A Method for Estimating the Change in Terminal Value Required to Increase IRR
|
|
- Lesley James
- 5 years ago
- Views:
Transcription
1 A Mehod for Esimaing he Change in Terminal Value Required o Increase IRR Ausin M. Long, III, MPA, CPA, JD * Alignmen Capial Group Jollyville Road Suie 330-N Ausin, TX (Phone) (Fax) November 2006 * Many hanks o Dr. Seven Kaplan, Neubauer Family Professor of Enrepreneurship & Finance a he Universiy of Chicago, for his helpful commens. 1
2 INTRODUCTION Alhough by definiion here is a close relaionship beween imes money earned (TME, defined as disribuions plus erminal valuaions divided by invesed capial) and inernal rae of reurn (IRR) for a privae marke invesmen, he relaionship is ordinarily quie hazy in he porfolios of mos insiuional invesors. This lack of precision is due o he naure of he IRR compuaion iself, since i is affeced o an unpredicable exen by he idiosyncraic blending of he unique weighs and iming of each of he individual cash flows ha make up he ypical privae equiy porfolio. However, wih some simplifying assumpions i is possible o represen he confused angle of capial invesed, capial disribued and erminal valuaion of a privae invesmen porfolio in erms of zero-coupon bond equivalency. The wo simplifying assumpions are: ha all invesed capial is invesed on he dae of he firs capial call and ha all disribuions and he erminal valuaion all have he same ending dae. Viewed as a zero-coupon bond in his way, a privae invesmen or a porfolio of privae invesmens has a precise relaionship beween TME and IRR. Alignmen Capial Group, (ACG) refers o his relaionship as he zero-coupon equivalen duraion (ZCED), which is an esimae of he dollar-weighed, ime-weighed average holding period of an invesmen or porfolio. ZCED, even hough i requires simplifying assumpions, can be adaped o esimae cerain aribues of he ypical privae equiy porfolio, including is change in IRR as a funcion of is change in TME and/or erminal valuaion, as described in deail below. METHODOLOGY The inernal rae of reurn (IRR) of a sream of cash flows (where capial invesed in period is denoed Inv and capial disribued in period or, in he case of he erminal valuaion, capial deemed o be disribued in period T - is denoed Dis ) is o choose r such ha: 1. T Inv = ( 1+ r) = 0 ( r) = 0 1+ T Dis I is obvious, in equaion 1 above, ha he magniudes of Inv and Dis and heir relaive iming all affec he oucome of he compuaion. I is no, however, obvious indeed, i is well beyond he scope of his research brief o wha degree each of hese elemens affecs he oucome. This is so because here is a heoreically infinie number of 2
3 permuaions of he weighs and iming of he various cash flows ha will resul in he same IRR, as illusraed in he example below: Dae of Cash Flow Scenario 1 Scenario 2 Scenario 3 1/31/1990 ($1,000,000) ($5,000,000) ($5,000,000) 1/31/1991 $1,200,000 $1,000,000 $0 1/31/1992 ($1,000,000) $1,000,000 $0 1/31/1993 $1,200,000 $1,000,000 $0 1/31/1994 ($1,000,000) $1,000,000 $0 1/31/1995 $1,200,000 $1,000,000 $0 1/31/1996 ($1,000,000) $1,000,000 $0 1/31/1997 $1,200,000 $1,000,000 $0 1/31/1998 ($1,000,000) $1,000,000 $0 1/31/1999 $1,200,000 $6,000,000 $25,824,763 Invesed Dollars(I) ($5,000,000) ($5,000,000) ($5,000,000) Reurned Dollars (R) $6,000,000 $14,000,000 $25,824,763 Dollars Earned (DE) $1,000,000 $9,000,000 $20,824,763 IRR 20.0% 20.0% 20.0% Times Earned (TE) = R/I 1.2 X 2.8 X 5.2 X However, i is possible o eliminae all of he uncerainies associaed wih he calculaion of IRR by reposiioning he daes of all he capial invesed o he dae of he firs capial call and all of he capial disribued o he erminal valuaion (ending) dae. These moves have he effec of ransforming he invesmen or he porfolio ino a zero-coupon bond wih only wo cash flows: one a he ouse of he invesmen and anoher a is erminaion. As a zero-coupon bond, he cash flows bear he relaionship o one anoher described in he rudimenary fuure value equaion below: 2. TME = ( 1+ IRR) n Solving equaion 2 for IRR, we obain: n 3. IRR = TME 1 1 The firs derivaive of equaion 3 is he insananeous rae of change of IRR given a sligh change in TME: 4. 1 dirr TME n 1 = dtme n Or, anoher way o express he same relaionship is: dirr 5. IRR TME, when TME is very small. dtme 3
4 In his research brief, we have assumed ha he desired change in IRR is 0.1% (10 basis poins): 6. IRR = 10bp or 0.10% The change in TME required o resul in a 10 basis poin change in IRR is herefore: dirr = TME dtme Remember ha TME is he relaionship of oal disribuions plus he erminal valuaion (in he equaions below, Val = oal disribuions + erminal valuaion) and capial invesed (Inv in he equaions below): 8. Val TME = Inv Therefore we can describe he change in TME as a funcion of he change in erminal valuaion, assuming in his equaion he disribuions are a consan: 9. Val TME = Inv Thus, he change in valuaion required o resul in a 10 (is his 100?) basis poin change in he IRR of a zero-coupon bond is: 10. Val = TME * Inv n Val Inv TME n 1 1 Equaion 11 can be used o esimae he change in IRR resuling from a fracional change in he erminal valuaion of a ypical privae invesmen. We believe ha, excep for unusual circumsances, he resuls of his simple equaion should be wihin a few basis poins of he resuls of a complee calculaion using all of he cash flows in he porfolio. In general, he shorer he ime horizon of he invesmen, and he fewer he cash flows involved, he beer he esimae. 4
5 RESULTS We sampled weny invesmens from a porfolio using Equaion 11 above, calculaed he required change in TME and compared he resul o he acual change in TME as follows: Inv # Vinage n TME Acual Diff Prediced Diff Prediced - Acual % 0.10% 0.00% % 0.10% 0.10% % 0.10% 0.10% % 0.10% -0.07% % 0.10% -0.11% % 0.10% -0.04% % 0.10% -0.05% % 0.10% -0.10% % 0.10% -0.16% % 0.10% -0.10% % 0.10% -0.05% % 0.10% -0.08% % 0.10% 0.06% % 0.10% 0.00% % 0.10% 0.04% % 0.10% -0.04% % 0.10% 0.00% % 0.10% 0.00% % 0.10% 0.00% % 0.10% 0.05% % 0.10% 0.08% % 0.10% -0.02% % 0.10% 0.07% % 0.10% 0.06% % 0.10% -0.09% % 0.10% -0.03% % 0.10% -0.01% 0.11% Mean -0.01% 0.07% Sd Dev 0.07% The mean error of he esimae (i.e., he prediced change in IRR minus he acual change in IRR) is only abou 1 basis poin. The large sandard deviaion of he error of he esimae relaive o he mean conribues o he lack of correlaion beween n and he error of he esimae, as indicaed in he following regression: 5
6 0.15% 0.10% 0.05% Prediced - Acual 0.00% % y = 2E-05x % R 2 = % -0.20% n CONCLUSION The use of simplifying assumpions (all capial is invesed on he firs capial call dae; all capial reurned and he valuaion are a he ending dae, ransforming he invesmen ino a zero-coupon bond) is sufficien o enable he analys o esimae fairly accuraely he change in IRR o be expeced from small changes in TME, even for older invesmens wih a hisory of complex cash flows. 6
7 Alignmen Capial Group is a full-service privae equiy consuling firm based in Ausin, Texas. The firm s mission is o undersand privae equiy as an asse class in a porfolio conex, and hus o assis our cliens in making opimal invesmen decisions. Ausin Long is a co-founder of Alignmen Capial Group. His responsibiliies include performing due diligence on invesmen managers, providing sraegic porfolio managemen advice and conducing original research. 7
1. Interest Rate Gap. Duration
. Ineres Rae Gap. Duraion Mauriy Gap Problem. Mauriy Gap A bank invess $00 million in 3-year, 0% fixed rae bonds (assume hese are all asses) In he same ime, i issuses $90 million in -year, 0% percen fixed
More informationThe Mathematics Of Stock Option Valuation - Part Four Deriving The Black-Scholes Model Via Partial Differential Equations
The Mahemaics Of Sock Opion Valuaion - Par Four Deriving The Black-Scholes Model Via Parial Differenial Equaions Gary Schurman, MBE, CFA Ocober 1 In Par One we explained why valuing a call opion as a sand-alone
More informationHow Risky is Electricity Generation?
How Risky is Elecriciy Generaion? Tom Parkinson The NorhBridge Group Inernaional Associaion for Energy Economics New England Chaper 19 January 2005 19 January 2005 The NorhBridge Group Agenda Generaion
More informationPrinciples of Finance CONTENTS
Principles of Finance CONENS Value of Bonds and Equiy... 3 Feaures of bonds... 3 Characerisics... 3 Socks and he sock marke... 4 Definiions:... 4 Valuing equiies... 4 Ne reurn... 4 idend discoun model...
More informationMathematical methods for finance (preparatory course) Simple numerical examples on bond basics
Mahemaical mehods for finance (preparaory course) Simple numerical examples on bond basics . Yield o mauriy for a zero coupon bond = 99.45 = 92 days (=0.252 yrs) Face value = 00 r 365 00 00 92 99.45 2.22%
More informationFINAL EXAM EC26102: MONEY, BANKING AND FINANCIAL MARKETS MAY 11, 2004
FINAL EXAM EC26102: MONEY, BANKING AND FINANCIAL MARKETS MAY 11, 2004 This exam has 50 quesions on 14 pages. Before you begin, please check o make sure ha your copy has all 50 quesions and all 14 pages.
More informationCh. 10 Measuring FX Exposure. Is Exchange Rate Risk Relevant? MNCs Take on FX Risk
Ch. 10 Measuring FX Exposure Topics Exchange Rae Risk: Relevan? Types of Exposure Transacion Exposure Economic Exposure Translaion Exposure Is Exchange Rae Risk Relevan?? Purchasing Power Pariy: Exchange
More informationAppendix B: DETAILS ABOUT THE SIMULATION MODEL. contained in lookup tables that are all calculated on an auxiliary spreadsheet.
Appendix B: DETAILS ABOUT THE SIMULATION MODEL The simulaion model is carried ou on one spreadshee and has five modules, four of which are conained in lookup ables ha are all calculaed on an auxiliary
More informationEVA NOPAT Capital charges ( = WACC * Invested Capital) = EVA [1 P] each
VBM Soluion skech SS 2012: Noe: This is a soluion skech, no a complee soluion. Disribuion of poins is no binding for he correcor. 1 EVA, free cash flow, and financial raios (45) 1.1 EVA wihou adjusmens
More informationMidterm Exam. Use the end of month price data for the S&P 500 index in the table below to answer the following questions.
Universiy of Washingon Winer 00 Deparmen of Economics Eric Zivo Economics 483 Miderm Exam This is a closed book and closed noe exam. However, you are allowed one page of handwrien noes. Answer all quesions
More informationPortfolio investments accounted for the largest outflow of SEK 77.5 billion in the financial account, which gave a net outflow of SEK billion.
BALANCE OF PAYMENTS DATE: 27-11-27 PUBLISHER: Saisics Sweden Balance of Paymens and Financial Markes (BFM) Maria Falk +46 8 6 94 72, maria.falk@scb.se Camilla Bergeling +46 8 6 942 6, camilla.bergeling@scb.se
More information(1 + Nominal Yield) = (1 + Real Yield) (1 + Expected Inflation Rate) (1 + Inflation Risk Premium)
5. Inflaion-linked bonds Inflaion is an economic erm ha describes he general rise in prices of goods and services. As prices rise, a uni of money can buy less goods and services. Hence, inflaion is an
More informationAid, Policies, and Growth
Aid, Policies, and Growh By Craig Burnside and David Dollar APPENDIX ON THE NEOCLASSICAL MODEL Here we use a simple neoclassical growh model o moivae he form of our empirical growh equaion. Our inenion
More informationMarket and Information Economics
Marke and Informaion Economics Preliminary Examinaion Deparmen of Agriculural Economics Texas A&M Universiy May 2015 Insrucions: This examinaion consiss of six quesions. You mus answer he firs quesion
More informationINSTITUTE OF ACTUARIES OF INDIA
INSTITUTE OF ACTUARIES OF INDIA EXAMINATIONS 05 h November 007 Subjec CT8 Financial Economics Time allowed: Three Hours (14.30 17.30 Hrs) Toal Marks: 100 INSTRUCTIONS TO THE CANDIDATES 1) Do no wrie your
More informationAn Analytical Implementation of the Hull and White Model
Dwigh Gran * and Gauam Vora ** Revised: February 8, & November, Do no quoe. Commens welcome. * Douglas M. Brown Professor of Finance, Anderson School of Managemen, Universiy of New Mexico, Albuquerque,
More informationCorporate Finance. Capital budgeting. Standalone risk of capital project
Corporae Finance Capial budgeing Iniial oulay = FCInv + NWCInv Sal afer ax operaing cashflow = 0 + T ( Sal0 B0 ) ( R C)( 1 ax) + ax Ter min al year non opereaing cashflow = Sal T Dep + NWCInv ax ( Sal
More informationFinancial Econometrics (FinMetrics02) Returns, Yields, Compounding, and Horizon
Financial Economerics FinMerics02) Reurns, Yields, Compounding, and Horizon Nelson Mark Universiy of Nore Dame Fall 2017 Augus 30, 2017 1 Conceps o cover Yields o mauriy) Holding period) reurns Compounding
More informationSubdivided Research on the Inflation-hedging Ability of Residential Property: A Case of Hong Kong
Subdivided Research on he -hedging Abiliy of Residenial Propery: A Case of Hong Kong Guohua Huang 1, Haili Tu 2, Boyu Liu 3,* 1 Economics and Managemen School of Wuhan Universiy,Economics and Managemen
More informationFundamental Basic. Fundamentals. Fundamental PV Principle. Time Value of Money. Fundamental. Chapter 2. How to Calculate Present Values
McGraw-Hill/Irwin Chaper 2 How o Calculae Presen Values Principles of Corporae Finance Tenh Ediion Slides by Mahew Will And Bo Sjö 22 Copyrigh 2 by he McGraw-Hill Companies, Inc. All righs reserved. Fundamenal
More informationBond Prices and Interest Rates
Winer erm 1999 Bond rice Handou age 1 of 4 Bond rices and Ineres Raes A bond is an IOU. ha is, a bond is a promise o pay, in he fuure, fixed amouns ha are saed on he bond. he ineres rae ha a bond acually
More informationModels of Default Risk
Models of Defaul Risk Models of Defaul Risk 1/29 Inroducion We consider wo general approaches o modelling defaul risk, a risk characerizing almos all xed-income securiies. The srucural approach was developed
More informationUCLA Department of Economics Fall PhD. Qualifying Exam in Macroeconomic Theory
UCLA Deparmen of Economics Fall 2016 PhD. Qualifying Exam in Macroeconomic Theory Insrucions: This exam consiss of hree pars, and you are o complee each par. Answer each par in a separae bluebook. All
More informationMA Advanced Macro, 2016 (Karl Whelan) 1
MA Advanced Macro, 2016 (Karl Whelan) 1 The Calvo Model of Price Rigidiy The form of price rigidiy faced by he Calvo firm is as follows. Each period, only a random fracion (1 ) of firms are able o rese
More informationAcceleration Techniques for Life Cash Flow Projection Based on Many Interest Rates Scenarios Cash Flow Proxy Functions
Acceleraion Techniques for Life Cash Flow Projecion Based on Many Ineres Raes Scenarios Cash Flow Proxy Funcions Auhor: Marin Janeček, Tools4F, s.r.o. and Economic Universiy in Prague, 207 Acknowledgmen:
More informationA Decision Model for Investment Timing Using Real Options Approach
A Decision Model for Invesmen Timing Using Real Opions Approach Jae-Han Lee, Jae-Hyeon Ahn Graduae School of Managemen, KAIST 207-43, Cheongrangri-Dong, Dongdaemun-Ku, Seoul, Korea ABSTRACT Real opions
More informationPricing Vulnerable American Options. April 16, Peter Klein. and. Jun (James) Yang. Simon Fraser University. Burnaby, B.C. V5A 1S6.
Pricing ulnerable American Opions April 16, 2007 Peer Klein and Jun (James) Yang imon Fraser Universiy Burnaby, B.C. 5A 16 pklein@sfu.ca (604) 268-7922 Pricing ulnerable American Opions Absrac We exend
More informationA pricing model for the Guaranteed Lifelong Withdrawal Benefit Option
A pricing model for he Guaraneed Lifelong Wihdrawal Benefi Opion Gabriella Piscopo Universià degli sudi di Napoli Federico II Diparimeno di Maemaica e Saisica Index Main References Survey of he Variable
More informationAn Introduction to PAM Based Project Appraisal
Slide 1 An Inroducion o PAM Based Projec Appraisal Sco Pearson Sanford Universiy Sco Pearson is Professor of Agriculural Economics a he Food Research Insiue, Sanford Universiy. He has paricipaed in projecs
More information2. Quantity and price measures in macroeconomic statistics 2.1. Long-run deflation? As typical price indexes, Figure 2-1 depicts the GDP deflator,
1 2. Quaniy and price measures in macroeconomic saisics 2.1. Long-run deflaion? As ypical price indexes, Figure 2-1 depics he GD deflaor, he Consumer rice ndex (C), and he Corporae Goods rice ndex (CG)
More informationSTATIONERY REQUIREMENTS SPECIAL REQUIREMENTS 20 Page booklet List of statistical formulae New Cambridge Elementary Statistical Tables
ECONOMICS RIPOS Par I Friday 7 June 005 9 Paper Quaniaive Mehods in Economics his exam comprises four secions. Secions A and B are on Mahemaics; Secions C and D are on Saisics. You should do he appropriae
More informationMacroeconomics. Part 3 Macroeconomics of Financial Markets. Lecture 8 Investment: basic concepts
Macroeconomics Par 3 Macroeconomics of Financial Markes Lecure 8 Invesmen: basic conceps Moivaion General equilibrium Ramsey and OLG models have very simple assumpions ha invesmen ino producion capial
More informationCURRENCY CHOICES IN VALUATION AND THE INTEREST PARITY AND PURCHASING POWER PARITY THEORIES DR. GUILLERMO L. DUMRAUF
CURRENCY CHOICES IN VALUATION AN THE INTEREST PARITY AN PURCHASING POWER PARITY THEORIES R. GUILLERMO L. UMRAUF TO VALUE THE INVESTMENT IN THE OMESTIC OR FOREIGN CURRENCY? Valuing an invesmen or an acquisiion
More information4452 Mathematical Modeling Lecture 17: Modeling of Data: Linear Regression
Mah Modeling Lecure 17: Modeling of Daa: Linear Regression Page 1 5 Mahemaical Modeling Lecure 17: Modeling of Daa: Linear Regression Inroducion In modeling of daa, we are given a se of daa poins, and
More informationOptimal Early Exercise of Vulnerable American Options
Opimal Early Exercise of Vulnerable American Opions March 15, 2008 This paper is preliminary and incomplee. Opimal Early Exercise of Vulnerable American Opions Absrac We analyze he effec of credi risk
More informationby Dr. Mizanur Rahman Professor of Accounting & Public Policy University of Dhaka
Fundamenal Valuaion and Financial Saemen Analysis by Dr. Mizanur ahman Professor of Accouning & Public Policy Universiy of Dhaka -mail: mizan@univdhaka.edu Training Program on Capial Marke esearch Organized
More informationYou should turn in (at least) FOUR bluebooks, one (or more, if needed) bluebook(s) for each question.
UCLA Deparmen of Economics Spring 05 PhD. Qualifying Exam in Macroeconomic Theory Insrucions: This exam consiss of hree pars, and each par is worh 0 poins. Pars and have one quesion each, and Par 3 has
More informationA Theory of Tax Effects on Economic Damages. Scott Gilbert Southern Illinois University Carbondale. Comments? Please send to
A Theory of Tax Effecs on Economic Damages Sco Gilber Souhern Illinois Universiy Carbondale Commens? Please send o gilbers@siu.edu ovember 29, 2012 Absrac This noe provides a heoreical saemen abou he effec
More informationFinal Exam Answers Exchange Rate Economics
Kiel Insiu für Welwirhschaf Advanced Sudies in Inernaional Economic Policy Research Spring 2005 Menzie D. Chinn Final Exam Answers Exchange Rae Economics This exam is 1 ½ hours long. Answer all quesions.
More informationEstimating Earnings Trend Using Unobserved Components Framework
Esimaing Earnings Trend Using Unobserved Componens Framework Arabinda Basisha and Alexander Kurov College of Business and Economics, Wes Virginia Universiy December 008 Absrac Regressions using valuaion
More informationStock Market Behaviour Around Profit Warning Announcements
Sock Marke Behaviour Around Profi Warning Announcemens Henryk Gurgul Conen 1. Moivaion 2. Review of exising evidence 3. Main conjecures 4. Daa and preliminary resuls 5. GARCH relaed mehodology 6. Empirical
More informationThe macroeconomic effects of fiscal policy in Greece
The macroeconomic effecs of fiscal policy in Greece Dimiris Papageorgiou Economic Research Deparmen, Bank of Greece Naional and Kapodisrian Universiy of Ahens May 22, 23 Email: dpapag@aueb.gr, and DPapageorgiou@bankofgreece.gr.
More informationProcess of convergence dr Joanna Wolszczak-Derlacz. Lecture 4 and 5 Solow growth model (a)
Process of convergence dr Joanna Wolszczak-Derlacz ecure 4 and 5 Solow growh model a Solow growh model Rober Solow "A Conribuion o he Theory of Economic Growh." Quarerly Journal of Economics 70 February
More informationDescription of the CBOE Russell 2000 BuyWrite Index (BXR SM )
Descripion of he CBOE Russell 2000 BuyWrie Index (BXR SM ) Inroducion. The CBOE Russell 2000 BuyWrie Index (BXR SM ) is a benchmark index designed o rack he performance of a hypoheical a-he-money buy-wrie
More informationINSTITUTE OF ACTUARIES OF INDIA
INSIUE OF ACUARIES OF INDIA EAMINAIONS 23 rd May 2011 Subjec S6 Finance and Invesmen B ime allowed: hree hours (9.45* 13.00 Hrs) oal Marks: 100 INSRUCIONS O HE CANDIDAES 1. Please read he insrucions on
More informationDescription of the CBOE S&P 500 2% OTM BuyWrite Index (BXY SM )
Descripion of he CBOE S&P 500 2% OTM BuyWrie Index (BXY SM ) Inroducion. The CBOE S&P 500 2% OTM BuyWrie Index (BXY SM ) is a benchmark index designed o rack he performance of a hypoheical 2% ou-of-he-money
More informationCOOPERATION WITH TIME-INCONSISTENCY. Extended Abstract for LMSC09
COOPERATION WITH TIME-INCONSISTENCY Exended Absrac for LMSC09 By Nicola Dimiri Professor of Economics Faculy of Economics Universiy of Siena Piazza S. Francesco 7 53100 Siena Ialy Dynamic games have proven
More informationR e. Y R, X R, u e, and. Use the attached excel spreadsheets to
HW # Saisical Financial Modeling ( P Theodossiou) 1 The following are annual reurns for US finance socks (F) and he S&P500 socks index (M) Year Reurn Finance Socks Reurn S&P500 Year Reurn Finance Socks
More informationSuggested Template for Rolling Schemes for inclusion in the future price regulation of Dublin Airport
Suggesed Templae for Rolling Schemes for inclusion in he fuure price regulaion of Dublin Airpor. In line wih sandard inernaional regulaory pracice, he regime operaed since 00 by he Commission fixes in
More informationSynthetic CDO s and Basket Default Swaps in a Fixed Income Credit Portfolio
Synheic CDO s and Baske Defaul Swaps in a Fixed Income Credi Porfolio Louis Sco June 2005 Credi Derivaive Producs CDO Noes Cash & Synheic CDO s, various ranches Invesmen Grade Corporae names, High Yield
More informationEmpirical analysis on China money multiplier
Aug. 2009, Volume 8, No.8 (Serial No.74) Chinese Business Review, ISSN 1537-1506, USA Empirical analysis on China money muliplier SHANG Hua-juan (Financial School, Shanghai Universiy of Finance and Economics,
More informationProblem Set 1 Answers. a. The computer is a final good produced and sold in Hence, 2006 GDP increases by $2,000.
Social Analysis 10 Spring 2006 Problem Se 1 Answers Quesion 1 a. The compuer is a final good produced and sold in 2006. Hence, 2006 GDP increases by $2,000. b. The bread is a final good sold in 2006. 2006
More informationIncorporating Risk Preferences into Real Options Models. Murat Isik
Incorporaing Risk Preferences ino Real Opions Models Mura Isik Assisan Professor Agriculural Economics and Rural Sociology Universiy of Idaho 8B Ag Science Building Moscow, ID 83844 Phone: 08-885-714 E-mail:
More informationIntroduction to Black-Scholes Model
4 azuhisa Masuda All righs reserved. Inroducion o Black-choles Model Absrac azuhisa Masuda Deparmen of Economics he Graduae Cener, he Ciy Universiy of New York, 365 Fifh Avenue, New York, NY 6-439 Email:
More informationBank of Japan Review. Performance of Core Indicators of Japan s Consumer Price Index. November Introduction 2015-E-7
Bank of Japan Review 5-E-7 Performance of Core Indicaors of Japan s Consumer Price Index Moneary Affairs Deparmen Shigenori Shirasuka November 5 The Bank of Japan (BOJ), in conducing moneary policy, employs
More informationDOES EVA REALLY HELP LONG TERM STOCK PERFORMANCE?
DOES EVA REALLY HELP LONG TERM STOCK PERFORMANCE? Wesley M. Jones, Jr. The Ciadel wes.jones@ciadel.edu George Lowry, Randolph Macon College glowry@rmc.edu ABSTRACT Economic Value Added (EVA) as a philosophy
More informationLi Gan Guan Gong Michael Hurd. April, 2006
Ne Inergeneraional Transfers from an Increase in Social Securiy Benefis Li Gan Guan Gong Michael Hurd April, 2006 ABSTRACT When he age of deah is uncerain, individuals will leave bequess even if hey have
More informationCURRENCY TRANSLATED OPTIONS
CURRENCY RANSLAED OPIONS Dr. Rober ompkins, Ph.D. Universiy Dozen, Vienna Universiy of echnology * Deparmen of Finance, Insiue for Advanced Sudies Mag. José Carlos Wong Deparmen of Finance, Insiue for
More informationPortfolio Risk of Chinese Stock Market Measured by VaR Method
Vol.53 (ICM 014), pp.6166 hp://dx.doi.org/10.1457/asl.014.53.54 Porfolio Risk of Chinese Sock Marke Measured by VaR Mehod Wu Yudong School of Basic Science,Harbin Universiy of Commerce,Harbin Email:wuyudong@aliyun.com
More informationt=1 C t e δt, and the tc t v t i t=1 C t (1 + i) t = n tc t (1 + i) t C t (1 + i) t = C t vi
Exam 4 is Th. April 24. You are allowed 13 shees of noes and a calculaor. ch. 7: 137) Unless old oherwise, duraion refers o Macaulay duraion. The duraion of a single cashflow is he ime remaining unil mauriy,
More informationInventory Investment. Investment Decision and Expected Profit. Lecture 5
Invenory Invesmen. Invesmen Decision and Expeced Profi Lecure 5 Invenory Accumulaion 1. Invenory socks 1) Changes in invenory holdings represen an imporan and highly volaile ype of invesmen spending. 2)
More informationThe Effect of Open Market Repurchase on Company s Value
The Effec of Open Marke Repurchase on Company s Value Xu Fengju Wang Feng School of Managemen, Wuhan Universiy of Technology, Wuhan, P.R.China, 437 (E-mail:xfju@63.com, wangf9@63.com) Absrac This paper
More informationLeveraged Stock Portfolios over Long Holding Periods: A Continuous Time Model. Dale L. Domian, Marie D. Racine, and Craig A.
Leveraged Sock Porfolios over Long Holding Periods: A Coninuous Time Model Dale L. Domian, Marie D. Racine, and Craig A. Wilson Deparmen of Finance and Managemen Science College of Commerce Universiy of
More informationDocumentation: Philadelphia Fed's Real-Time Data Set for Macroeconomists First-, Second-, and Third-Release Values
Documenaion: Philadelphia Fed's Real-Time Daa Se for Macroeconomiss Firs-, Second-, and Third-Release Values Las Updaed: December 16, 2013 1. Inroducion We documen our compuaional mehods for consrucing
More informationOutput: The Demand for Goods and Services
IN CHAPTER 15 how o incorporae dynamics ino he AD-AS model we previously sudied how o use he dynamic AD-AS model o illusrae long-run economic growh how o use he dynamic AD-AS model o race ou he effecs
More informationJarrow-Lando-Turnbull model
Jarrow-Lando-urnbull model Characerisics Credi raing dynamics is represened by a Markov chain. Defaul is modelled as he firs ime a coninuous ime Markov chain wih K saes hiing he absorbing sae K defaul
More informationMacroeconomics II A dynamic approach to short run economic fluctuations. The DAD/DAS model.
Macroeconomics II A dynamic approach o shor run economic flucuaions. The DAD/DAS model. Par 2. The demand side of he model he dynamic aggregae demand (DAD) Inflaion and dynamics in he shor run So far,
More informationIJRSS Volume 2, Issue 2 ISSN:
A LOGITIC BROWNIAN MOTION WITH A PRICE OF DIVIDEND YIELDING AET D. B. ODUOR ilas N. Onyango _ Absrac: In his paper, we have used he idea of Onyango (2003) he used o develop a logisic equaion used in naural
More informationApplications of Interest Rate Models
WDS'07 Proceedings of Conribued Papers, Par I, 198 204, 2007. ISBN 978-80-7378-023-4 MATFYZPRESS Applicaions of Ineres Rae Models P. Myška Charles Universiy, Faculy of Mahemaics and Physics, Prague, Czech
More informationAn Innovative Thinking on the Concepts of Ex-Ante Value, Ex-Post Value and the Realized Value (Price)
RISUS - Journal on Innovaion and Susainabiliy Volume 6, número 1 2015 ISSN: 2179-3565 Edior Cienífico: Arnoldo José de Hoyos Guevara Ediora Assisene: Leícia Sueli de Almeida Avaliação: Melhores práicas
More informationECONOMIC GROWTH. Student Assessment. Macroeconomics II. Class 1
Suden Assessmen You will be graded on he basis of In-class aciviies (quizzes worh 30 poins) which can be replaced wih he number of marks from he regular uorial IF i is >=30 (capped a 30, i.e. marks from
More informationAn Exercise in GMM Estimation: The Lucas Model
An Exercise in GMM Esimaion: The Lucas Model Paolo Pasquariello* Sern School of Business New York Universiy March, 2 2000 Absrac This paper applies he Ieraed GMM procedure of Hansen and Singleon (982)
More informationBalance of Payments. Second quarter 2012
Balance of Paymens Second quarer 2012 Balance of Paymens Second quarer 2012 Saisics Sweden 2012 Balance of Paymens. Second quarer 2012 Saisics Sweden 2012 Producer Saisics Sweden, Balance of Paymens and
More informationUnemployment and Phillips curve
Unemploymen and Phillips curve 2 of The Naural Rae of Unemploymen and he Phillips Curve Figure 1 Inflaion versus Unemploymen in he Unied Saes, 1900 o 1960 During he period 1900 o 1960 in he Unied Saes,
More informationCHAPTER CHAPTER18. Openness in Goods. and Financial Markets. Openness in Goods, and Financial Markets. Openness in Goods,
Openness in Goods and Financial Markes CHAPTER CHAPTER18 Openness in Goods, and Openness has hree disinc dimensions: 1. Openness in goods markes. Free rade resricions include ariffs and quoas. 2. Openness
More informationTable of contents Yield to maturity between two coupon payment dates Influences on the yield to maturity: the coupon effect...
able of conens. ime value of money. ime value of money..... Simple versus compound ineres..... Presen and fuure value.....3 Annuiies... 3..4 Coninuous discouning and compounding... 4. Bond yield measures...
More informationFinancial Econometrics Jeffrey R. Russell Midterm Winter 2011
Name Financial Economerics Jeffrey R. Russell Miderm Winer 2011 You have 2 hours o complee he exam. Use can use a calculaor. Try o fi all your work in he space provided. If you find you need more space
More informationRules for the EDHEC IEIF Commercial Property Index (France)
Rules for he EDHEC IEIF Commercial Propery Index (France) May 2018 1 Summary 1 Index Composiion... 3 1.1 Index Definiion... 3 1.2 Index Universe... 3 2 Calculaion and Publicaion of he Index... 4 2.1 Calculaion
More informationProceedings of the 48th European Study Group Mathematics with Industry 1
Proceedings of he 48h European Sudy Group Mahemaics wih Indusry 1 ADR Opion Trading Jasper Anderluh and Hans van der Weide TU Delf, EWI (DIAM), Mekelweg 4, 2628 CD Delf jhmanderluh@ewiudelfnl, JAMvanderWeide@ewiudelfnl
More informationCHAPTER 3 How to Calculate Present Values. Answers to Practice Questions
CHAPTER 3 How o Calculae Presen Values Answers o Pracice Quesions. a. PV $00/.0 0 $90.53 b. PV $00/.3 0 $9.46 c. PV $00/.5 5 $ 3.5 d. PV $00/. + $00/. + $00/. 3 $40.8. a. DF + r 0.905 r 0.050 0.50% b.
More informationVERIFICATION OF ECONOMIC EFFICIENCY OF LIGNITE DEPOSIT DEVELOPMENT USING THE SENSITIVITY ANALYSIS
1 Beaa TRZASKUŚ-ŻAK 1, Kazimierz CZOPEK 2 MG 3 1 Trzaskuś-Żak Beaa PhD. (corresponding auhor) AGH Universiy of Science and Technology Faculy of Mining and Geoengineering Al. Mickiewicza 30, 30-59 Krakow,
More informationAsymmetry and Leverage in Stochastic Volatility Models: An Exposition
Asymmery and Leverage in Sochasic Volailiy Models: An xposiion Asai, M. a and M. McAleer b a Faculy of conomics, Soka Universiy, Japan b School of conomics and Commerce, Universiy of Wesern Ausralia Keywords:
More informationCENTRO DE ESTUDIOS MONETARIOS Y FINANCIEROS T. J. KEHOE MACROECONOMICS I WINTER 2011 PROBLEM SET #6
CENTRO DE ESTUDIOS MONETARIOS Y FINANCIEROS T J KEHOE MACROECONOMICS I WINTER PROBLEM SET #6 This quesion requires you o apply he Hodrick-Presco filer o he ime series for macroeconomic variables for he
More informationDynamic Asset Allocation with Commodities and Stochastic Interest Rates
World Review of Business Research Vol.. No. 4. July 0. Pp. 5 9 Dynamic Asse Allocaion wih Commodiies and Sochasic Ineres Raes Sakkakom Maneenop* his research aims a finding an explici invesmen policy wih
More informationCORPORATE VALUATION MODEL IN A STOCHASTIC FRAMEWORK
CORPORATE VALUATION MODEL IN A STOCHASTIC FRAMEWORK Barbara Dömöör, Péer Juhász, PhD, CFA Deparmen of Finance Corvinus Universiy of Budapes 1093, Budapes, Hungary E-mail: barbara.domoor@uni-corvinus.hu
More informationIndustry Profitability Dispersion and Market-to-book Ratio
Indusry Profiabiliy Dispersion and Marke-o-book Raio Jia Chen *, Kewei Hou, and René M. Sulz 30 January 2014 Absrac Firms in indusries ha have high indusry-level dispersion of profiabiliy have on average
More informationGUIDELINE Solactive Bitcoin Front Month Rolling Futures 5D Index ER. Version 1.0 dated December 8 th, 2017
GUIDELINE Solacive Bicoin Fron Monh Rolling Fuures 5D Index ER Version 1.0 daed December 8 h, 2017 Conens Inroducion 1 Index specificaions 1.1 Shor name and ISIN 1.2 Iniial value 1.3 Disribuion 1.4 Prices
More informationOn the Edge of Completeness
On he Edge of Compleeness May 2000 Jean-Paul LAURENT Professor, ISFA Acuarial School, Universiy of Lyon, Scienific Advisor, BNP Paribas Correspondence lauren.jeanpaul@online.fr On he Edge of Compleeness:
More informationMEAN-VARIANCE ASSET ALLOCATION FOR LONG HORIZONS. Isabelle Bajeux-Besnainou* James V. Jordan** January 2001
MEAN-VARIANCE ASSE ALLOCAION FOR LONG HORIZONS Isabelle Bajeux-Besnainou* James V. Jordan** January 1 *Deparmen of Finance he George Washingon Universiy 3 G S., NW Washingon DC 5-994-559 (fax 514) bajeux@gwu.edu
More informationOptimal Tax-Timing and Asset Allocation when Tax Rebates on Capital Losses are Limited
Opimal Tax-Timing and Asse Allocaion when Tax Rebaes on Capial Losses are Limied Marcel Marekwica This version: January 15, 2007 Absrac Since Consaninides (1983) i is well known ha in a marke where capial
More informationCHRISTOPH MÖHR ABSTRACT
MARKET-CONSISTENT VALUATION OF INSURANCE LIABILITIES BY COST OF CAPITAL BY CHRISTOPH MÖHR ABSTRACT This paper invesigaes marke-consisen valuaion of insurance liabiliies in he conex of Solvency II among
More informationSan Francisco State University ECON 560 Summer 2018 Problem set 3 Due Monday, July 23
San Francisco Sae Universiy Michael Bar ECON 56 Summer 28 Problem se 3 Due Monday, July 23 Name Assignmen Rules. Homework assignmens mus be yped. For insrucions on how o ype equaions and mah objecs please
More informationMany different investment objectives and
The Risk and Rewards of Minimizing Shorfall Probabiliy The risk may be worhwhile. Sid Browne 76 SID BROWNE is vice presiden of firmwide risk a Goldman, Sachs and Co. in New York (NY 10005), and a professor
More informationThe Impact of Interest Rate Liberalization Announcement in China on the Market Value of Hong Kong Listed Chinese Commercial Banks
Journal of Finance and Invesmen Analysis, vol. 2, no.3, 203, 35-39 ISSN: 224-0998 (prin version), 224-0996(online) Scienpress Ld, 203 The Impac of Ineres Rae Liberalizaion Announcemen in China on he Marke
More informationMSCI Index Calculation Methodology
Index Mehodology MSCI Index Calculaion Mehodology Index Calculaion Mehodology for he MSCI Equiy Indexes Augus 2014 Index Mehodology MSCI Index Calculaion Mehodology Augus 2014 Conens Conens... 2 Inroducion...
More informationVolatility and Hedging Errors
Volailiy and Hedging Errors Jim Gaheral Sepember, 5 1999 Background Derivaive porfolio bookrunners ofen complain ha hedging a marke-implied volailiies is sub-opimal relaive o hedging a heir bes guess of
More informationOrigins of currency swaps
Origins of currency swaps Currency swaps originally were developed by banks in he UK o help large cliens circumven UK exchange conrols in he 1970s. UK companies were required o pay an exchange equalizaion
More informationManagement Science Letters
Managemen Science Leers 3 (2013) 97 106 Conens liss available a GrowingScience Managemen Science Leers homepage: www.growingscience.com/msl Comparing he role of accruals and operaing cash flows on users'
More informationThursday July 23, 2009 MS&E247s International Investments Handout #13 Page 1 of 16
MS&E247s Inernaional Invesmens Handou #13 Page 1 of 16 Reading Assignmens for his Week TTh 3:15-4:30 Gaes B01 Thursday, July 23, 2009 Final Exam MS&E 247S Fri Aug 14 2009 12:15PM-3:15PM Gaes B01 Or Saurday
More informationObjectives for Exponential Functions Activity
Objecives for Recognize siuaions having a consan percen change as exponenial Creae an exponenial model given wo poins Creae and inerpre an exponenial model in a conex Compound ineres problems Perform exponenial
More information