382 12.1.2 Calibrating an Interest-Rate Tree 384 12.2 Continuous-Time Models 387 12.2.1 Single-Factor Models 388 12.2.2 Multifactor Models 392 12.3 Arbitrage Models 396 12.3.1 A Discrete-Time Example: Ho and Lee’s Binomial Lattice 396 12.3.2 Arbitrage Models in Continuous Time 401 12.4 End of Chapter Summary 406 12.5 References and Further Reading 407 12.6 Problems 411 12.7 Appendix 1: The Hull and White Trinomial Lattice 413 12.7.1 Discretizing the Short Rate 413 12.7.2 Calibrating the Lattice to the Current Spot Yield Curve 416 12.7.3 Option Pricing 419 12.8 Appendix 2: An Introduction to Stochastic Processes in Continuous Time 420 12.8.1 Brownian Motion 420 12.8.2 Stochastic Integral 423 12.8.3 Stochastic Differential Equations (SDE) 425 12.8.4 Asset Price Process 426 12.8.5 Representation of Brownian Martingales 426 12.8.6 Continuous-Time Asset Pricing 427 12.8.7 Feynman–Kac Formula 431 12.8.8 Application to Equilibrium Models of the Term Structure 432 13 Modeling the Credit Spreads Dynamics 437 13.1 Analyzing Credit Spreads 438 13.1.1 Ratings 438 13.1.2 Default Probability 440 13.1.3 The Severity of Default 441 13.2 Modeling Credit Spreads 441 13.2.1 Structural Models 442 13.2.2 Subsequent Models 446 13.2.3 Reduced-Form Models 448 13.2.4 Historical versus Risk-Adjusted Probability of Default 450 13.3 End of Chapter Summary 452 13.4 References and Further Reading 453 13.4.1 Books and Papers 453 13.4.2 Websites 454 13.5 Problems 455 Part VII Plain Vanilla Options and More Exotic Derivatives 14 Bonds with Embedded Options and Options on Bonds 459 14.1 Callable and Putable Bonds 459 14.1.1 Institutional Aspects 459 14.1.2 Pricing 460 14.1.3 OAS Analysis 467 14.1.4 Effective Duration and Convexity 468 14.2 Convertible Bonds 470 14.2.1 Institutional Aspects 470 14.2.2 Valuation of Convertible Bonds 473 14.2.3 Convertible Arbitrage 479 14.3 Options on Bonds 482 14.3.1 Definition 482 14.3.2 Uses 483 14.3.3 Pricing 487 14.4 End of Chapter Summary 491 14.5 References and Further Reading 492 14.5.1 On Callable and Putable Bonds 492 14.5.2 On Convertible Bonds 492 14.5.3 On Options on Bonds 493 14.6 Problems 494 14.7 Appendix: Bond Option Prices in the Hull and White (1990) Model 498 14.7.1 Call on Zero-Coupon Bond 499 14.7.2 Call on Coupon Bond 499 15 Options on Futures, Caps, Floors and Swaptions 500 15.1 Options on Futures 500 15.1.1 Definition and Terminology 500 15.1.2 Pricing and Hedging Options on Futures 502 15.1.3 Market Quotes 505 15.1.4 Uses of Futures Options 508 15.2 Caps, Floors and Collars 508 15.2.1 Definition and Terminology 508 15.2.2 Pricing and Hedging Caps, Floors and Collars 510 15.2.3 Market Quotes 514 15.2.4 Uses of Caps, Floors and Collars 516 15.3 Swaptions 520 15.3.1 Definition and Terminology 520 15.3.2 Pricing and Hedging Swaptions 521 15.3.3 Market Quotes 526 15.3.4 Uses of Swaptions 526 15.4 End of Chapter Summary 527 15.5 References and Further Reading 528 15.5.1 Books and Papers 528 15.5.2 Websites 529 15.6 Problems 529 15.7 Appendix 1: Proof of the Cap and Floor Formulas in the Black (1976) Model 534 15.8 Appendix 2: Proof of the Swaption Formula in the Black (1976) Model 535 15.9 Appendix 3: Forward and Futures Option Prices Written on T-Bond and Libor in the Hull and White (1990) Model 536 15.9.1 Options on Forward Contracts 536 15.9.2 Options on Futures Contracts 537 15.10 Appendix 4: Cap, Floor and Swaption Prices in the Hull and White (1990) Model 539 15.10.1 Cap and Floor 539 15.10.2 Swaption 540 15.11 Appendix 5: Market Models (BGM/Jamshidian Approach) 541 15.11.1 Why Define New Variables? 541 15.11.2 Building New Variables 542 15.11.3 The Dynamics of L(t, θ) and K(t, t + θ) 543 15.11.4 Pricing of Caps 545 15.11.5 Calibration of the Model 546 16 Exotic Options and Credit Derivatives 548 16.1 Interest-Rate Exotic Options 548 16.1.1 Barrier Caps and Floors 548 16.1.2 Bounded Caps, Floors, Barrier Caps and Floors 550 16.1.3 Cancelable Swaps 551 16.1.4 Captions and Floortions 551 16.1.5 Choosercaps and Flexicaps-and-Floors 551 16.1.6 Contingent Premium Caps and Floors 553 16.1.7 Extendible Swaps 554 16.1.8 Incremental Fixed Swaps 554 16.1.9 Index Amortizing Bonds and Swaps 555 16.1.10 Marked-to-Market Caps 557 16.1.11 Moving Average Caps and Floors 557 16.1.12 N-Caps and Floors 558 16.1.13 Q-Caps and Floors 558 16.1.14 Range Accrual Swaps 559 16.1.15 Ratchet Caps and Floors 560 16.1.16 Reflex Caps and Floors 561 16.1.17 Rental Caps and Floors 562 16.1.18 Rolling Caps and Floors 562 16.1.19 Spread Options 563 16.1.20 Subsidized Swaps 563 16.1.21 Pricing and Hedging Interest-Rate Exotic Options 565 16.2 Credit Derivatives 565 16.2.1 The Significance of Credit Derivatives 565 16.2.2 Types of Credit Derivatives 567 16.3 End of Chapter Summary 575 16.4 References and Further Reading 575 16.4.1 On Interest-Rate Exotic Options 575 16.4.2 On Credit Derivatives 576 16.4.3 On Numerical Methods (See the Appendix 2) 576 16.4.4 Websites and Others 577 16.5 Problems 577 16.6 Appendix 1: Pricing and Hedging Barrier Caps and Floors in the Black Model 580 16.6.1 Barrier Cap Formulas 580 16.6.2 Barrier Floor Formulas 581 16.6.3 Barrier Cap and Floor Greeks 581 16.7 Appendix 2: Numerical Methods 583 16.7.1 Monte Carlo Simulations 583 16.7.2 Finite-Difference Methods 585 Part VIII Securitization 17 Mortgage-Backed Securities 593 17.1 Description of MBSs 593 17.1.1 Definition 593 17.1.2 The Amortization Mechanism 593 17.1.3 The Prepayment Feature 596 17.1.4 Typology of MBS 596 17.2 Market Quotes and Pricing 598 17.2.1 Market Quotes 599 17.2.2 Pricing of MBS 600 17.3 End of Chapter Summary 603 17.4 References and Further Reading 604 17.4.1 Books and Papers 604 17.4.2 Websites 605 17.5 Problems 605 18 Asset-Backed Securities 607 18.1 Description of ABSs 607 18.1.1 Definition 607 18.1.2 Credit Enhancement 607 18.1.3 Cash-Flow Structure 608 18.2 Market Quotes and Pricing 610 18.3 CAT Bonds and CAT Derivatives 612 18.4 End of Chapter Summary 615 18.5 References and Further Reading 615 18.6 Problems 616 Subject Index 617 Author Index 629

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Book SynopsisShows the linkages of markets for equities, currencies, fixed income and commodities. Using a structural approach, this book dissects the markets the same way: into spot, forward and contingent dimensions, bringing out the simplicity and the commonalities of the markets.Table of Contents1 The Purpose and Structure of Financial Markets 1 1.1 Overview 1 1.2 Risk sharing 2 1.3 The structure of financial markets 8 1.4 Arbitrage: Pure vs. relative value 12 1.5 Financial institutions: Asset transformers and broker-dealers 16 1.6 Primary and secondary markets 18 1.7 Market players: Hedgers vs. speculators 20 1.8 Preview of the book 22 Part One SPOT 25 2 Financial Math I—Spot 27 2.1 Interest-rate basics 28 Present value 28 Compounding 29 Day-count conventions 30 Rates vs. yields 31 2.2 Zero, coupon and amortizing rates 32 Zero-coupon rates 32 Coupon rates 33 Yield to maturity 35 Amortizing rates 38 Floating-rate bonds 39 2.3 The term structure of interest rates 40 Discounting coupon cash flows with zero rates 42 Constructing the zero curve by bootstrapping 44 2.4 Interest-rate risk 49 Duration 51 Portfolio duration 56 Convexity 57 Other risk measures 58 2.5 Equity markets math 58 A dividend discount model 60 Beware of P/E ratios 63 2.6 Currency markets 64 3 Fixed Income Securities 67 3.1 Money markets 67 U.S. Treasury bills 68 Federal agency discount notes 69 Short-term munis 69 Fed Funds (U.S.) and bank overnight refinancing (Europe) 70 Repos (RPs) 71 Eurodollars and Eurocurrencies 72 Negotiable CDs 74 Bankers’ acceptances (BAs) 74 Commercial paper (CP) 74 3.2 Capital markets: Bonds 79 U.S. government and agency bonds 83 Government bonds in Europe and Asia 86 Corporates 87 Munis 88 3.3 Interest-rate swaps 90 3.4 Mortgage securities 94 3.5 Asset-backed securities 96 4 Equities, Currencies, and Commodities 101 4.1 Equity markets 101 Secondary markets for individual equities in the U.S. 102 Secondary markets for individual equities in Europe and Asia 103 Depositary receipts and cross-listing 104 Stock market trading mechanics 105 Stock indexes 106 Exchange-traded funds (ETFs) 107 Custom baskets 107 The role of secondary equity markets in the economy 108 4.2 Currency markets 109 4.3 Commodity markets 111 5 Spot Relative Value Trades 113 5.1 Fixed-income strategies 113 Zero-coupon stripping and coupon replication 113 Duration-matched trades 116 Example: Bullet–barbell 116 Example: Twos vs. tens 117 Negative convexity in mortgages 118 Spread strategies in corporate bonds 121 Example: Corporate spread widening/narrowing trade 121 Example: Corporate yield curve trades 123 Example: Relative spread trade for high and low grades 124 5.2 Equity portfolio strategies 125 Example: A non-diversified portfolio and benchmarking 126 Example: Sector plays 128 5.3 Spot currency arbitrage 129 5.4 Commodity basis trades 131 Part Two FORWARDS 133 6 Financial Math II—Futures and Forwards 135 6.1 Commodity futures mechanics 138 6.2 Interest-rate futures and forwards 141 Overview 141 Eurocurrency deposits 142 Eurodollar futures 142 Certainty equivalence of EDfutures 146 Forward-rate agreements (FRAs) 147 Certainty equivalence of FRAs 149 6.3 Stock index futures 149 Locking in a forward price of the index 150 Fair value of futures 150 Fair value with dividends 152 Single stock futures 153 6.4 Currency forwards and futures 154 Fair value of currency forwards 155 Covered interest-rate parity 156 Currency futures 158 6.5 Convenience assets—backwardation and contango 159 6.6 Commodity futures 161 6.7 Spot–Forward arbitrage in interest rates 162 Synthetic LIBOR forwards 163 Synthetic zeros 164 Floating-rate bonds 165 Synthetic equivalence guaranteed by arbitrage 166 6.8 Constructing the zero curve from forwards 167 6.9 Recovering forwards from the yield curve 170 The valuation of a floating-rate bond 171 Including repo rates in computing forwards 171 6.10 Energy forwards and futures 173 7 Spot–Forward Arbitrage 175 7.1 Currency arbitrage 176 7.2 Stock index arbitrage and program trading 182 7.3 Bond futures arbitrage 187 7.4 Spot–Forward arbitrage in fixed-income markets 189 Zero–Forward trades 189 Coupon–Forward trades 191 7.5 Dynamic hedging with a Euro strip 193 7.6 Dynamic duration hedge 197 8 Swap Markets 199 8.1 Swap-driven finance 199 Fixed-for-fixed currency swap 200 Fixed-for-floating interest-rate swap 203 Off-market swaps 205 8.2 The anatomy of swaps as packages of forwards 207 Fixed-for-fixed currency swap 208 Fixed-for-floating interest-rate swap 209 Other swaps 210 Swap book running 210 8.3 The pricing and hedging of swaps 211 8.4 Swap spread risk 217 8.5 Structured finance 218 Inverse floater 219 Leveraged inverse floater 220 Capped floater 221 Callable 221 Range 222 Index principal swap 222 8.6 Equity swaps 223 8.7 Commodity and other swaps 224 8.8 Swap market statistics 225 Part Three OPTIONS 231 9 Financial Math III—Options 233 9.1 Call and put payoffs at expiry 235 9.2 Composite payoffs at expiry 236 Straddles and strangles 236 Spreads and combinations 237 Binary options 240 9.3 Option values prior to expiry 240 9.4 Options, forwards and risk-sharing 241 9.5 Currency options 242 9.6 Options on non-price variables 243 9.7 Binomial options pricing 244 One-step examples 244 A multi-step example 251 Black–Scholes 256 Dividends 257 9.8 Residual risk of options: Volatility 258 Implied volatility 260 Volatility smiles and skews 261 9.9 Interest-rate options, caps, and floors 264 Options on bond prices 265 Caps and floors 265 Relationship to FRAs and swaps 267 An application 268 9.10 Swaptions 269 Options to cancel 270 Relationship to forward swaps 270 9.11 Exotic options 272 Periodic caps 272 Constant maturity options (CMT or CMS) 273 Digitals and ranges 273 Quantos 274 10 Option Arbitrage 275 10.1 Cash-and-carry static arbitrage 275 Borrowing against the box 275 Index arbitrage with options 277 Warrant arbitrage 278 10.2 Running an option book: Volatility arbitrage 279 Hedging with options on the same underlying 279 Volatility skew 282 Options with different maturities 284 10.3 Portfolios of options on different underlyings 284 Index volatility vs. individual stocks 285 Interest-rate caps and floors 286 Caps and swaptions 287 Explicit correlation bets 288 10.4 Options spanning asset classes 289 Convertible bonds 289 Quantos and dual-currency bonds with fixed conversion rates 290 Dual-currency callable bonds 291 10.5 Option-adjusted spread (OAS) 291 10.6 Insurance 292 Long-dated commodity options 293 Options on energy prices 294 Options on economic variables 294 A final word 294 Appendix CREDIT RISK 295 11 Default Risk (Financial Math IV) and Credit Derivatives 297 11.1 A constant default probability model 298 11.2 A credit migration model 300 11.3 Alternative models 301 11.4 Credit exposure calculations for derivatives 302 11.5 Credit derivatives 305 Basics 306 Credit default swap 306 Total-rate-of-return swap 307 Credit-linked note 308 Credit spread options 308 11.6 Implicit credit arbitrage plays 310 Credit arbitrage with swaps 310 Callable bonds 310 11.7 Corporate bond trading 310 Index 313

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Book SynopsisActive Investment Management looks at where active management has come from, where it is today, what problems it faces and where the answers to these questions are leading it. The book addresses the major issues concerning the key groups within the industry. Charles Jackson''s wonderfully readable book will be essential reading for the practitioner and is broken down into five sections covering the whole spectrum of active investment management: * asset classes and products * balancing risk and return * active product selection * the nature of skill * the price of skill . Trade Review"Good introductory books on investment are hard to find – but Active Investment Management by Jackson falls into that rare category." (Professional Investor, May 2004) "…analyses investment and business strategies that he (the author) says will shape the future fund management." (Stanford Business, May 2004) Table of ContentsPreface xv Acknowledgements xix PART I ASSET CLASSES AND PRODUCTS 1 1 Stocks and Shares 3 1.1 Three key preconditions 3 1.1.1 Property rights 3 1.1.2 Limited liability 4 1.1.3 Public financial markets 5 1.2 Market performance 5 1.2.1 Stock indices and performance measurement 6 1.2.2 Twentieth century performance 6 1.3 Active equity management 8 1.3.1 Dividend valuation models 9 1.3.2 Growth stocks 10 1.3.3 Small stocks 10 1.3.4 Sorting active approaches 10 1.4 Institutional investors 11 1.4.1 Life insurance 11 1.4.2 Pension funds 12 1.5 Conclusion 12 Endnotes 13 2 Investment Products 15 2.1 Traditional products 15 2.1.1 Closed-end products 15 2.1.2 Open-ended products 17 2.1.3 Index products 19 2.2 Alternative products 21 2.2.1 Illiquid assets 21 2.2.2 Liquid assets 22 2.2.3 Offshore products 23 2.3 Active overlays 24 2.4 Conclusion 26 Endnotes 26 3 Money 29 3.1 Three defining properties 29 3.1.1 Purchasing power 29 3.1.2 Return 29 3.1.3 Risk-free asset 30 3.2 Early forms of money 31 3.2.1 Gold 31 3.2.2 Deposits 32 3.3 Modern forms of money 33 3.3.1 Retail money funds 33 3.3.2 Institutional money funds 33 3.3.3 Eurodollars 34 3.4 Active cash management 35 3.4.1 Credit risk 35 3.4.2 Maturity risk 36 3.5 Conclusion 36 Endnotes 37 4 Fixed Interest 39 4.1 History 39 4.1.1 UK to 1945 39 4.1.2 USA to 1945 41 4.1.3 From 1945 41 4.1.4 Performance experience 43 4.2 Active maturity management 45 4.2.1 Duration 45 4.2.2 Benchmarks 46 4.2.3 Attribution 46 4.3 Active spread management 46 4.3.1 Mortgages 47 4.3.2 Index-linked bonds 48 4.3.3 Junk bonds and emerging debt 48 4.3.4 Swaps 49 4.4 Market efficiency 50 4.4.1 UK tax arbitrage 50 4.4.2 The US Treasury market 51 4.4.3 Salomon episode 53 4.5 Conclusion 54 Endnotes 54 5 Foreign Assets 57 5.1 History 57 5.1.1 To 1900 57 5.1.2 Foreign bonds from 1900 58 5.1.3 Foreign returns from 1900 59 5.2 Global investors 60 5.2.1 Modern portfolio theory 60 5.2.2 US overseas equity investors 60 5.2.3 US overseas bond investors 61 5.3 Government policy 61 5.3.1 Tax 61 5.3.2 UK exchange control 62 5.4 Active currency management 63 5.4.1 Theory and practice 63 5.4.2 Emerging high-yield strategies 64 5.4.3 European convergence strategies 65 5.4.4 Hedged overseas bonds 66 5.5 Conclusion 68 Endnotes 69 PART II BALANCING RISK AND RETURN 71 6 Measuring Risk 73 6.1 The chance of misfortune 73 6.1.1 Fixed odds 73 6.1.2 Uncertain odds 73 6.1.3 Historical prices 74 6.1.4 Measuring risk from historical prices 75 6.2 A simplifying proposition 75 6.2.1 The chance curve 76 6.2.2 Interval and variance 78 6.2.3 Random walk hypothesis 79 6.3 The case against active management 81 6.3.1 Testing the weak form 82 6.3.2 Testing the semi-strong form 82 6.3.3 Testing the strong form 82 6.4 Guarantees 83 6.5 Conclusion 84 Endnotes 84 7 Investor Objectives 85 7.1 Selected investor instructions 85 7.1.1 UK pensions funds 85 7.1.2 Individual investors 86 7.2 Three essentials 87 7.2.1 Risk-free asset 87 7.2.2 Liabilities 87 7.2.3 Attitude to risk 87 7.3 Trade-off between risk and return 88 7.3.1 Utility theory 88 7.3.2 Varying appetite for risk 89 7.3.3 Constant risk aversion 90 7.3.4 Modelling the risk-return trade-off 90 7.4 Active mandate design 91 7.5 Conclusion 92 Endnotes 92 8 Setting Policy 93 8.1 Policy uniqueness 93 8.1.1 Policy review 93 8.1.2 Policy variation 94 8.2 Liability matching 95 8.2.1 The liability matching condition 95 8.2.2 Historical evidence 96 8.3 Pension fund cash 96 8.4 Active asset allocation 98 8.5 Conclusion 99 Endnotes 99 PART III ACTIVE PRODUCT SELECTION 101 9 Finding Skill 103 9.1 Evidence of skill 104 9.1.1 People 104 9.1.2 Past performance 104 9.2 Measures of skill 105 9.2.1 Confidence 105 9.2.2 The information ratio 106 9.2.3 Active risk 107 9.3 Elusiveness of skill 107 9.3.1 Manager tenure 107 9.3.2 Benchmark ambiguity 108 9.3.3 Experience and age 109 9.4 Advisors and skill 110 9.4.1 Traditional products 110 9.4.2 Hedge funds 111 9.5 Conclusion 112 Endnotes 113 10 Using Style 115 10.1 Active product weights 115 10.1.1 The MPT solution 115 10.1.2 Accuracy 116 10.1.3 The industry solution 116 10.2 Style definition 116 10.2.1 Asset classes 117 10.2.2 Specialised categories 117 10.2.3 Universe medians 117 10.3 Portfolio construction 118 10.3.1 Specialist portfolios 118 10.3.2 Balanced portfolios 119 10.4 Freestanding overlays 119 10.5 Conclusion 121 Endnotes 122 PART IV THE NATURE OF SKILL 123 11 Firms and Professionals 125 11.1 Exceptional talents 125 11.1.1 Benjamin Graham 125 11.1.2 Phillip Fisher 126 11.1.3 Warren Buffett 126 11.2 Public and private information 127 11.2.1 Graham and Fisher 128 11.2.2 Market anomalies 128 11.2.3 Size and value effects 128 11.3 Intuitive and systematic approaches 129 11.3.1 Keynes’s metaphor 130 11.3.2 Information and strategy 131 11.3.3 Demonstrating skill 133 11.3.4 Portfolio manager autonomy 133 11.4 Fault lines 134 11.4.1 Institutional processes 134 11.4.2 LTCM 135 11.4.3 MAM fixed interest 136 11.5 Conclusion 137 Endnotes 137 12 Active Overlay Risk 139 12.1 LTCM 139 12.2 Active return distributions 140 12.2.1 Active strategies 140 12.2.2 Trading rules 141 12.3 Different processes 141 12.3.1 Systematic 142 12.3.2 Combined 142 12.3.3 Intuitive 143 12.4 Conclusion 143 Endnotes 144 PART V THE PRICE OF SKILL 145 13 Fees 147 13.1 Types of fee 147 13.1.1 Flat fees 147 13.1.2 Performance fees 148 13.1.3 Transaction charges 150 13.2 Demand and skill 151 13.2.1 The evidence 151 13.2.2 Skill-driven demand 152 13.3 Fee rates and skill 153 13.3.1 Revenue maximising 153 13.3.2 Paying for information 154 13.4 Fee-setting behaviour 155 13.4.1 Traditional products 155 13.4.2 Funds of hedge funds 155 13.4.3 Hedge funds 156 13.5 Conclusion 158 Endnotes 158 14 Pay 159 14.1 Pay and skill 159 14.1.1 Before hedge funds 160 14.1.2 After hedge funds 160 14.1.3 Hedge fund self-investing 162 14.2 Dividing the spoils 162 14.2.1 Prima donnas 163 14.2.2 Threshold skill 163 14.2.3 Position limits 165 14.3 Valuing investment management firms 165 14.3.1 Traditional firms 165 14.3.2 Hedge fund firms 167 14.3.3 Fund of hedge fund firms 167 14.4 Conclusion 168 Endnotes 168 Afterword 169 Technical Appendix 175 A.1 Basic modelling tools 175 A.1.1 Calculus 175 A.1.2 Natural logarithms 176 A.1.3 Normal distribution 177 A.1.4 Central Limit Theorem 177 A.1.5 Higher moments 177 A.2 Investment algebra 178 A.2.1 Time value of money 178 A.2.2 Time versus money-weighted performance measurement 178 A.2.3 Bond prices 179 A.2.4 On and off the run 179 A.2.5 Seventeenth century Dutch annuities 180 A.2.6 Duration 180 A.2.7 Bond attribution 181 A.2.8 Constant growth model 181 A.2.9 Purchasing Power Parity 182 A.2.10 Covered interest arbitrage 182 A.3 Time series analysis 182 A.3.1 Standard approach 182 A.3.2 Confidence interval 183 A.4 Utility theory 184 A.4.1 Certainty equivalent 184 A.4.2 Expected utility 184 A.4.3 Risk adjustment 184 A.4.4 Abnormal distribution 185 A.4.5 Constant relative risk aversion 185 A.5 Mean variance analysis 186 A.5.1 Correlation 186 A.5.2 Matrix algebra 186 A.5.3 Utility maximisation 186 A.5.4 Maximising the mean variance ratio 187 A.5.5 Optimal investment in risky assets 187 A.5.6 Two asset optimisation 187 A.5.7 Liability matching condition 188 A.5.8 Portfolio eligibility 188 A.5.9 Information ratio 189 A.6 Industry economics 190 A.6.1 Demand for freestanding overlays 190 A.6.2 Demand for products with style 191 A.6.3 Revenue maximising fee 192 A.6.4 Combining overlays 193 A.6.5 Information costs 194 A.6.6 Relaxing the independence assumption 194 A.6.7 Self investing 195 A.6.8 Running a hedge fund 195 A.6.9 Hedge fund style 196 A.6.10 Trading limits 196 A.6.11 Trader experience 197 A.6.12 Tenure and investor confidence 197 Endnotes 198 Index 199

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Book SynopsisThere was a great momentum in the research into measures of financial risk. After many years of ad hoc and non consistent measures, the problem is finally well formulated and some useful and very user friendly solutions have been proposed.Trade Review“…excellent..provides detailed and up-to-date reference material…written by someone at the top of his field” (Accounting Technician, Sep 2004)Table of ContentsAbout the Contributors. 1 On the (Non)Acceptance of Innovations (Giorgio Szegö). 1.1 Introduction. 1.2 The path towards acceptance of previous innovations. 1.3 How to answer. 1.4 Conclusions. References. PART I: RISK MEASURES AND REGULATION. 2 The Emperor has no Clothes: Limits to Risk Modelling (Jón Daníelsson). 2.1 Introduction. 2.2 Risk modelling and endogenous response. 2.3 Empirical properties of risk models. 2.3.1 Background. 2.3.2 Robustness of risk forecasts. 2.3.3 Risk volatility. 2.3.4 Model estimation horizon. 2.3.5 Holding periods and loss horizons. 2.3.6 Non-linear dependence. 2.4 The concept of (regulatory) risk. 2.4.1 Volatility. 2.4.2 Value-at-risk. 2.4.3 Coherent risk measures. 2.4.4 Moral hazard – massaging VaR numbers. 2.4.5 The regulatory 99% risk level. 2.5 Implications for regulatory design. 2.6 Conclusion. Acknowledgements. Appendix A: Empirical study. References. 3 Upgrading Value-at-Risk from Diagnostic Metric to Decision Variable: A Wise Thing to Do? (Henk Grootveld and Winfried G. Hallerbach). 3.1 Introduction. 3.2 Preliminaries. 3.2.1 VaR and downside risk. 3.2.2 Downside risk portfolio selection. 3.2.3 Incomplete risk meaure. 3.2.4 Computational issues. 3.3 The mean-value-at-risk portfolio selection model. 3.3.1 Deriving the mean-VaR portfolio selection model. 3.3.2 Distinctive properties of the mean-VaR portfolio selection model. 3.3.3 Solving the mean-VaR portfolio selection problem. 3.4 The mean-value-at-risk portfolio selection model in practice. 3.4.1 Data. 3.4.2 Methodology. 3.4.3 Results. 3.5 Conclusions. Acknowledgements. References. 4 Concave Risk Measures in International Capital Regulation (Imre Kondor, András Szepessy and Tünde Ujvárosi). 4.1 Introduction. 4.2 Risk measures implied by the trading book regulation. 4.2.1 Specific risk of bonds. 4.2.2 Foreign exchange. 4.2.3 Equity risk. 4.2.4 The general risk of bonds. 4.3 Conclusion. Acknowledgements. References. 5 Value-at-Risk, Expected Shortfall and Marginal Risk Contribution (Hans Rau-Bredow). 5.1 Introduction. 5.2 Value-at-risk as a problematic risk measure. 5.3 Derivatives of value-at-risk and expected shortfall. 5.3.1 Preliminary remarks. 5.3.2 First and second derivative of value-at-risk. 5.3.3 First and second derivative of expected shortfall. 5.4 Outlook. Appendix. References. 6 Risk Measures for Asset Allocation Models (Rosella Giacometti and Sergio Ortobelli Lozza). 6.1 Introduction. 6.2 Portfolio risk measures. 6.2.1 Safety risk measures. 6.2.2 Dispersion measures. 6.3 Portfolio choice comparison based on historical data. 6.4 Portfolio choice comparison based on simulated returns. 6.4.1 Portfolio choice comparison with jointly Gaussian returns. 6.4.2 Portfolio choice comparison with jointly stable non-Gaussian returns. 6.5 Conclusions. Acknowledgements. References. 7 Regulation and Incentives for Risk Management in Incomplete Markets (J´on Daníelsson, Bjørn N. Jorgensen and Casper G. de Vries). 7.1 Introduction. 7.1.1 Complete and incomplete markets. 7.2 Moral hazard regarding project choice. 7.2.1 Deposit insurance and moral hazard. 7.2.2 Threat of an alternative project choice. 7.3 Moral hazard regarding risk management. 7.3.1 The basic principal–agent model. 7.3.2 Supervision. 7.4 Risk monitoring and risk management. 7.4.1 Coarser risk monitoring without regulation. 7.4.2 Indirect risk monitoring with regulation. 7.4.3 Finer risk monitoring: no regulation. 7.4.4 Direct risk monitoring with regulation. 7.4.5 Evaluation. 7.5 Conclusion. References. 8 Granularity Adjustment in Portfolio Credit Risk Measurement (Michael B. Gordy). 8.1 Introduction. 8.2 Granularity adjustment of VaR for homogeneous portfolios. 8.3 Granularity adjustment of ES for homogeneous portfolios. 8.4 Application to heterogeneous portfolios. Appendix: Wilde’s formula for ?. Acknowledgements. References. 9 A Comparison of Value-at-Risk Models in Finance (Simone Manganelli and Robert F. Engle). 9.1 Introduction. 9.2 Value-at-risk methodologies. 9.2.1 Parametric models. 9.2.2 Nonparametric models. 9.2.3 Semiparametric models. 9.3 Expected shortfall. 9.4 Monte Carlo simulation. 9.4.1 Simulation study of the threshold choice for EVT. 9.4.2 Comparison of quantile methods performance. 9.5 Conclusion. References. Appendix: Tables. PART II: NEW RISK MEASURES. 10 Coherent Representations of Subjective Risk-Aversion (Carlo Acerbi). 10.1 Forewords and motivations. 10.1.1 In defense of axiomatics. 10.1.2 Scope and objectives. 10.1.3 Outline of the work. 10.2 Building a risk measure: the expected shortfall. 10.2.1 A close look into VaR’s definition. 10.2.2 A natural remedy to probe the tail: the expected shortfall. 10.2.3 Coherency of ES. 10.2.4 Estimation of ES. 10.3 Spectral measures of risk. 10.3.1 Estimation of spectral measures of risk. 10.3.2 Characterization of spectral measures via additional conditions. 10.3.3 Spectral measures and capital adequacy. 10.4 Optimization of spectral measures of risk. 10.4.1 Coherent measures and convex risk surfaces. 10.4.2 Minimization of expected shortfall. 10.4.3 Minimization of general spectral measures. 10.4.4 Risk–reward optimization. 10.5 Statistical errors of spectral measures of risk. 10.5.1 Variance of the estimator. 10.5.2 Some meaningful examples. Acknowledgements. References. 11 Spectral Risk Measures for Credit Portfolios (Claudio Albanese and Stephan Lawi). 11.1 Introduction. 11.2 Test-portfolios with market risk and entity-specific risk. 11.3 Properties of risk measures. 11.4 Discussion of test-portfolios. 11.5 Concluding remarks. Acknowledgements. References. Appendix: Tables. 12 Dynamic Convex Risk Measures (Marco Frittelli and Emanuela Rosazza Gianin). 12.1 Introduction. 12.1.1 Notation. 12.1.2 Axioms. 12.1.3 Coherent risk measures. 12.2 Convex risk measures. 12.2.1 Representation of convex risk measures. 12.2.2 Law-invariant convex risk measures. 12.3 Indifferent prices and risk measures. 12.4 Dynamic risk measures. 12.5 Appendix. References. 13 A Risk Measure for Income Processes (Georg Ch. Pflug and Andrzej Ruszczyński) 13.1 Introduction. 13.2 The one-period case. 13.3 Risk of multi-period income streams. 13.4 Finite filtrations. 13.5 Properties of the risk measure. 13.6 Mean–risk models. 13.7 Examples. 13.8 A comparison with the ADEHK approach. 13.9 The discounted martingale property for final processes. References. PART III: COPULA FUNCTIONS FOR THE ANALYSIS OF DEPENDENCE STRUCTURES. 14 Financial Applications of Copula Functions (Jean-Frédéric Jouanin, Gaëulet and Thierry Roncalli). 14.1 Introduction. 14.2 Copula functions. 14.3 Market risk management. 14.3.1 Non-Gaussian value-at-risk. 14.3.2 Stress testing. 14.3.3 Monitoring the risk of the dependence in basket derivatives. 14.4 Credit risk management. 14.4.1 Measuring the risk of a credit portfolio. 14.4.2 Modelling basket credit derivatives. 14.5 Operational risk management. 14.5.1 The loss distribution approach. 14.5.2 The diversification effect. References. 15 Hedge Funds: A Copula Approach for Risk Management (Hélyette Geman and Cécile Kharoubi). 15.1 Introduction. 15.2 Hedge funds industry, strategies and data. 15.2.1 Hedge funds industry: definitions and description. 15.2.2 The different strategies. 15.2.3 Biases in hedge funds data. 15.2.4 Hedge funds indices: descriptive statistics. 15.3 Copulas and hedge funds. 15.4 Value-at-risk with copulas. 15.4.1 Monte Carlo simulation. 15.4.2 Value-at-risk computation. 15.5 Conclusion. Acknowledgements. References. 16 Change-point Analysis for Dependence Structures in Finance and Insurance (Alexandra Dias and Paul Embrechts). 16.1 Introduction. 16.2 Statistical change-point analysis. 16.2.1 The test statistic. 16.2.2 An example: the Gumbel case. 16.2.3 The power of the test. 16.2.4 The time of the change and corresponding confidence intervals. 16.2.5 Multiple changes. 16.3 A comment on pricing. 16.4 An example with insurance data. 16.5 Conclusion. Acknowledgements. References. PART IV: ADVANCED APPLICATIONS. 17 Derivative Portfolio Hedging Based on CVaR (Siddharth Alexander, Thomas F. Coleman and Yuying Li). 17.1 Introduction. 17.2 Minimizing VaR and CVaR for derivative portfolios. 17.2.1 How well is the minimum risk derivative portfolio defined? 17.2.2 Difficulties due to ill-posedness. 17.3 Regularizing the derivative CVaR optimization. 17.3.1 Example 1: Hedging a short maturity at-the-money call. 17.3.2 Example 2: Hedging a portfolio of binary options. 17.4 Minimizing CVaR efficiently. 17.4.1 Efficiency for CVaR minimization using an LP approach. 17.4.2 A smoothing technique for CVaR minimization. 17.5 Concluding remarks. Acknowledgements. References. 18 Estimation of Tail Risk and Portfolio Optimisation with Respect to Extreme Measures (Giorgio Consigli). 18.1 Introduction. 18.2 From risk measurement to risk control: the setup. 18.2.1 VaR control with non-normal return distributions. 18.3 Beyond VaR: From non coherent to coherent measures. 18.3.1 Risk measures in the tails: methods accuracy. 18.3.2 A case study. Application 1: Risk measurement. 18.3.3 Multidimensional Poisson–Gaussian model. 18.4 Risk control based on portfolio optimization. 18.4.1 Risk–return and trade-off optimisation: QP and LP solvability. 18.4.2 Optimal portfolios during periods of market instability. 18.5 Conclusions and future research. Acknowledgements. References. 19 Risk Return Management Approach for the Bank Portfolio (Ursula A. Theiler). 19.1 Introduction. 19.2 Step 1 of the RRM approach: optimization model for the bank portfolio. 19.2.1 Survey. 19.2.2 Modeling the internal risk constraint. 19.2.3 Integration of the regulatory risk constraint into the optimization model. 19.2.4 Summary of the optimization model of step 1 of the RRM Approach. 19.3 Step 2 of the RRM Approach: risk return keys for the optimum portfolio. 19.3.1 Survey. 19.3.2 Derivation of risk return keys on the asset level. 19.3.3 Aggregation of risk return keys on the profit center level. 19.3.4 Summary of the risk return ratios generated by the RRM Approach. 19.4 Application example. 19.4.1 Situation and problem statement. 19.4.2 Results. 19.5 Conclusion. References. PART V: LAST, BUT NOT LEAST. 20 Capital Allocation, Portfolio Enhancement and Performance Measurement: A Unified Approach (Winfried G. Hallerbach). 20.1 Introduction. 20.2 Preliminaries. 20.3 Portfolio optimization, RAROC and RAPM. 20.3.1 Portfolio optimization without risk-free rate. 20.3.2 Portfolio optimization allowing for risk-free activities. 20.4 Conclusions. Appendix. Acknowledgements. References. 21 Pricing in Incomplete Markets: From Absence of Good Deals to Acceptable Risk (H´elyette Geman and Dilip B. Madan). 21.1 Introduction 451 21.2 No-good-deal pricing in incomplete markets. 21.2.1 Good-deal asset price bounds (Cochrane and Saá, 2000). 21.2.2 Gain, loss and asset pricing (Bernardo and Ledoit, 2000). 21.2.3 The theory of good-deal pricing (Cerny and Hodges, 2001). 21.3 Pricing with acceptable risk. 21.3.1 The economic model. 21.3.2 The first fundamental theorem. 21.3.3 The second fundamental theorem. 21.3.4 Pricing under acceptable incompleteness. 21.4 Conclusion. References. Index.

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Book SynopsisThe term Financial Derivative is a very broad term which has come to mean any financial transaction whose value depends on the underlying value of the asset concerned. Sophisticated statistical modelling of derivatives enables practitioners in the banking industry to reduce financial risk and ultimately increase profits made from these transactions. The book originally published in March 2000 to widespread acclaim.Thisrevised edition has been updated with minor corrections and new references, and now includes a chapter of exercises and solutions, enabling use as a course text. Comprehensive introduction to the theory and practice of financial derivatives. Discusses and elaborates on the theory of interest rate derivatives, an area of increasing interest. Divided into two self-contained parts ? the first concentrating on the theory of stochastic calculus, and the second describes in detail the pricing of a number of different derivatives in practice.Table of ContentsPreface to revised edition. Preface. Acknowledgements. Part I: Theory. 1 Single-Period Option Pricing. 1.1 Option pricing in a nutshell. 1.2 The simplest setting. 1.3 General one-period economy. 1.4 A two-period example. 2 Brownian Motion. 2.1 Introduction. 2.2 Definition and existence. 2.3 Basic properties of Brownian motion. 2.4 Strong Markov property. 3 Martingales. 3.1 Definition and basic properties. 3.2 Classes of martingales. 3.3 Stopping times and the optional sampling theorem. 3.4 Variation, quadratic variation and integration. 3.5 Local martingales and semimartingales. 3.6 Supermartingales and the Doob—Meyer decomposition. 4 Stochastic Integration. 4.1 Outline. 4.2 Predictable processes. 4.3 Stochastic integrals: the L2 theory. 4.4 Properties of the stochastic integral. 4.5 Extensions via localization. 4.6 Stochastic calculus: Itô’s formula. 5 Girsanov and Martingale Representation. 5.1 Equivalent probability measures and the Radon—Nikodým derivative. 5.1.1 Basic results and properties. 5.2 Girsanov’s theorem. 5.3 Martingale representation theorem. 6 Stochastic Differential Equations. 6.1 Introduction. 6.2 Formal definition of an SDE. 6.3 An aside on the canonical set-up. 6.4 Weak and strong solutions. 6.5 Establishing existence and uniqueness: Itô theory. 6.6 Strong Markov property. 6.7 Martingale representation revisited. 7 Option Pricing in Continuous Time. 7.1 Asset price processes and trading strategies. 7.2 Pricing European options. 7.3 Continuous time theory. 7.4 Extensions. 8 Dynamic Term Structure Models. 8.1 Introduction. 8.2 An economy of pure discount bonds. 8.3 Modelling the term structure. Part II: Practice. 9 Modelling in Practice. 9.1 Introduction. 9.2 The real world is not a martingale measure. 9.3 Product-based modelling. 9.4 Local versus global calibration. 10 Basic Instruments and Terminology. 10.1 Introduction. 10.2 Deposits. 10.3 Forward rate agreements. 10.4 Interest rate swaps. 10.5 Zero coupon bonds. 10.6 Discount factors and valuation. 11 Pricing Standard Market Derivatives. 11.1 Introduction. 11.2 Forward rate agreements and swaps. 11.3 Caps and floors. 11.4 Vanilla swaptions. 11.5 Digital options. 12 Futures Contracts. 12.1 Introduction. 12.2 Futures contract definition. 12.3 Characterizing the futures price process. 12.4 Recovering the futures price process. 12.5 Relationship between forwards and futures. Orientation: Pricing Exotic European Derivatives. 13 Terminal Swap-Rate Models. 13.1 Introduction. 13.2 Terminal time modelling. 13.3 Example terminal swap-rate models. 13.4 Arbitrage-free property of terminal swap-rate models. 13.5 Zero coupon swaptions. 14 Convexity Corrections. 14.1 Introduction. 14.2 Valuation of ‘convexity-related’ products. 14.3 Examples and extensions. 15 Implied Interest Rate Pricing Models. 15.1 Introduction. 15.2 Implying the functional form DTS. 15.3 Numerical implementation. 15.4 Irregular swaptions. 15.5 Numerical comparison of exponential and implied swap-rate models. 16 Multi-Currency Terminal Swap-Rate Models. 16.1 Introduction. 16.2 Model construction. 16.3 Examples. 16.3.1 Spread options. Orientation: Pricing Exotic American and Path-Dependent Derivatives. 17 Short-Rate Models. 17.1 Introduction. 17.2 Well-known short-rate models. 17.3 Parameter fitting within the Vasicek—Hull—White model. 17.4 Bermudan swaptions via Vasicek—Hull—White. 18 Market Models. 18.1 Introduction. 18.2 LIBOR market models. 18.3 Regular swap-market models. 18.4 Reverse swap-market models. 19 Markov-Functional Modelling. 19.1 Introduction. 19.2 Markov-functional models. 19.3 Fitting a one-dimensional Markov-functional model to swaption prices. 19.4 Example models. 19.5 Multidimensional Markov-functional models. 19.5.1 Log-normally driven Markov-functional models. 19.6 Relationship to market models. 19.7 Mean reversion, forward volatilities and correlation. 19.7.1 Mean reversion and correlation. 19.7.2 Mean reversion and forward volatilities. 19.7.3 Mean reversion within the Markov-functional LIBOR model. 19.8 Some numerical results. 20 Exercises and Solutions. Appendix 1: The Usual Conditions. Appendix 2: L2 Spaces. Appendix 3: Gaussian Calculations. References. Index.

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Book SynopsisThe term Financial Derivative is a very broad term which has come to mean any financial transaction whose value depends on the underlying value of the asset concerned. This work features a comprehensive introduction to the theory and practice of financial derivatives. It also discusses and elaborates on the theory of interest rate derivatives.Table of ContentsPreface to revised edition xv Preface xvii Acknowledgements xxi Part I: Theory 1 1Single-Period option pricing 3 2 Brownian Motion 19 3 Martingales 3.5 Local martingales and semimartingales 56 3.5.1 The space cMloc56 3.5.2 Semimartingales 59 3.6 Supermartingales and the Doob—Meyer decomposition 61 4 StochasticIntegration63 4.1 Outline 63 4.2 Predictable processes 65 4.3 Stochastic integrals: the L2 theory 67 4.3.1 The simplest integral 68 4.3.2 The Hilbert space L2 (M) 69 4.3.3 The L2 integral 70 4.3.4 Modes of convergence to H • M 72 4.4 Properties of the stochastic integral 74 4.5 Extensionsvialocalization77 4.5.1 Continuous local martingales as integrators 77 4.5.2 Semimartingales as integrators 78 4.5.3 The end of the road! 80 4.6 Stochastic calculus: Itô’s formula 81 4.6.1 Integration by parts and Itô’s formula 81 4.6.2 Differential notation 83 4.6.3 Multidimensional version of Itô’s formula 85 4.6.4 Lévy’stheorem88 5 GirsanovandMartingaleRepresentation91 5.1 Equivalent probability measures and the Radon—Nikodým derivative 91 5.1.1 Basic results and properties 91 5.1.2 Equivalent and locally equivalent measures on a filtered space 95 5.1.3 Novikov’s condition 97 5.2 Girsanov’s theorem 99 5.2.1 Girsanov’s theorem for continuous semimartingales 99 5.2.2 Girsanov’s theorem for Brownian motion 101 5.3 Martingale representation theorem 105 5.3.1 The space I2 (M) and its orthogonal complement 106 5.3.2 Martingale measures and the martingale representation theorem 110 5.3.3 Extensions and the Brownian case 111 6 Stochastic Differential Equations 115 6.1 Introduction 115 6.2 Formal definition of an SDE 116 6.3 An aside on the canonical set-up 117 6.4 Weak and strong solutions 119 6.4.2 Strong solutions 121 6.4.3 Tying together strong and weak 124 6.5 Establishing existence and uniqueness:Itô theory 125 6.5.1 Picard—Lindelöf iteration and ODEs 126 6.5.2 A technical lemma 127 6.5.3 Existence and uniqueness for Lipschitz coefficients 130 6.6 Strong Markov property 134 6.7 Martingale representation revisited 139 7 Option Pricing in Continuous Time 141 7.1 Asset price processes and trading strategies 142 7.1.1 A model for asset prices 142 7.1.2 Self-financing trading strategies 144 7.2 Pricing European options 146 7.2.1 Option value as a solution to a PDE 147 7.2.2 Option pricing via an equivalent martingale measure 149 7.3 Continuous time theory 151 7.3.1 Information within the economy 152 7.3.2 Units, numeraires and martingale measures 153 7.3.3 Arbitrage and admissible strategies 158 7.3.4 Derivative pricing in an arbitrage-free economy 163 7.3.5 Completeness 164 7.3.6 Pricing kernels 173 7.4 Extensions 176 7.4.1 General payout schedules 176 7.4.2 Controlled derivative payouts 178 7.4.3 More general asset price processes 179 7.4.4 Infinite trading horizon 180 8 Dynamic Term Structure Models 183 8.1 Introduction 183 8.2 An economy of pure discount bonds 183 8.3 Modelling the term structure 187 8.3.1 Pure discount bond models 191 8.3.2 Pricing kernel approach 191 8.3.3 Numeraire models 192 8.3.4 Finite variation kernel models 194 8.3.5 Absolutely continuous (FVK) models 197 8.3.6 Short-rate models 197 8.3.7 Heath—Jarrow—Morton models 200 8.3.8 Flesaker—Hughston models 206 References 423 Index 427

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Book SynopsisThe pressure to maintain currency parity has led to the breakdown of many exchange rate mechanisms, and has forced the need for active foreign exchange hedging decisions to prevent the erosion of profit margins. Today, an understanding of currency options is essential for those working in investment and foreign exchange.Table of ContentsDisclaimer xi 1 Introduction 1 1.1 The forward foreign exchange market 1 1.2 The currency options market 1 1.3 The alternatives to currency options 2 1.4 The users 2 1.5 Whose domain? 2 PART I MARKET OVERVIEW 3 2 The Foreign Exchange Market 5 2.1 Twenty-four-hour global market 5 2.2 Value terms 5 2.3 Coffee houses 6 2.4 Spot and forward market 6 2.5 Alternative markets 7 2.6 Currency options 7 2.7 Concluding remarks 8 3 A Brief History of the Market 9 3.1 The barter system 9 3.2 The introduction of coinage 9 3.3 The expanding British Empire 10 3.4 The gold standard 10 3.5 The Bretton Woods system 11 3.6 The International Monetary Fund and the World Bank 11 3.7 The dollar rules OK 12 3.8 Special drawing rights 12 3.9 A dollar problem 13 3.10 The Smithsonian agreement 13 3.11 The snake 13 3.12 The dirty float 13 3.13 The European Monetary System 14 3.14 The Exchange Rate Mechanism 14 3.15 The European Currency Unit 15 3.16 The Maastricht Treaty 15 3.17 The Treaty of Rome 15 3.18 Economic reform 16 3.19 A common monetary policy 16 3.20 A single currency 16 3.21 Currency options 18 3.22 Concluding remarks 20 4 Market Overview 21 4.1 Global market 21 4.2 No physical trading floor 21 4.3 A “perfect” market 21 4.4 The main instruments 22 4.5 Comparisons of options with spot and forwards 23 4.6 The dollar’s role 24 4.7 Widely traded currency pairs 24 4.8 Concluding remarks 25 5 Major Participants 27 5.1 Governments 27 5.2 Banks 27 5.3 Brokering houses 29 5.4 International Monetary Market 29 5.5 Money managers 29 5.6 Corporations 29 5.7 Retail clients 29 5.8 Others 30 5.9 Speculators 30 5.10 Trade and financial flows 30 6 Roles Played 33 6.1 Market makers 33 6.2 Price takers 33 6.3 A number of roles 33 6.4 A number of roles – options 34 6.5 Concluding remarks 34 7 Purposes 35 7.1 Commercial transactions 35 7.2 Funding 35 7.3 Hedging 35 7.4 Portfolio investment 36 7.5 Personal 36 7.6 Market making 36 7.7 Transaction exposure 36 7.8 Translation exposure 37 7.9 Economic exposure 37 7.10 Concluding remarks 37 8 Applications of Currency Options 39 9 Users of Currency Options 41 9.1 Variety of reasons 41 9.1.1 Example 1 42 9.1.2 Example 2 43 9.1.3 Example 3 43 9.2 Hedging vs speculation 44 Glossary of foreign exchange terms 45 PART II CURRENCY OPTIONS – THE ESSENTIALS 47 10 Definitions and Terminology 49 10.1 Call option 50 10.2 Put option 50 10.3 Parties and the risks involved 51 10.4 Currency option risk/reward perception 51 10.5 Currency or dollar call or put option? 52 10.6 Strike price and strike selection 52 10.7 Exercising options 53 10.8 American and European style options 53 10.9 In-, at- or out-of-the-money 55 10.10 The premium 57 10.11 Volatility 59 10.12 Break-even 60 11 The Currency Option Concept 61 12 The Currency Options Market 63 12.1 Exchange vs over-the-counter 63 12.2 Standardised Options 65 12.3 Customised options 66 12.4 Features of the listed market 67 12.5 Comparisons 69 12.6 Where is the market? 69 12.7 Concluding remarks 69 13 Option Pricing Theories 71 13.1 Basic properties 71 13.2 Theoretical valuation 72 13.3 Black-Scholes model 73 13.4 Examples of other models 74 13.5 Pricing without a computer model 76 13.6 Educated guess 76 13.7 The price of an option 76 13.8 Option premium profile 78 13.9 Time value and intrinsic value 78 13.10 Time to expiry 79 13.11 Volatility 79 13.12 Strike price and forward rates 82 13.13 Interest rates 82 13.14 American vs European 83 13.15 Concluding remarks 84 14 The Greeks 85 14.1 Delta 85 14.2 Gamma 88 14.3 Theta 90 14.4 Vega 92 14.5 Rho 92 14.6 Beta and omega 93 15 Payoff and Profit/Loss Diagrams 95 15.1 Payoff diagram 95 15.2 Profit diagram 95 15.3 The option writer 97 15.4 Put option 97 15.5 Put option writer 98 15.6 Basic option positions 98 15.7 Graph addition 100 15.8 Profit/loss profiles for ten popular option strategies 101 15.9 Concluding remarks 102 16 Basic Properties of Options 105 16.1 Option values 105 16.2 Put/call parity concept 106 16.3 Synthetic positions 108 17 Risk Reversals 111 17.1 Understanding risk reversals 111 17.2 Implications for traders 112 17.3 Implications for hedgers 113 17.4 Concluding remarks 114 18 Market Conventions 115 18.1 Option price 115 18.2 What rate to use? 116 18.3 Live price 116 18.4 Pricing terms 117 18.5 Premium conversions 117 18.6 Settlement 117 18.7 How is an option exercised? 118 18.8 Risks 118 18.9 Concluding remarks 119 Basic option glossary 121 PART III CURRENCY OPTION PRODUCTS 125 19 Vanilla Options 127 19.1 Long options 127 19.2 Short options 127 19.3 Straddle 128 19.4 Strangle 129 19.5 Cylinder 130 19.6 Collar 131 19.7 Participating forward 131 19.8 Ratio forward 132 19.9 Added extras to vanilla options 133 20 Common Option Strategies 135 20.1 Directional options 137 20.2 Precision options 139 20.3 Locked trade options 144 21 Exotic Options 145 21.1 Barriers 145 21.2 Average rates 148 21.3 Lookback and ladder 149 21.4 Chooser 152 21.5 Digital (binary) 153 21.6 Baskets 154 21.7 Compound 156 21.8 Variable notional 157 21.9 Multi-factor 158 22 Structured Currency Options 159 22.1 Trigger forward 159 22.2 Double trigger forward 160 22.3 At maturity trigger forward 161 22.4 Forward extra 161 22.5 Weekly reset forward 162 22.6 Range binary 163 22.7 Contingent premium 163 22.8 Wall 164 22.9 Corridor 165 23 Case Studies 167 23.1 Hedging 167 23.2 Trading 169 23.3 Investment 170 23.4 Bid to offer exposure 171 23.5 Concluding remarks 173 24 Option Hedge Matrix 175 Exotic currency option glossary 187 25 Concluding Remarks 193 Index 195

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Book SynopsisInvestment pioneer Len Zacks presents the latest academic research on how to beat the market using equity anomalies The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market. Some of the anomalies addressed include the accrual anomaly, net stock anomalies, fundamental anomalies, estimate revisions, changes in and levels of broker recommendations, earnings-per-share surprises, insider tradTable of ContentsPreface xi Acknowledgments xvii CHAPTER 1 Conceptual Foundations of Capital Market Anomalies 1Mozaffar Khan Efficient Markets 2 Identifying Anomalies in Capital Markets 3 Explaining Anomalies 5 Anomalies: Weighing the Evidence 10 Appendix 1.1: Risk and Expected-Return Models 10 References 17 CHAPTER 2 The Accrual Anomaly 23Patricia M. Dechow, Natalya V. Khimich, and Richard G. Sloan What Are Accruals? 24 Sloan (1996) in a Nutshell 32 Extensions of Sloan (1996) 38 Alternative Explanations for the Accrual Anomaly 45 Practical Implications 51 Appendix 2.1: Estimation and Testing Framework Used in Sloan (1996) 52 Appendix 2.2: Details on the Broader Definition of Accruals 54 References 59 CHAPTER 3 The Analyst Recommendation and Earnings Forecast Anomaly 63George Serafeim Role of Research Analysts 63 Investment Recommendations 64 Earnings Forecast Revisions 73 Determinants of Forecast Revisions 76 International Evidence 78 Overview of the Investment Performance of Forecast Revisions 79 Appendix 3.1: Details of Returns to Recommendation Strategies 79 References 87 CHAPTER 4 Post-Earnings Announcement Drift and Related Anomalies 91Daniel Taylor The Basics of the Anomaly 92 Measuring Earnings Surprises 99 Sources of Post-Earnings Announcement Drift 102 Extensions 106 Institutional Investors 108 Individual Investors 110 References 112 CHAPTER 5 Fundamental Data Anomalies 117Ian Gow Fundamental Metrics 118 Distress Risk 122 Capital Investment and Growth Anomalies 123 International Evidence 125 Conclusion 126 References 126 CHAPTER 6 Net Stock Anomalies 129Daniel Cohen, Thomas Lys, and Tzachi Zach Initial Public Offerings 130 Seasoned Equity Offerings 132 Debt Issuances 133 Share Repurchases and Tender Offers 134 Dividend Initiation and Omissions 136 Private Equity Placement 138 Overall Net External Financing 138 Mergers and Acquisitions 141 International Evidence 142 Other Explanations for the Abnormal Returns 143 References 144 CHAPTER 7 The Insider Trading Anomaly 147Ian Dogan Overview of Insider Filings 148 Documentation of the Anomaly 148 Results for the 1978–2005 Period 150 How Consistent Is the Anomaly Year by Year? 152 When Are Returns Generated during the 1-Year Holding Periods? 154 Returns in Small Cap versus Large Cap 155 Does It Work on the Short Side? 156 Do Returns Vary by Industry? 160 Institutional Investors 162 Individual Investors 162 Relation to Other Anomalies 163 International Evidence 164 Can Insider Data Predict S&P 500 Returns? 165 Latest Developments 166 Long/Short Strategy for Institutional Investors 167 References 170 CHAPTER 8 Momentum: The Technical Analysis Anomaly 173Lee M. Dunham History of Technical Analysis and Momentum 176 Assessing Momentum and Reversal in Stock Prices 178 Early Influential Work on Momentum and Reversals 179 Improving Upon Momentum Strategies 184 Moving Averages 186 52-Week High/Low 187 Momentum at Industry Levels 188 Momentum and Mutual Funds 189 Is Technical Analysis Profitable? 190 Institutional Investors 193 Explanations for Momentum and Reversals 195 International Evidence 198 References 200 CHAPTER 9 Seasonal Anomalies 205Constantine Dzhabarov and William T. Ziemba January Effect 206 The January Barometer 213 Sell-in-May-and-Go-Away 221 Holiday Effects 226 Day-of-the-Week Effects 231 Seasonality Calendars 234 Political Effects 237 Turn-of-the-Month Effects 248 Open/Close Daily Trade on the Open 254 Weather: Sun, Rain, Snow, Moon, and the Stars 255 Conclusions and Final Remarks 256 References 256 CHAPTER 10 Size and Value Anomalies 265Oleg A. Rytchkov The Early Days 265 Fama-French Three-Factor Model 266 Value Anomaly: Risk or Mispricing? 267 Alternative Value Indicators 269 Time Variation in the Value Premium 270 Cross-Sectional Variation in the Value Premium 273 Anatomy of the Size Anomaly 275 International Evidence 278 Value Premium: Evidence from Alternative Asset Classes 279 References 281 CHAPTER 11 Anomaly-Based Processes for the Individual Investor 285Leonard Zacks Increasing Returns Using Market Neutral 286 Using ETFs to Add a Market Neutral Asset to a Portfolio 291 Using Stock Scoring Systems to Outperform Indexes 292 Implementation of Anomaly-Based Quant Processes 296 End of the Tour 305 References 305 APPENDIX Use of Anomaly Research by Professional Investors 307 From Academia to Wall Street 307 Statistical Arbitrage 308 High-Frequency Trading 309 Multifactor Models 309 Assets in Market Neutral Portfolios 310 Assets in Long Portfolios 311 United States versus International 313 References 314 About the Contributors 317 Index 323

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Book Synopsis? C++ is one of the best languages for the development of financial engineering and instrument pricing applications. ? This book applies C++ to the design and implementation of classes, libraries and latest applications for option and derivative pricing models.Table of ContentsCHAPTER 1 A Tour of C++ and Environs 1 1.1 Introduction and Objectives 1 1.2 What is C++? 1 1.3 C++ as a Multiparadigm Programming Language 2 1.4 The Structure and Contents of this Book: Overview 4 1.5 A Tour of C++11: Black–Scholes and Environs 6 1.6 Parallel Programming in C++ and Parallel C++ Libraries 12 1.7 Writing C++ Applications; Where and How to Start? 14 1.8 For whom is this Book Intended? 16 1.9 Next-Generation Design and Design Patterns in C++ 16 1.10 Some Useful Guidelines and Developer Folklore 17 1.11 About the Author 18 1.12 The Source Code and Getting the Source Code 19 CHAPTER 2 New and Improved C++ Fundamentals 21 2.1 Introduction and Objectives 21 2.2 The C++ Smart Pointers 21 2.3 Using Smart Pointers in Code 23 2.4 Extended Examples of Smart Pointers Usage 30 2.5 Move Semantics and Rvalue References 34 2.6 Other Bits and Pieces: Usability Enhancements 39 2.7 Summary and Conclusions 52 2.8 Exercises and Projects 52 CHAPTER 3 Modelling Functions in C++ 59 3.1 Introduction and Objectives 59 3.2 Analysing and Classifying Functions 60 3.3 New Functionality in C++: std::function<> 64 3.4 New Functionality in C++: Lambda Functions and Lambda Expressions 65 3.5 Callable Objects 69 3.6 Function Adapters and Binders 70 3.7 Application Areas 75 3.8 An Example: Strategy Pattern New Style 75 3.9 Migrating from Traditional Object-Oriented Solutions: Numerical Quadrature 78 3.10 Summary and Conclusions 81 3.11 Exercises and Projects 82 CHAPTER 4 Advanced C++ Template Programming 89 4.1 Introduction and Objectives 89 4.2 Preliminaries 91 4.3 decltype Specifier 94 4.4 Life Before and After decltype 101 4.5 std::result_of and SFINAE 106 4.6 std::enable_if 108 4.7 Boost enable_if 112 4.8 std::decay()Trait 114 4.9 A Small Application: Quantities and Units 115 4.10 Conclusions and Summary 118 4.11 Exercises and Projects 118 CHAPTER 5 Tuples in C++ and their Applications 123 5.1 Introduction and Objectives 123 5.2 An std:pair Refresher and New Extensions 123 5.3 Mathematical and Computer Science Background 128 5.4 Tuple Fundamentals and Simple Examples 130 5.5 Advanced Tuples 130 5.6 Using Tuples in Code 133 5.7 Other Related Libraries 138 5.8 Tuples and Run-Time Efficiency 140 5.9 Advantages and Applications of Tuples 142 5.10 Summary and Conclusions 143 5.11 Exercises and Projects 143 CHAPTER 6 Type Traits, Advanced Lambdas and Multiparadigm Design in C++ 147 6.1 Introduction and Objectives 147 6.2 Some Building Blocks 149 6.3 C++ Type Traits 150 6.4 Initial Examples of Type Traits 158 6.5 Generic Lambdas 161 6.6 How Useful will Generic Lambda Functions be in the Future? 164 6.7 Generalised Lambda Capture 171 6.7.1 Living Without Generalised Lambda Capture 173 6.8 Application to Stochastic Differential Equations 174 6.9 Emerging Multiparadigm Design Patterns: Summary 178 6.10 Summary and Conclusions 179 6.11 Exercises and Projects 179 CHAPTER 7 Multiparadigm Design in C++ 185 7.1 Introduction and Objectives 185 7.2 Modelling and Design 185 7.3 Low-Level C++ Design of Classes 190 7.4 Shades of Polymorphism 199 7.5 Is there More to Life than Inheritance? 206 7.6 An Introduction to Object-Oriented Software Metrics 207 7.7 Summary and Conclusions 210 7.8 Exercises and Projects 210 CHAPTER 8 C++ Numerics, IEEE 754 and Boost C++ Multiprecision 215 8.1 Introduction and Objectives 215 8.2 Floating-Point Decomposition Functions in C++ 219 8.3 A Tour of std::numeric_limits 221 8.4 An Introduction to Error Analysis 223 8.5 Example: Numerical Quadrature 224 8.6 Other Useful Mathematical Functions in C++ 228 8.7 Creating C++ Libraries 231 8.8 Summary and Conclusions 239 8.9 Exercises and Projects 239 CHAPTER 9 An Introduction to Unified Software Design 245 9.1 Introduction and Objectives 245 9.1.1 Future Predictions and Expectations 246 9.2 Background 247 9.3 System Scoping and Initial Decomposition 251 9.4 Checklist and Looking Back 259 9.5 Variants of the Software Process: Policy-Based Design 260 9.6 Using Policy-Based Design for the DVM Problem 268 9.7 Advantages of Uniform Design Approach 273 9.8 Summary and Conclusions 274 9.9 Exercises and Projects 275 CHAPTER 10 New Data Types, Containers and Algorithms in C++ and Boost C++ Libraries 283 10.1 Introduction and Objectives 283 10.2 Overview of New Features 283 10.3 C++ std::bitset and Boost Dynamic Bitset Library 284 10.4 Chrono Library 288 10.5 Boost Date and Time 301 10.6 Forwards Lists and Compile-Time Arrays 306 10.7 Applications of Boost.Array 311 10.8 Boost uBLAS (Matrix Library) 313 10.9 Vectors 316 10.10 Matrices 318 10.11 Applying uBLAS: Solving Linear Systems of Equations 322 10.12 Summary and Conclusions 330 10.13 Exercises and Projects 331 CHAPTER 11 Lattice Models Fundamental Data Structures and Algorithms 333 11.1 Introduction and Objectives 333 11.2 Background and Current Approaches to Lattice Modelling 334 11.3 New Requirements and Use Cases 335 11.4 A New Design Approach: A Layered Approach 335 11.5 Initial ‘101’ Examples of Option Pricing 347 11.6 Advantages of Software Layering 349 11.7 Improving Efficiency and Reliability 352 11.8 Merging Lattices 355 11.9 Summary and Conclusions 357 11.10 Exercises and Projects 357 CHAPTER 12 Lattice Models Applications to Computational Finance 367 12.1 Introduction and Objectives 367 12.2 Stress Testing the Lattice Data Structures 368 12.3 Option Pricing Using Bernoulli Paths 372 12.4 Binomial Model for Assets with Dividends 374 12.5 Computing Option Sensitivities 377 12.6 (Quick) Numerical Analysis of the Binomial Method 379 12.7 Richardson Extrapolation with Binomial Lattices 382 12.8 Two-Dimensional Binomial Method 382 12.9 Trinomial Model of the Asset Price 384 12.10 Stability and Convergence of the Trinomial Method 385 12.11 Explicit Finite Difference Method 386 12.12 Summary and Conclusions 389 12.13 Exercises and Projects 389 CHAPTER 13 Numerical Linear Algebra: Tridiagonal Systems and Applications 395 13.1 Introduction and Objectives 395 13.2 Solving Tridiagonal Matrix Systems 395 13.3 The Crank-Nicolson and Theta Methods 406 13.4 The ADE Method for the Impatient 411 13.5 Cubic Spline Interpolation 415 13.6 Some Handy Utilities 427 13.7 Summary and Conclusions 428 13.8 Exercises and Projects 429 CHAPTER 14 Data Visualisation in Excel 433 14.1 Introduction and Objectives 433 14.2 The Structure of Excel-Related Objects 433 14.3 Sanity Check: Is the Excel Infrastructure Up and Running? 435 14.4 ExcelDriver and Matrices 437 14.5 ExcelDriver and Vectors 444 14.6 Path Generation for Stochastic Differential Equations 448 14.7 Summary and Conclusions 459 14.8 Exercises and Projects 459 14.9 Appendix: COM Architecture Overview 463 14.10 An Example 468 14.11 Virtual Function Tables 471 14.12 Differences between COM and Object-Oriented Paradigm 473 14.13 Initialising the COM Library 474 CHAPTER 15 Univariate Statistical Distributions 475 15.1 Introduction, Goals and Objectives 475 15.2 The Error Function and Its Universality 475 15.3 One-Factor Plain Options 478 15.4 Option Sensitivities and Surfaces 488 15.5 Automating Data Generation 491 15.6 Introduction to Statistical Distributions and Functions 499 15.7 Advanced Distributions 504 15.8 Summary and Conclusions 511 15.9 Exercises and Projects 511 CHAPTER 16 Bivariate Statistical Distributions and Two-Asset Option Pricing 515 16.1 Introduction and Objectives 515 16.2 Computing Integrals Using PDEs 516 16.3 The Drezner Algorithm 521 16.4 The Genz Algorithm and the West/Quantlib Implementations 521 16.5 Abramowitz and Stegun Approximation 525 16.6 Performance Testing 528 16.7 Gauss–Legendre Integration 529 16.8 Applications to Two-Asset Pricing 531 16.9 Trivariate Normal Distribution 536 16.10 Chooser Options 543 16.11 Conclusions and Summary 545 16.12 Exercises and Projects 546 CHAPTER 17 STL Algorithms in Detail 551 17.1 Introduction and Objectives 551 17.2 Binders and std::bind 554 17.3 Non-modifying Algorithms 557 17.4 Modifying Algorithms 567 17.5 Compile-Time Arrays 575 17.6 Summary and Conclusions 576 17.7 Exercises and Projects 576 17.8 Appendix: Review of STL Containers and Complexity Analysis 583 CHAPTER 18 STL Algorithms Part II 589 18.1 Introduction and Objectives 589 18.2 Mutating Algorithms 589 18.3 Numeric Algorithms 597 18.4 Sorting Algorithms 601 18.5 Sorted-Range Algorithms 604 18.5.5 Merging 608 18.6 Auxiliary Iterator Functions 609 18.7 Needle in a Haystack: Finding the Right STL Algorithm 612 18.8 Applications to Computational Finance 613 18.9 Advantages of STL Algorithms 613 18.10 Summary and Conclusions 614 18.11 Exercises and Projects 614 CHAPTER 19 An Introduction to Optimisation and the Solution of Nonlinear Equations 617 19.1 Introduction and Objectives 617 19.2 Mathematical and Numerical Background 618 19.3 Sequential Search Methods 619 19.4 Solutions of Nonlinear Equations 620 19.5 Fixed-Point Iteration 622 19.6 Aitken’s Acceleration Process 623 19.7 Software Framework 623 19.8 Implied Volatility 632 19.9 Solvers in the Boost C++ Libraries 632 19.10 Summary and Conclusions 633 19.11 Exercises and Projects 633 19.12 Appendix: The Banach Fixed-Point Theorem 636 CHAPTER 20 The Finite Difference Method for PDEs: Mathematical Background 641 20.1 Introduction and Objectives 641 20.2 General Convection–Diffusion–Reaction Equations and Black–Scholes PDE 641 20.3 PDE Preprocessing 64520.3.2 Reduction of PDE to Conservative Form 646 20.4 Maximum Principles for Parabolic PDEs 649 20.5 The Fichera Theory 650 20.6 Finite Difference Schemes: Properties and Requirements 654 20.7 Example: A Linear Two-Point Boundary Value Problem 655 20.8 Exponentially Fitted Schemes for Time-Dependent PDEs 659 20.9 Richardson Extrapolation 663 20.10 Summary and Conclusions 665 20.11 Exercises and Projects 666 CHAPTER 21 Software Framework for One-Factor Option Models 669 21.1 Introduction and Objectives 669 21.2 A Software Framework: Architecture and Context 669 21.3 Modelling PDEs and Finite Difference Schemes: What is Supported? 670 21.4 Several Versions of Alternating Direction Explicit 671 21.5 A Software Framework: Detailed Design and Implementation 673 21.6 C++ Code for PDE Classes 674 21.7 C++ Code for FDM Classes 679 21.8 Examples and Test Cases 690 21.9 Summary and Conclusions 693 21.10 Exercises and Projects 694 CHAPTER 22 Extending the Software Framework 701 22.1 Introduction and Objectives 701 22.2 Spline Interpolation of Option Values 701 22.3 Numerical Differentiation Foundations 704 22.4 Numerical Greeks 710 22.5 Constant Elasticity of Variance Model 715 22.6 Using Software Design (GOF) Patterns 715 22.7 Multiparadigm Design Patterns 720 22.8 Summary and Conclusions 721 22.9 Exercises and Projects 721 CHAPTER 23A PDE Software Framework in C++11 for a Class of Path-Dependent Options 727 23.1 Introduction and Objectives 727 23.2 Modelling PDEs and Initial Boundary Value Problems in the Functional Programming Style 728 23.3 PDE Preprocessing 731 23.4 The Anchoring PDE 732 23.5 ADE for Anchoring PDE 739 23.6 Useful Utilities 746 23.7 Accuracy and Performance 748 23.8 Summary and Conclusions 750 23.9 Exercises and Projects 751 CHAPTER 24 Ordinary Differential Equations and their Numerical Approximation 755 24.1 Introduction and Objectives 755 24.2 What is an ODE? 755 24.3 Classifying ODEs 756 24.4 A Palette of Model ODEs 757 24.5 Existence and Uniqueness Results 760 24.6 Overview of Numerical Methods for ODEs: The Big Picture 763 24.7 Creating ODE Solvers in C++ 770 24.8 Summary and Conclusions 776 24.9 Exercises and Projects 776 24.10 Appendix 778 CHAPTER 25 Advanced Ordinary Differential Equations and Method of Lines 781 25.1 Introduction and Objectives 781 25.2 An Introduction to the Boost Odeint Library 782 25.3 Systems of Stiff and Non-stiff Equations 791 25.4 Matrix Differential Equations 796 25.5 The Method of Lines: What is it and what are its Advantages? 799 25.6 Initial Foray in Computational Finance: MOL for One-Factor Black-Scholes PDE 801 25.7 Barrier Options 806 25.8 Using Exponential Fitting of Barrier Options 808 25.9 Summary and Conclusions 808 25.10 Exercises and Projects 809 CHAPTER 26 Random Number Generation and Distributions 819 26.1 Introduction and Objectives 819 26.2 What is a Random Number Generator? 820 26.3 What is a Distribution? 821 26.4 Some Initial Examples 825 26.5 Engines in Detail 827 26.6 Distributions in C++: The List 830 26.7 Back to the Future: C-Style Pseudo-Random Number Generation 831 26.8 Cryptographic Generators 833 26.9 Matrix Decomposition Methods 833 26.10 Generating Random Numbers 845 26.11 Summary and Conclusions 848 26.12 Exercises and Projects 849 CHAPTER 27 Microsoft .Net, C# and C++11 Interoperability 853 27.1 Introduction and Objectives 853 27.2 The Big Picture 854 27.3 Types 858 27.4 Memory Management 859 27.5 An Introduction to Native Classes 861 27.6 Interfaces and Abstract Classes 861 27.7 Use Case: C++/CLI as ‘Main Language’ 862 27.8 Use Case: Creating Proxies, Adapters and Wrappers for Legacy C++ Applications 864 27.8.1 Alternative: SWIG (Simplified Wrapper and Interface Generator) 871 27.9 ‘Back to the Future’ Use Case: Calling C# Code from C++11 872 27.10 Modelling Event-Driven Applications with Delegates 876 27.11 Use Case: Interfacing with Legacy Code 886 27.12 Assemblies and Namespaces for C++/CLI 889 27.13 Summary and Conclusions 895 27.14 Exercises and Projects 896 CHAPTER 28 C++ Concurrency, Part I Threads 899 28.1 Introduction and Objectives 899 28.2 Thread Fundamentals 900 28.3 Six Ways to Create a Thread 903 28.4 Intermezzo: Parallelising the Binomial Method 909 28.5 Atomics 916 28.6 Smart Pointers and the Thread-Safe Pointer Interface 924 28.7 Thread Synchronisation 926 28.8 When should we use Threads? 929 28.9 Summary and Conclusions 929 28.10 Exercises and Projects 930 CHAPTER 29 C++ Concurrency, Part II Tasks 935 29.1 Introduction and Objectives 935 29.2 Finding Concurrency: Motivation 936 29.3 Tasks and Task Decomposition 937 29.4 Futures and Promises 941 29.5 Shared Futures 945 29.6 Waiting on Tasks to Complete 948 29.7 Continuations and Futures in Boost 950 29.8 Pure Functions 952 29.9 Tasks versus Threads 953 29.10 Parallel Design Patterns 953 29.11 Summary and Conclusions 955 29.12 Quizzes, Exercises and Projects 955 CHAPTER 30 Parallel Patterns Language (PPL) 961 30.1 Introduction and Objectives 961 30.2 Parallel Algorithms 962 30.3 Partitioning Work 967 30.4 The Aggregation/Reduction Pattern in PPL 971 30.5 Concurrent Containers 977 30.6 An Introduction to the Asynchronous Agents Library and Event-Based Systems 978 30.7 A Design Plan to Implement a Framework Using Message Passing and Other Approaches 986 30.8 Summary and Conclusions 989 30.9 Exercises and Projects 990 CHAPTER 31 Monte Carlo Simulation, Part I 993 31.1 Introduction and Objectives 993 31.2 The Boost Parameters Library for the Impatient 995 31.3 Monte Carlo Version 1: The Monolith Program (‘Ball of Mud’) 1000 31.4 Policy-Based Design: Dynamic Polymorphism 1003 31.5 Policy-Based Design Approach: CRTP and Static Polymorphism 1011 31.6 Builders and their Subcontractors (Factory Method Pattern) 1013 31.7 Practical Issue: Structuring the Project Directory and File Contents 1014 31.8 Summary and Conclusions 1016 31.9 Exercises and Projects 1017 CHAPTER 32 Monte Carlo Simulation, Part II 1023 32.1 Introduction and Objectives 1023 32.2 Parallel Processing and Monte Carlo Simulation 1023 32.3 A Family of Predictor–Corrector Schemes 1033 32.4 An Example (CEV Model) 1038 32.5 Implementing the Monte Carlo Method Using the Asynchronous Agents Library 1041 32.6 Summary and Conclusions 1047 32.7 Exercises and Projects 1050 Appendix 1: Multiple-Precision Arithmetic 1053 Appendix 2: Computing Implied Volatility 1075 References 1109 Index 1117

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Book SynopsisWritten by leading market risk academic, Professor Carol Alexander, Value-at-Risk Models forms part four of the Market Risk Analysis four volume set. Building on the three previous volumes this book provides by far the most comprehensive, rigorous and detailed treatment of market VaR models.Table of ContentsList of Figures xiii List of Tables xvi List of Examples xxi Foreword xxv Preface to Volume IV xxix IV.1 Value at Risk and Other Risk Metrics 1 IV.1.1 Introduction 1 IV.1.2 An Overview of Market Risk Assessment 4 IV.1.3 Downside and Quantile Risk Metrics 9 IV.1.4 Defining Value at Risk 13 IV.1.5 Foundations of Value-at-Risk Measurement 17 IV.1.6 Risk Factor Value at Risk 25 IV.1.7 Decomposition of Value at Risk 30 IV.1.8 Risk Metrics Associated with Value at Risk 33 IV.1.9 Introduction to Value-at-Risk Models 41 IV.1.10 Summary and Conclusions 47 IV.2 Parametric Linear VaR Models 53 IV.2.1 Introduction 53 IV.2.2 Foundations of Normal Linear Value at Risk 56 IV.2.3 Normal Linear Value at Risk for Cash-Flow Maps 67 IV.2.4 Case Study: PC Value at Risk of a UK Fixed Income Portfolio 79 IV.2.5 Normal Linear Value at Risk for Stock Portfolios 85 IV.2.6 Systematic Value-at-Risk Decomposition for Stock Portfolios 93 IV.2.7 Case Study: Normal Linear Value at Risk for Commodity Futures 103 IV.2.8 Student t Distributed Linear Value at Risk 106 IV.2.9 Linear Value at Risk with Mixture Distributions 111 IV.2.10 Exponential Weighting with Parametric Linear Value at Risk 121 IV.2.11 Expected Tail Loss (Conditional VaR) 128 IV.2.12 Case Study: Credit Spread Parametric Linear Value at Risk and ETL 135 IV.2.13 Summary and Conclusions 138 IV.3 Historical Simulation 141 IV.3.1 Introduction 141 IV.3.2 Properties of Historical Value at Risk 144 IV.3.3 Improving the Accuracy of Historical Value at Risk 152 IV.3.4 Precision of Historical Value at Risk at Extreme Quantiles 165 IV.3.5 Historical Value at Risk for Linear Portfolios 175 IV.3.6 Estimating Expected Tail Loss in the Historical Value-at-Risk Model 195 IV.3.7 Summary and Conclusions 198 IV.4 Monte Carlo VaR 201 IV.4.1 Introduction 201 IV.4.2 Basic Concepts 203 IV.4.3 Modelling Dynamic Properties in Risk Factor Returns 215 IV.4.4 Modelling Risk Factor Dependence 225 IV.4.5 Monte Carlo Value at Risk for Linear Portfolios 233 IV.4.6 Summary and Conclusions 244 IV.5 Value at Risk for Option Portfolios 247 IV.5.1 Introduction 247 IV.5.2 Risk Characteristics of Option Portfolios 250 IV.5.3 Analytic Value-at-Risk Approximations 257 IV.5.4 Historical Value at Risk for Option Portfolios 262 IV.5.5 Monte Carlo Value at Risk for Option Portfolios 282 IV.5.6 Summary and Conclusions 307 IV.6 Risk Model Risk 311 IV.6.1 Introduction 311 IV.6.2 Sources of Risk Model Risk 313 IV.6.3 Estimation Risk 324 IV.6.4 Model Validation 332 IV.6.5 Summary and Conclusions 353 IV.7 Scenario Analysis and Stress Testing 357 IV.7.1 Introduction 357 IV.7.2 Scenarios on Financial Risk Factors 359 IV.7.3 Scenario Value at Risk and Expected Tail Loss 367 IV.7.4 Introduction to Stress Testing 378 IV.7.5 A Coherent Framework for Stress Testing 384 IV.7.6 Summary and Conclusions 398 IV.8 Capital Allocation 401 IV.8.1 Introduction 401 IV.8.2 Minimum Market Risk Capital Requirements for Banks 403 IV.8.3 Economic Capital Allocation 416 IV.8.4 Summary and Conclusions 433 References 437 Index 441

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Book SynopsisWritten by leading market risk academic, Professor Carol Alexander, Pricing, Hedging and Trading Financial Instruments forms part three of the Market Risk Analysis four volume set.Table of ContentsList of Figures xiii List of Tables xvii List of Examples xix Foreword xxi Preface to Volume III xxv III. 1 Bonds and Swaps 1 III.1.1 Introduction 1 III.1.2 Interest Rates 2 III.1.2.1 Continuously Compounded Spot and Forward Rates 3 III.1.2.2 Discretely Compounded Spot Rates 4 III.1.2.3Translation between Discrete Rates and Continuous Rates 6 III.1.2.4 Spot and Forward Rates with Discrete Compounding 6 III.1.2.5 LIBOR 8 III.1.3 Categorization of Bonds 8 III.1.3.1 Categorization by Issuer 9 III.1.3.2 Categorization by Coupon and Maturity 10 III.1.4 Characteristics of Bonds and Interest Rates 10 III.1.4.1 Present Value, Price and Yield 11 III.1.4.2 Relationship between Price and Yield 13 III.1.4.3 Yield Curves 14 III.1.4.4 Behaviour of Market Interest Rates 17 III.1.4.5 Characteristics of Spot and Forward Term Structures 19 III.1.5 Duration and Convexity 20 III.1.5.1 Macaulay Duration 21 III.1.5.2 Modified Duration 23 III.1.5.3 Convexity 24 III.1.5.4 Duration and Convexity of a Bond Portfolio 24 III.1.5.5 Duration–Convexity Approximations to Bond Price Change 25 III.1.5.6 Immunizing Bond Portfolios 26 III.1.6 Bonds with Semi-Annual and Floating Coupons 28 III.1.6.1 Semi-Annual and Quarterly Coupons 29 III.1.6.2 Floating Rate Notes 31 III.1.6.3 Other Floaters 33 III.1.7 Forward Rate Agreements and Interest Rate Swaps 33 III.1.7.1 Forward Rate Agreements 34 III.1.7.2 Interest Rate Swaps 35 III.1.7.3 Cash Flows on Vanilla Swaps 36 III.1.7.4 Cross-Currency Swaps 38 III.1.7.5 Other Swaps 40 III.1.8 Present Value of a Basis Point 41 III.1.8.1 PV01 and Value Duration 41 III.1.8.2 Approximations to PV 01 44 III.1.8.3 Understanding Interest Rate Risk 45 III.1.9 Yield Curve Fitting 48 III.1.9.1 Calibration Instruments 48 III.1.9.2 Bootstrapping 49 III.1.9.3 Splines 51 III.1.9.4 Parametric Models 52 III.1.9.5 Case Study: Statistical Properties of Forward LIBOR Rates 53 III.1.10 Convertible Bonds 59 III.1.10.1 Characteristics of Convertible Bonds 60 III.1.10.2 Survey of Pricing Models for Convertible Bonds 61 III.1.11 Summary and Conclusions 62 III. 2 Futures and Forwards 65 III.2.1 Introduction 65 III.2.2 Characteristics of Futures and Forwards 68 III.2.2.1 Interest Rate and Swap Futures 68 III 2.2.2 Bond Futures 70 III.2.2.3 Currency Futures and Forwards 73 III.2.2.4 Energy and Commodity Futures 74 III.2.2.5 Stock Futures and Index Futures 79 III.2.2.6 Exchange Traded Funds and ETF Futures 80 III.2.2.7 New Futures Markets 82 III.2.3 Theoretical Relationships between Spot, Forward and Futures 87 III.2.3.1 No Arbitrage Pricing 87 III.2.3.2 Accounting for Dividends 88 III.2.3.3 Dividend Risk and Interest Rate Risk 90 III.2.3.4 Currency Forwards and the Interest Rate Differential 91 III.2.3.5 No Arbitrage Prices for Forwards on Bonds 92 III.2.3.6 Commodity Forwards, Carry Costs and Convenience Yields 93 III.2.3.7 Fair Values of Futures and Spot 94 III.2.4 The Basis 95 III.2.4.1 No Arbitrage Range 95 III.2.4.2 Correlation between Spot and Futures Returns 97 III.2.4.3 Introducing Basis Risk 98 III.2.4.4 Basis Risk in Commodity Markets 100 III.2.5 Hedging with Forwards and Futures 101 III.2.5.1 Traditional ‘Insurance’ Approach 102 III.2.5.2 Mean–Variance Approach 104 III.2.5.3 Understanding the Minimum Variance Hedge Ratio 106 III.2.5.4 Position Risk 108 III.2.5.5 Proxy Hedging 110 III.2.5.6 Basket Hedging 111 III.2.5.7 Performance Measures for Hedged Portfolios 112 III.2.6 Hedging in Practice 113 III.2.6.1 Hedging Forex Risk 113 III.2.6.2 Hedging International Stock Portfolios 114 III.2.6.3 Case Study: Hedging an Energy Futures Portfolio 118 III.2.6.4 Hedging Bond Portfolios 124 III.2.7 Using Futures for Short Term Hedging 126 III.2.7.1 Regression Based Minimum Variance Hedge Ratios 127 III.2.7.2 Academic Literature on Minimum Variance Hedging 129 III.2.7.3 Short Term Hedging in Liquid Markets 131 III.2.8 Summary and Conclusions 133 III. 3 Options 137 III.3.1 Introduction 137 III.3.2 Foundations 139 III.3.2.1 Arithmetic and Geometric Brownian Motion 140 III.3.2.2 Risk Neutral Valuation 142 III.3.2.3 Numeraire and Measure 144 III.3.2.4 Market Prices and Model Prices 146 III.3.2.5 Parameters and Calibration 147 III.3.2.6 Option Pricing: Review of the Binomial Model 148 III.3.3 Characteristics of Vanilla Options 151 III.3.3.1 Elementary Options 152 III.3.3.2 Put–Call Parity 153 III 3.3.3 Moneyness 154 III.3.3.4 American Options 155 III.3.3.5 Early Exercise Boundary 156 III.3.3.6 Pricing American Options 158 III.3.4 Hedging Options 159 III.3.4.1 Delta 159 III.3.4.2 Delta Hedging 161 III.3.4.3 Other Greeks 161 III.3.4.4 Position Greeks 163 III.3.4.5 Delta–Gamma Hedging 164 III.3.4.6 Delta–Gamma–Vega Hedging 165 III.3.5 Trading Options 167 III.3.5.1 Bull Strategies 167 III.3.5.2 Bear Strategies 168 III.3.5.3 Other Spread Strategies 169 III.3.5.4 Volatility Strategies 170 III.3.5.5 Replication of P&L Profiles 172 III.3.6 The Black–Scholes–Merton Model 173 III.3.6.1 Assumptions 174 III.3.6.2 Black–Scholes–Merton PDE 175 III.3.6.3 Is the Underlying the Spot or the Futures Contract? 176 III.3.6.4 Black–Scholes–Merton Pricing Formula 178 III.3.6.5 Interpretation of the Black–Scholes–Merton Formula 180 III.3.6.6 Implied Volatility 183 III.3.6.7 Adjusting BSM Prices for Stochastic Volatility 183 III.3.7 The Black–Scholes–Merton Greeks 186 III.3.7.1 Delta 187 III.3.7.2 Theta and Rho 188 III.3.7.3 Gamma 189 III.3.7.4 Vega, Vanna and Volga 190 III.3.7.5 Static Hedges for Standard European Options 193 III.3.8 Interest Rate Options 194 III.3.8.1 Caplets and Floorlets 195 III.3.8.2 Caps, Floors and their Implied Volatilities 196 III.3.8.3 European Swaptions 198 III.3.8.4 Short Rate Models 199 III.3.8.5 LIBOR Model 201 III.3.8.6 Case Study: Application of PCA to LIBOR Model Calibration 203 III.3.9 Pricing Exotic Options 207 III.3.9.1 Pay-offs to Exotic Options 208 III.3.9.2 Exchange Options and Best/Worst of Two Asset Options 209 III.3.9.3 Spread Options 211 III.3.9.4 Currency Protected Options 213 III.3.9.5 Power Options 214 III.3.9.6 Chooser Options and Contingent Options 214 III.3.9.7 Compound Options 216 III.3.9.8 Capped Options and Ladder Options 216 III.3.3.9 Look-Back and Look-Forward Options 218 III.3.9.10 Barrier Options 219 III.3.9.11 Asian Options 221 III.3.10 Summary and Conclusions 224 III. 4 Volatility 227 III.4. 1 Introduction 227 III.4. 2 Implied Volatility 231 III.4.2.1 ‘Backing Out’ Implied Volatility from a Market Price 231 III.4.2.2 Equity Index Volatility Skew 233 III.4.2.3 Smiles and Skews in Other Markets 236 III.4.2.4 Term Structures of Implied Volatilities 238 III.4.2.5 Implied Volatility Surfaces 239 III.4.2.6 Cap and Caplet Volatilities 240 III.4.2.7 Swaption Volatilities 242 III.4.3 Local Volatility 243 III.4.3.1 Forward Volatility 244 III.4.3.2 Dupire’s Equation 245 III.4.3.3 Parametric Models of Local Volatility 248 III.4.3.4 Lognormal Mixture Diffusion 249 III.4.4 Modelling the Dynamics of Implied Volatility 255 III.4.4.1 Sticky Models 255 III.4.4.2 Case Study I: Principal Component Analysis of Implied Volatilities 257 III.4.4.3 Case Study II: Modelling the ATM Volatility–Index Relationship 261 III 4.4.4 Case Study III: Modelling the Skew Sensitivities 264 III.4.4.5 Applications of Implied Volatility Dynamics to Hedging Options 265 III.4. 5 Stochastic Volatility Models 268 III.4.5. 1 Stochastic Volatility PDE 269 III.4.5. 2 Properties of Stochastic Volatility 271 III.4.5. 3 Model Implied Volatility Surface 275 III.4.5. 4 Model Local Volatility Surface 277 III.4.5. 5 Heston Model 278 III.4.5. 6 GARCH Diffusions 280 III.4.5. 7 CEV and SABR Models 285 III.4.5. 8 Jumps in Prices and in Stochastic Volatility 287 III.4. 6 Scale Invariance and Hedging 289 III.4.6. 1 Scale Invariance and Change of Numeraire 291 III.4.6. 2 Definition of Scale Invariance 291 III.4.6. 3 Scale Invariance and Homogeneity 292 III.4.6. 4 Model Free Price Hedge Ratios 294 III.4.6. 5 Minimum Variance Hedging 297 III.4.6. 6 Minimum Variance Hedge Ratios in Specific Models 299 III.4.6. 7 Empirical Results 300 III.4. 7 Trading Volatility 303 III.4.7. 1 Variance Swaps and Volatility Swaps 304 III.4.7. 2 Trading Forward Volatility 306 III.4.7. 3 Variance Risk Premium 307 III.4.7. 4 Construction of a Volatility Index 308 III.4.7. 5 Effect of the Skew 309 III.4.7. 6 Term Structures of Volatility Indices 309 III.4.7. 7 Vix and Other Volatility Indices 311 III.4.7. 8 Volatility Index Futures 312 III.4.7. 9 Options on Volatility Indices 314 III.4.7.10 Using Realized Volatility Forecasts to Trade Volatility 315 III.4. 8 Summary and Conclusion 316 III. 5 Portfolio Mapping 321 III.5. 1 Introduction 321 III.5. 2 Risk Factors and Risk Factor Sensitivities 323 III.5.2. 1 Interest Rate Sensitive Portfolios 323 III.5.2. 2 Equity Portfolios 324 III.5.2. 3 International Exposures 327 III.5.2. 4 Commodity Portfolios 328 III.5.2. 5 Option Portfolios 328 III.5.2. 6 Orthogonalization of Risk Factors 330 III.5.2. 7 Nominal versus Percentage Risk Factors and Sensitivities 330 III.5. 3 Cash Flow Mapping 332 III.5.3. 1 Present Value Invariant and Duration Invariant Maps 332 III.5.3. 2 PV01 Invariant Cash Flow Maps 333 III.5.3. 3 Volatility Invariant Maps 334 III.5.3. 4 Complex Cash Flow Maps 336 III.5. 4 Applications of Cash Flow Mapping to Market Risk Management 337 III.5.4. 1 Risk Management of Interest Rate Sensitive Portfolios 337 III.5.4. 2 Mapping Portfolios of Commodity Futures 338 III.5. 5 Mapping an Option Portfolio to Price Risk Factors 340 III.5.5. 1 Taylor Expansions 341 III.5.5. 2 Value Delta and Value Gamma 342 III.5.5. 3 Delta–Gamma Approximation: Single Underlying 344 III.5.5. 4 Effect of Gamma on Portfolio Risk 346 III 5 Price Beta Mapping 347 III.5.5. 6 Delta–Gamma Approximation: Several Underlyings 349 III.5.5. 7 Including Time and Interest Rates Sensitivities 351 III.5. 6 Mapping Implied Volatility 353 III.5.6. 1 Vega Risk in Option Portfolios 353 III.5.6. 2 Second Order Approximations: Vanna and Volga 354 III.5.6. 3 Vega Bucketing 355 III.5.6. 4 Volatility Beta Mapping 356 III.5. 7 Case Study: Volatility Risk in FTSE 100 Options 357 III.5.7. 1 Estimating the Volatility Betas 357 III.5.7. 2 Model Risk of Volatility Mapping 360 III.5.7. 3 Mapping to Term Structures of Volatility Indices 361 III.5.7. 4 Using PCA with Volatility Betas 361 III.5. 8 Summary and Conclusions 364 References 367 Index 377

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Book SynopsisTHE NEW MONEY MANAGEMENT In his bestselling Portfolio Management Formulas and TheMathematics of Money Management, Ralph Vince brought the complexmathematics of probability and modern portfolio management theorydown to earth for traders and investors. He introduced innovativenew ways they could be used to maximize account managementdecisions. Now, in this groundbreaking new book, Vince takes aquantum leap forward to provide investment professionals with aproven new approach to portfolio management that overturns nearly ahalf-century of accepted wisdom about asset allocation and moneymanagement. The culmination of Ralph Vince''s years spent probing the limits ofthe mathematics of portfolio management, The New Money Managementelaborates on his celebrated Optimal f notion--a concept which willbe familiar to readers of either of Vince''s previous books--toprovide a revolutionary portfolio management model designed tooptimize account performance, not just in the long run, bTable of ContentsA New Framework. Laws of Growth, Utility, and Finite Streams. Conditional Probabilities Involving Correlation. A New Model. Money Management for Money Managers. Bibliography and Sources. Index.

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Book SynopsisChronicles the experiences of an American stock-market trader from his first job as a quotation boy in a Boston brokerage firm to his influential position on Wall Street in the 1920s. The author provides his observations about the markets and the minds and motivations of a typical trader.Table of ContentsChapter I - 3 Chapter II – 14 Chapter III – 27 Chapter IV – 35 Chapter V – 49 Chapter VI – 60 Chapter VII – 71 Chapter VIII – 77 Chapter IX – 89 Chapter X – 104 Chapter XI – 116 Chapter XII – 127 Chapter XIII – 141 Chapter XIV – 153 Chapter XV – 168 Chapter XVI – 176 Chapter XVII – 190 Chapter XVIII – 203 Chapter XIX – 210 Chapter XX – 216 Chapter XXI – 227 Chapter XXII – 241 Chapter XXIII – 259 Chapter XXIV – 269

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Book SynopsisAcclaim for Leo Melamed Escape to the Futures A well-written, fascinating memoir of a remarkable man of many parts, who arrived in the United States at age 9, fleeing the Holocaust. Almost single-handedly, he transformed a minor commodity exchange into the leading futures market in the world. His influence was and remains worldwide. Milton Friedman Senior Research Fellow Hoover Institution, Stanford University There are only a few people who have revolutionized big portions of the business world. Warren Buffett did it in investing, Bill Gates in software. Leo Melamed, author of this book, is in that same league. He truly revolutionized futures trading in the United States, and in the world. This book tells how. Ambassador Clayton Yeutter Past President of the Chicago Mercantile Exchange Former U.S. Trade Representative A grizzled old Merc trader once assured me that nobody ever lost by being long on Leo. Why that''s so, this endlessly fascinating personal history makeTable of ContentsPartial table of contents: THE SIBERIAN EXPRESS. Peace and War. The Mission. Sugihara's Stand. The Chicago Connection. Law and Chaos. THE BEAUTY OF MARKETS. The Revolution. Into the Pits. By the Book. The Maverick Idea. The Feds Are Coming. THE FUTURE'S NOT WHAT IT USED TO BE. Acid Test. The Grand Design. Trading on the Run. Coming of Age. Back Across the Pacific. MACHINES, MARKETS, AND MINDS. GLOBEX. Black Monday. A Call from the White House. Epilogue: Wake Up Call. Index.

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Book SynopsisThe first book to offer a comprehensive framework for conducting the venture capital due diligence process Venture capitalists and other professional investors use due diligence to uncover all of the critical aspects of a company in which they are considering investing in an attempt to estimate the ROI of this decision. The state of the market, management expertise within the firm, legal concerns, location, and environmental issues are just a few of the factors investors include in their due diligence analyses. This book is the only guide to provide investors with a rigorous due diligence framework that can be customized to fit the practice of the firm. The book provides readers with a clear and complete understanding of the due diligence process and formalizes the process for the VC community. The book is structured around key criteria presented in the form of questions. Each question is followed by in-depth explanations and analyses that incorporate the best practices of today'Table of ContentsIntroduction 1 Chapter 1 Screening Due Diligence 5 Chapter 2 Management Due Diligence 23 Chapter 3 Business Opportunity Due Diligence 65 Chapter 4 Due Diligence on Intangibles 97 Chapter 5 Legal Due Diligence 101 Chapter 6 Financial Due Diligence 199 Epilogue 225 Notes 227 Index 247

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Book Synopsis"The key to investment success, if there be just one, is the ability to remain emotionally detached. That detachment is only achieved through confidence. That confidence is only arrived at through knowledge. That knowledge is arrived at through thought, study, hard work, and experience.Table of ContentsWhy Technical Analysis? The Arms Index. Equivolume Charting. Ease of Movement. Volume Adjusted Moving Averages. Market Tides--Price and Volume Characteristics. Market Tides--Equivolume and Ease of Movement. Market Tides--VAMA and Cycles. Knowing Your Market. Long-Term Arms Index. A Stock to Buy. The Mechanics of Buying. Now You Own It. Looking for Short Sales. Closing Out Short Positions. Other Markets. Conclusions. Index.

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Book SynopsisThis edition includes developments in chaos theory, with new chapters that tie in with innovations such as fuzzy logic, neural nets and artificial intelligence as they relate to finance.Table of ContentsTHE NEW PARADIGM. Introduction: Life Can Be So Complicated. Random Walks and Efficient Markets. The Failure of the Linear Paradigm. Markets and Chaos: Chance and Necessity. FRACTAL STRUCTURE IN THE CAPITAL MARKETS. Introduction to Fractals. The Fractal Dimension. Fractal Time Series-Biased Random Walks. R/S Analysis of the Capital Markets. Fractal Statistics. Fractals and Chaos. NONLINEAR DYNAMICS. Introduction to Nonlinear Dynamic Systems. Dynamic Analysis of Time Series. Dynamic Analysis of the Capital Markets. LIVING WITH COMPLEXITY. The Coherent Market Hypothesis. Fractional Truth: Fuzzy Logic and Behavioral Finance. Applying Chaos and Nonlinear Methods. What Lies Ahead: Toward a More General Approach. About the Diskette. Appendices. Bibliography. Glossary. Index.

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Book SynopsisYour guide to the best online investing sites Investor's Guide to the Net is your key to successful online investing. This hands-on guide shows you where to steer yourself on the information superhighway by supplying Internet and Web addresses, screen captures, and maps of major online investment sites.Table of ContentsEmerging Superpowers of Online and Internet Investing. The Internet: Investor's Global Resource Library. News Online: Financial Markets, Money, and Investing. Accessing Major Financial Market Data. Investment Research and Analysis. Alternative Securities for Online Investors. New Software for Real-Time Trading Systems. New Electronic Brokers and Portfolio Management. Alternative Information Systems for Cyberspace Investors. Other Resources for Investors. Epilogue. Index.

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Book SynopsisThe first complete guide to mastering the forecasting techniques essential for short-term trading success While a majority of trading systems incorporate only existing or past pricing activity into their simulations, the most successful ones use forecasting methods to establish future activity.Table of ContentsThe Importance of Targets. Fundamental Methods. Technical Methods for Setting Time and Price Targets. Oscillators. Other Patterns and Events. Using Fibonacci and Other Number Series to Establish Price and Time Targets. Positioning a Stop-Loss and Profit Objective. The Bradley Model: Guidance From the Stars? Using Neural Networks and Genetic Algorithms to Establish Time and Price Targets. Putting It Together: Utilizing a Variety of Techniques. Appendix. Bibliography. Index.

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Book SynopsisThis biography of Bernard Baruch considered to be renowned as the definitive story about the notorious financial wizard and presidential advisor. Baruch's political policies are discussed briefly, and James Grant includes a detailed account of Baruch's trading and investment gains and losses.Table of ContentsA Doctor's Son. Three Dollars a Week. Baruch's Wall Street. "Wealth Commenced to Pour In on Me." His Own Man. The Baron of Hobcaw. Striking It Rich Reluctantly. Poison-Pen Letter. Captain of Industry. Plainspoken Diplomat. Farming, Money, McAdoo. "I Would Stand Pat." Suffering Roosevelt. "His Métier Was Peril." The Atom and All. Notes. Index.

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Book SynopsisWritten in 1931, this new instalment in the 'Wiley Investment Classics' series offers a well-written historical and anecdotal account of the volatile stock market of the 1920s.Table of ContentsPrelude: May, 1919. Back to Normalcy. The Big Red Scare. America Convalescent. The Revolution in Manners and Morals. Harding and the Scandals. Coolidge Prosperity. The Ballyhoo Years. The Revolt of the Highbrows. Alcohol and Al Capone. Home, Sweet Florida. The Big Bull Market. Crash! Aftermath: 1930-31. Appendix. Index.

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Book SynopsisInvestment Management provides a powerful package of systematic principles and cutting-edge applications for intelligent-and profitable-investing in the new world of finance.Table of ContentsThe Investment Setting. UNDERSTANDING THE CLIENT. Risk and Utility: Basics. Models of Risk. Alternative Measures of Risk. Tax Considerations in Investing. THE ASSET ALLOCATION DECISION. Global Management and Asset Allocation. Active Asset Allocation. THE ASSET SELECTION DECISION. Asset Selection: Strategies and Evidence. Investment Strategy. PORTFOLIO EXECUTION. Trading Costs. The Hidden Costs of Trading. Managing Portfolio Risk. PERFORMANCE EVALUATION. Evaluating Investment Performance. Taxes and Performance Evaluation. CORPORATE GOVERNANCE AND INVESTMENT MANAGEMENT. U.S. Corporate Governance: Lessons from the 1980s. Chapeter Notes. Glossary. Index.

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Book SynopsisOctober 28, 1997. The Dow drops 500 points. Investors the world over receive a startling reminder that what goes up, must come down. It is a profoundly unsettling experience for those of us who have either forgotten or have never known the experience of a bear market. Half of the money invested in U.S. stocks in this century entered the market from 1991-1996, making the dark days of October memorable for their bloodletting. Overall, this was just a scratch, and despite the optimism of so many investors, history has shown that the bear attacks time and time again. John Rothchild, critically acclaimed author of the bestselling A Fool and His Money, isn''t even afraid to face a full-fledged bear market. In his topical and timely new book, Rothchild reveals how to prepare psychologically and tactically for the looming debacle. Breaking from the pack of investment books which tacitly assume a bull market, The Bear Book focuses on protecting assets and minimizing losses during a beaTrade Review"(John Rothchild) made a small fortune from writing books that made finance funny and entertaining."-Miami Herald "Mr. Rothchild finds some compelling evidence that a bear might be lurking in the woods. (He) addresses the subject with candor."-The Wall Street Journal "According to Rothchild, there's a dark cloud looming behind virtually every silver lining. And to the extent that it can, his book gives investors useful market history to help them cope when the next storm arrives to put the current bull in its place."-Washington Post Book World "THE BEAR BOOK would be fascinating just because Rothchild is an entertaining writer who has gathered such a wide variety of historical facts, anecdotes, theories and current opinions to enlighten the reader about market declines."-Chicago Sun-Times "A timely wake-up call...contains fascinating stories about history's greatest financial busts as well as guidance on how to cope with the next one."-Miami Herald "An enlightening work that's likely to give investors a bigger scare than a Stephen King novel. Rothchild isn't one of those doom-and-gloom forecasters. He's just hoping to provide some perspective."-San Diego Union-Tribune John Rothchild, author of THE BEAR BOOK: Survive and Profit in Ferocious Markets wrote an editorial published in the September 6, 1998 issue of New York Newsday entitled "Are Investors Setting Free the Bears?"Table of ContentsPartial table of contents: BEARS WILL RISE AGAIN. Are Stocks Really That Great? The Case for Cutting and Running. HOW TO SPOT A BEAR. Deflating Bears, Inflating Bears. Are Earnings Overrated? Early Warning Systems. WHO'S CRYING BEAR? The Cassandras. The Doomsday Best-Seller. Beware the New Era. The Bearish Newsletter. IT'S A BEAR'S WORLD, AFTER ALL. There's Always a Bear Market Someplace. The Global Hedge. BEAR-PROOFING THE PORTFOLIO. The Bear Busters. Hiding in Bonds. Jumping on the Next Bull. MY MUTUAL FUNDS WILL SAVE ME AND OTHER FALLACIES. Mutual Misery. Bear-Friendly Funds. WINNING FROM LOSING. The Short Sale Made Simple. BEAR'S GAZETTE. Hall of Fame. Could 1929-That Is, 1932-Happen Again? Bearish Odds and Ends. Index.

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Book SynopsisComputational finance is a quantitative approach to risk management. This discipline encompasses the algorithmic and numerical procedures that form the backbone of modern mathematical finance and the creation of financial products. This book introduces computational finance and covers both theory and application.Table of ContentsThe Pricing Equations. Analysis of Finite Difference Methods. Special Issues. Coordinate Transformations. Numerical Examples. Index.

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Book SynopsisProven techniques for market profile users at any level A market profile presents a number of basic elements from the market in an easily understood graphic format that, when analyzed properly, can yield profitable intraday and swing trades that traditional indicators do not reveal. Steidlmayer on Markets shows readers how to find these opportunities using the innovative techniques developed by the author during his many years of trading the market. This fully updated Second Edition covers innovations in both technology and technique-and broadens the scope of market profile to include stocks. J. Peter Steidlmayer (Chicago, IL) joined the Chicago Board of Trade in 1963 and has been an independent trader ever since. Steidlmayer served on the Board of Directors of the Board of Trade in 1981-1983. While a director, he was responsible for initiating Market Profile and the Liquidity Data Bank. Steve Hawkins (Chicago, IL) has experience in trading in both stocks and commodities. OTable of ContentsI: THE STEIDLMAYER METHOD. Chapter 1. Early Lessons. Chapter 2. College Years. Chapter 3. Chicago. Chapter 4. Changing Markets. Chapter 5. The Information Revolution. II: THE HAWKINS INTERPRETATION. Chapter 6. Understanding Market Profile. Chapter 7. Liquidity Data Bank: On Floor Information, and Volume @ Time. Chapter 8. The Steidlmayer Theory of Markets. Chapter 9. The Steidlmayer Distribution. Chapter 10. The You. Chapter 11. Anatomy of a Trade. Chapter 12. Profile of the Successful Trader. Chapter 13. Trading, Technology, and the Future. Endnotes. Index.

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Book SynopsisThe first complete Who's Who in the history of the world's best-known financial street Charles D. Ellis and James R. Vertin have crafted a window on Wall Street that investors won't want to miss.Table of ContentsMASTERS OF INVESTING. Bernard M. Baruch. Albert J. Hettinger Jr. Roy Neuberger. Benjamin Graham. David L. Babson. Philip Fisher. Charles Allen Jr. John Hay Whitney. Benno Schmidt. Fayez Sarofim. Michael Steinhardt. Laurence A. Tisch. Warren Buffett. Charles T. Munger. Jack Dreyfus. Howard Stein. John Templeton. Paul Miller. Claude Rosenberg. Robert Kirby. Dean LeBaron. Peter Lynch. John B. Neff. Leon Levy and Jack Nash. Barton Biggs. Julian Robertson. George Soros. Philip Carret. MOVERS AND SHAKERS. Saul P. Steinberg. William Zeckendorf. Roland Rowland. James Goldsmith. Carl Icahn. Albert and Paul Reichmann. Bruce Wasserstein. Scarsdale Fats. Alfred W. Jones. Gerald Tsai. Fred Alger. Jerry Kohlberg, Henry Kravis, and George Roberts. BUSINESS BUILDERS. Longstreet Hinton. Hermann J. Abs. George S. Moore. David Rockefeller. George S. Johnston. Jonathan Bell Lovelace. Arnold Bernhard. Edward C. Johnson II. Edward C. Johnson III. John C. Bogle. Joseph K. Klingenstein. T. J. Carlyle Gifford. Siegmund Warburg. Henry Grunfeld. David Scholey. Maurice (Hank) Greenberg. Sanford Weill. James D. Wolfensohn. Henry Crown. Albert H. Gordon. John L. Loeb. Gustave Levy. John C. Whitehead. John L. Weinberg. Robert H. B. Baldwin. Alan C. (Ace) Greenberg. Pete Peterson and Lewis Glucksman. Donald Regan. Michel David-Weill. William Salomon. John Gutfreund. John Meriwether. Michael Bloomberg. Richard H. Jenrette. WISEMEN AND RASCALS. Sidney Homer. Henry Kaufman. John J. McCloy. William McChesney Martin Jr. Paul Volcker. Alan Greenspan. Gary Lynch. Ivan F. Boesky. Dennis B. Levine. Martin Siegel. Michael Milken. Robert Maxwell. Nicholas Leeson.

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Book SynopsisInternationally recognized experts in the field introduce their business excellence paradigm. In this book, two leading pension fund experts lay out a comprehensive plan for effective fund management. With the help of domestic and global case studies they critically assess current approaches to pension fund management and isolate what works and what doesn''t using their unique critically acclaimed run-it-like-a-business model. Keith P. Ambachtsheer (Toronto, Canada) is principle at KPA Advisory Service, Inc., a pension fund management consulting firm. He runs The Ambachtsheer Letter and cofounded Cost Effective Measurement, Inc., which monitors the performance of 300 of the world''s largest asset funds. D. Don Ezra (Toronto, Canada) is Director of European Consulting at Frank Russell Co. His previous books include The Struggle for Pension Fund Wealth.Trade Review"This is a landmark book on pension fund management. All those with a stake in building pension wealth will profit from this common-sense, and clearly readable, guide to improved pension fund performance."--Burton G. Malkiel, author of A Random Walk Down Wall Street, and Chemical Bank Chairman's Professor of Economics, Princeton University "This is not just another book of theory about how pension funds should be managed, or about how one expert thinks an appropriate asset allocation should be determined . . . There is keen analysis by Messrs. Ambachtsheer and Ezra, both of whom are veteran pension consultants noted for thinking outside the box."--Michael J. Clowes, Editorial Director, Pensions & Investments "Keith Ambachtsheer and Don Ezra, two leading consultants, have written the most comprehensive handbook ever published on pension fund management. It's must reading for all those in a fiduciary role."--W. Allen Reed, President, General Motors Investment Management Corp. "Don Ezra and Keith Ambachtsheer are two of the best thinkers in the world of pension fund management. All who care about retirement assets will learn valuable lessons from their new book."--Charles D. Ellis, Managing Partner, Greenwich Associates ". . . powerful, authoritative, and provocative critique of a subject that concerns all of us . . ."--Peter L. Bernstein, President, Peter L. Bernstein, Inc., author Against the Gods: The Remarkable Story of RiskTable of ContentsPENSION FUNDS AS FINANCIAL BUSINESSES: THE NEW "EXCELLENCE" PARADIGM. The Coming Era of Pension Fund Capitalism. How Good Is Pension Fund Management? Mapping the Road to Excellence. WHAT EVERY PENSION FUND FIDUCIARY SHOULD KNOW ... OR HAVE A VIEW ON. What Fiduciaries Should Know about Pension Law and Pension Economics. What Fiduciaries Should Know about Capital Markets. What Fiduciaries Should Know about the Investment Management Services Market. MANAGING THE PENSION FUND BUSINESS. Effective Pension Fund Governance. The Right Funding Policy. The Right Asset Allocation Policy. Creating Value through Policy Implementation. From Data to Information to Knowledge. Managing Small Pension Funds. EXCELLENCE IN ACTION: FROM CASE STUDIES. Excellence in Action: The Teachers' Pension Fund. Excellence in Action: HiTechCo, Mid-West Resources Pension Fund, and the Yale University Investments Office. PENSION FUNDS IN THE TWENTY-FIRST CENTURY: THREE CRITICAL ISSUES. Defined Contribution Plans Are Different, But Are They Better? Fixing "Broke" National Pension Schemes. Pension Funds, Politics, and Power. Index.

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Book SynopsisIn high-stakes investing and business, success or failure largely depends on how well you play the game of risk-a game in which the rules of competition are constantly being rewritten. Strategies that proved effective in the past are no longer enough to win today. The key to success is not to rely on yesterday''s news, but to peer into the future and ask what could happen tomorrow. Presenting a bold new way of thinking about risk, in Seeing Tomorrow Ron Dembo and Andrew Freeman offer a dynamic framework designed to enhance our ability to make important decisions, and consequently change how we manage our investments. By incorporating investors'' individual circumstances and tolerances -as well as the unique reasoning behind their decision making-this innovative approach captures much more of how we actually think about risk. From the basic building blocks required for forward-looking risk management, Dembo and Freeman define and explore the roles and significance of sTrade Review"As a how-to book about managing risk, it's a worthwhile follow-up to Peter L. Bernstein's best-selling 1996 history of the field, Against the Gods: The Remarkable Story of Risk."-Business WeekTable of ContentsIntroduction: It Really Happened. How to Think About Risk. The Elements of Risk Management. Of Decisions and Risk. Sweet Regret. Keeping Up With the Joneses. Paying for Playing. The Rap Trap and Evaluations. Of Life, Lotteries, and Stock Options. Making Good Things Better. Know Your Risk. Afterword: How Regret Can Change Your Life. Index.

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Book SynopsisInsight and advice on mastering the art of investing-from some of the biggest names in the business This invaluable volume presents what the experts'' experts-Peter Bernstein, Gary Brinson, Foster Friess, John Neff, Barr Rosenberg, Mark Mobius, William Gross,and William Sharpe-have to say about risk, asset allocation, growth investing, index funds, value investing, quantitative analysis, fixed-income securities, and emerging markets. Essential reading for both novice and expert investors, the profiles in Beyond Wall Street show how the country''s most successful investors make money. Read this and learn what it takes to come out on top.-Jane Bryant Quinn, Newsweek columnist, Author of Making the Most of Your Money Beyond Wall Street achieves a laudable balance between human drama and sage advice, and the sages involved are some of the finest investors of our time.-Ed Finn, Editor, Barron''s This book serves a delicious blend of the techniques and bioTable of ContentsGrowth: Flying High. Value: Buying into Weakness. Quantitative: The Automated Investor. Index Funds: "If You Can't Beat 'Em..." Emerging Markets: Braving the Frontier. Fixed Income: Betting on Bonds. Asset Allocation: Ninety Percent of the Game. Risk and Investor Psychology: Worth the Risk. Notes. Bibliography. Index.

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Book SynopsisA powerful new way to navigate today's unprecedented market conditions "Bill Williams' pioneering application of chaos theory to the financial markets is leading technical analysis into the twenty-first century and beyond.Table of ContentsBlasting Off. From Chaos to Cosmos to Cash. The Alligator. The Fractal-The Breakaway Trade. The Awesome Oscillator. The Market Accelerator. Trading in the Zones. The Balance Line Trades. Techniques for Taking Profits. Tying It All Together. How to Become a Master Trader. Bibliography. About the Author. Index.

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Book SynopsisThis book is an incredibly fun read. The style is a lot of People magazine, with a little Smart Money magazine thrown in for good measure. -Detroit Free Press Americans have ample role models for how to spend money, but too few on how to save and invest it. Jean Chatzky's new book may change that, however.Trade Review". . . this book is an incredibly fun read. The style is a lot of People magazine, with a little SmartMoney magazine thrown in for good measure."-Detroit Free Press ". . . a breezy, well-researched look at the investment strategies of the you-know-who."-USA WeekendTable of ContentsThe Stock Junkies: Mike Ditka, Don Slaught, Jim Lovell. The Risk-Averse: Nicole Miller, Matt Lauer, Alan Dershowitz. The Real Estate Moguls: Dave Barry, Jeff Blake. The Gurus: Alan C. "Ace" Greenberg, Lou Dobbs, Charles Schwab. The Entrepreneurs: Dave Thomas, Lillian Vernon, Charlie Trotter. The Venture Capitalists: Jim Clark, Walter Payton, David Brenner. The Rebounders: Dennis Rodman, Olivia Goldsmith, Ivana Trump. The Partners: Helen Gurley and David Brown, Ken and Daria Dolan, Susan Feniger and Mary Sue Milliken. The Collectors: Raoul Felder, Emeril Lagasse. Index.

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Book SynopsisA truly enlightening work filled with fundamental strategies that have worked for others.Martin Fridson documents the essential principles inherent in every billionaire''s success. -Gordon Bethune Chairman of the Board and CEO Continental Airlines Self-made billionaires all have one thing in common: they excel at making money. But hard work, thrift, and focus are only part of the story-you hold the rest of it in your hands. How to Be a Billionaire is the first comprehensive picture of the real strategies and tactics that built the great business fortunes of modern times. Packed with engaging accounts of titans like Ross Perot, Richard Branson, Phil Anschutz, John D. Rockefeller, Wayne Huizenga, Bill Gates, J. Paul Getty, and Kirk Kerkorian, How to Be a Billionaire will show you principles that can increase your wealth and business acumen to the mogul level. How to Be a Billionaire looks at the careers, the methods, and the minds of self-made billionaiTable of ContentsACCEPTING THE CHALLENGE. Do You Sincerely Want to Be Superrich? How Important Is Choosing an Industry? FUNDAMENTAL STRATEGIES. Take Monumental Risks. Do Business in a New Way. Dominate Your Market. Consolidate an Industry. Buy Low. Thrive on Deals. Outmanage the Competition. Invest in Political Influence. Resist the Unions. PUTTING IT ALL TOGETHER. Your Turn. Notes. Index.

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Book SynopsisOnce in Golconda In this book, John Brooks-who was one of the most elegant of all business writers-perfectly catches the flavor of one of history''s best-known financial dramas: the 1929 crash and its aftershocks. It''s packed with parallels and parables for the modern reader. -From the Foreword by Richard Lambert Editor-in-Chief, The Financial Times Once in Golconda is a dramatic chronicle of the breathtaking rise, devastating fall, and painstaking rebirth of Wall Street in the years between the wars. Focusing on the lives and fortunes of some of the era''s most memorable traders, bankers, boosters, and frauds, John Brooks brings to vivid life all the ruthlessness, greed, and reckless euphoria of the ''20s bull market, the desperation of the days leading up to the crash of ''29, and the bitterness of the years that followed. Praise for Once in Golconda A fast-moving, sophisticated account.embracing the stock-market boom of the twenties, the crash of 1929, the Depression, and the cominTable of ContentsOverture: The Outrage. Ticker Tyranny. The Almost Aristocracy. So Near the Apes. Things Fall Apart. Enter the White Knight. Gold Standard on the Booze. Ordeal in Washington. The White Knight Unhorsed. Rising Action. Catastrophe. Denouement. Acknowledgments. Sources. Index.

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Book SynopsisThe Go-Go Years "The Go-Go Years is not to be read in the usual manner of Wall Street classics. You do not read this book to see our present situation reenacted in the past, with only the names changed. You read it because it is a wonderful description of the way things were in a different time and place.Table of ContentsForeword vii I Climax: The Day Henry Ross Perot Lost $450 Million 1 II Fair Exchange: The Year the Amex Delisted the Old Guard Romans 26 III The Last Gatsby: Recessional for Edward M Gilbert 55 IV Palmy Days and Low Rumblings: Early Warnings Along Wall Street 81 V Northern Exposure: Early Warnings Along Bay Street 104 VI The Birth of Go-Go: The Rise of a Proper Chinese Bostonian 127 VII The Conglomerateurs: Corporate Chutzpah and Creative Accounting 150 VIII The Enormous Back Room: Drugs, Fails, and Chaos Among the Clerks 182 IX Go-Go at High Noon: The View from Trinity Church 206 X Confrontation: Steinberg/Leasco vs Renchard/Chemical Bank 227 XI Revelry Before Waterloo: The Time of the Great Garbage Market 260 XII The 1970 Crash: To the Edge of the Abyss 291 XIII Saving Graces: The Invisible Samaritans of Wall Street 311 XIV The Go-Go Years 348 Notes on Sources 358 Index 364

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Book SynopsisPraise for Michael J. Clowes and the money flood "What a fine book! As an active participant in the revolution in pension investing, I could almost feel the times and tides of the past half-century shifting beneath me.Table of ContentsRevolution. The Way Things Were. The Flood Begins. The Rules Change. New Players Enter. Accelerated Change. Realty Revolution. Profit Sharing. Inflationary Doldrums. Social Investing. Consolidation. Portfolio Insurance. Metzenbaum Wins. Pension Exports. Trouble Ahead. Appendix. Notes. Index.

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