Trend Analysis and Regression
Trend Analysis and Regression
Trend analysis can develop a sense of the volatility of a time series by looking at how the historical data varies around the trend line, although trend analysis provides no summary measure of volatility. Trend-fitting calculations are simple, and most spreadsheets automate the process of trend analysis. Regression analysis is a way to describe the relationship between two or more
More DetailsDig DeeperTrend analysis can develop a sense of the volatility of a time series by looking at how the historical data varies around the trend...
Trend Analysis and Regression
Trend analysis can develop a sense of the volatility of a time series by looking at how the historical data varies around the trend line, although trend analysis provides no summary measure of volatility. Trend-fitting calculations are simple, and most spreadsheets automate the process of trend analysis. Regression analysis is a way to describe the relationship between two or more
More DetailsDig DeeperTrend Analysis and Regression
Trend analysis can develop a sense of the volatility of a time series by looking at how the historical data varies around the trend line, although trend analysis provides no summary measure of volatility. Trend-fitting calculations are simple, and most spreadsheets automate the process of trend analysis. Regression analysis is a way to describe the relationship between two or more
More DetailsDig Deeper
Basic Statistical and Quantitative Methods
Basic Statistical and Quantitative Methods
The use of quantitative data is at the heart of finance. There are several core evaluative techniques used to interpret quantitative data, so that financial decisions are based on a reasonable forecast of the future. Indeed, all financial decisions contain some implicit forecast. Every decision made by a banker or bank customer is made under conditions of uncertainty. Uncertainty arises
More DetailsDig DeeperThe use of quantitative data is at the heart of finance. There are several core evaluative techniques used to interpret quantitative data, so that...
Basic Statistical and Quantitative Methods
The use of quantitative data is at the heart of finance. There are several core evaluative techniques used to interpret quantitative data, so that financial decisions are based on a reasonable forecast of the future. Indeed, all financial decisions contain some implicit forecast. Every decision made by a banker or bank customer is made under conditions of uncertainty. Uncertainty arises
More DetailsDig DeeperBasic Statistical and Quantitative Methods
The use of quantitative data is at the heart of finance. There are several core evaluative techniques used to interpret quantitative data, so that financial decisions are based on a reasonable forecast of the future. Indeed, all financial decisions contain some implicit forecast. Every decision made by a banker or bank customer is made under conditions of uncertainty. Uncertainty arises
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Uncertain Cash Flow Combinations
Uncertain Cash Flow Combinations
Measures of association are important because most risk analysis involves more than a single series of prices, rates, or cash flows, and financial managers must analyze the risk of combinations of securities. Association between assets affects the overall level of risk in the portfolio. Hedging, one of the primary means of reducing risk, depends on determining whether there is positive
More DetailsDig DeeperMeasures of association are important because most risk analysis involves more than a single series of prices, rates, or cash flows, and financial managers...
Uncertain Cash Flow Combinations
Measures of association are important because most risk analysis involves more than a single series of prices, rates, or cash flows, and financial managers must analyze the risk of combinations of securities. Association between assets affects the overall level of risk in the portfolio. Hedging, one of the primary means of reducing risk, depends on determining whether there is positive
More DetailsDig DeeperUncertain Cash Flow Combinations
Measures of association are important because most risk analysis involves more than a single series of prices, rates, or cash flows, and financial managers must analyze the risk of combinations of securities. Association between assets affects the overall level of risk in the portfolio. Hedging, one of the primary means of reducing risk, depends on determining whether there is positive
More DetailsDig Deeper
Duration and Convexity
Duration and Convexity
Interest rate risk is taken seriously by bond investors. Investors want to be able to compare the risk of holding different bonds, since bonds have varying sensitivity to changes in interest rates. Duration and convexity are tools that enable the portfolio manager and individual investor to identify the risk in specific bonds. This not only lets them choose the right
More DetailsDig DeeperInterest rate risk is taken seriously by bond investors. Investors want to be able to compare the risk of holding different bonds, since bonds...
Duration and Convexity
Interest rate risk is taken seriously by bond investors. Investors want to be able to compare the risk of holding different bonds, since bonds have varying sensitivity to changes in interest rates. Duration and convexity are tools that enable the portfolio manager and individual investor to identify the risk in specific bonds. This not only lets them choose the right
More DetailsDig DeeperDuration and Convexity
Interest rate risk is taken seriously by bond investors. Investors want to be able to compare the risk of holding different bonds, since bonds have varying sensitivity to changes in interest rates. Duration and convexity are tools that enable the portfolio manager and individual investor to identify the risk in specific bonds. This not only lets them choose the right
More DetailsDig Deeper
Duration Properties
Duration Properties
In simple terms, duration or, more specifically, modified duration (which will be defined later) is a measurement of the price sensitivity of a financial instrument (more specifically, any series of cash flows) to changes in interest rates. That is, modified duration is a means to determine, with a high degree of accuracy, how much the present value (or price) of
More DetailsDig DeeperIn simple terms, duration or, more specifically, modified duration (which will be defined later) is a measurement of the price sensitivity of a financial...
Duration Properties
In simple terms, duration or, more specifically, modified duration (which will be defined later) is a measurement of the price sensitivity of a financial instrument (more specifically, any series of cash flows) to changes in interest rates. That is, modified duration is a means to determine, with a high degree of accuracy, how much the present value (or price) of
More DetailsDig DeeperDuration Properties
In simple terms, duration or, more specifically, modified duration (which will be defined later) is a measurement of the price sensitivity of a financial instrument (more specifically, any series of cash flows) to changes in interest rates. That is, modified duration is a means to determine, with a high degree of accuracy, how much the present value (or price) of
More DetailsDig Deeper
Quantitative and Fixed Income Analysis
Quantitative and Fixed Income Analysis
The calculation and interpretation of prices, yields, and volatility are critical to risk managers. The key calculations needed to pass the FRM exam are: time value of money (using both discrete and continuous compounding); bond prices and yields; annuities; duration and convexity; correlation; slope of a line (univariate regression); and joint probability and the binomial distribution. In addition, an understanding
More DetailsDig DeeperThe calculation and interpretation of prices, yields, and volatility are critical to risk managers. The key calculations needed to pass the FRM exam are:...
Quantitative and Fixed Income Analysis
The calculation and interpretation of prices, yields, and volatility are critical to risk managers. The key calculations needed to pass the FRM exam are: time value of money (using both discrete and continuous compounding); bond prices and yields; annuities; duration and convexity; correlation; slope of a line (univariate regression); and joint probability and the binomial distribution. In addition, an understanding
More DetailsDig DeeperQuantitative and Fixed Income Analysis
The calculation and interpretation of prices, yields, and volatility are critical to risk managers. The key calculations needed to pass the FRM exam are: time value of money (using both discrete and continuous compounding); bond prices and yields; annuities; duration and convexity; correlation; slope of a line (univariate regression); and joint probability and the binomial distribution. In addition, an understanding
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Net Present Value and Internal Rate of Return
Net Present Value and Internal Rate of Return
When choosing between investments with unequal cash flows generated over equal time periods, the most common calculations are net present value and internal rate of return. NPV is the sum of all the present values of the cash flows for a given investment. Internal rate of return is the discount rate that will produce a net present value of zero
More DetailsDig DeeperWhen choosing between investments with unequal cash flows generated over equal time periods, the most common calculations are net present value and internal rate...
Net Present Value and Internal Rate of Return
When choosing between investments with unequal cash flows generated over equal time periods, the most common calculations are net present value and internal rate of return. NPV is the sum of all the present values of the cash flows for a given investment. Internal rate of return is the discount rate that will produce a net present value of zero
More DetailsDig DeeperNet Present Value and Internal Rate of Return
When choosing between investments with unequal cash flows generated over equal time periods, the most common calculations are net present value and internal rate of return. NPV is the sum of all the present values of the cash flows for a given investment. Internal rate of return is the discount rate that will produce a net present value of zero
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Compound Interest
Compound Interest
The frequency of compounding is one of the key differences between quoting conventions in different markets. Annual returns are expressed as an annual nominal interest rate, also called the quoted interest rate, which is the annual rate before compounding. A periodic rate is the nominal rate divided into periods: daily, monthly, quarterly, or semi-annually. If quoted instruments do not have
More DetailsDig DeeperThe frequency of compounding is one of the key differences between quoting conventions in different markets. Annual returns are expressed as an annual nominal...
Compound Interest
The frequency of compounding is one of the key differences between quoting conventions in different markets. Annual returns are expressed as an annual nominal interest rate, also called the quoted interest rate, which is the annual rate before compounding. A periodic rate is the nominal rate divided into periods: daily, monthly, quarterly, or semi-annually. If quoted instruments do not have
More DetailsDig DeeperCompound Interest
The frequency of compounding is one of the key differences between quoting conventions in different markets. Annual returns are expressed as an annual nominal interest rate, also called the quoted interest rate, which is the annual rate before compounding. A periodic rate is the nominal rate divided into periods: daily, monthly, quarterly, or semi-annually. If quoted instruments do not have
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Credit Spreads, Correlation and CDS Indexes
Credit Spreads, Correlation and CDS Indexes
Credit derivatives pricing is based on the credit or risk spread over a floating rate benchmark (e.g., LIBOR or EURIBOR) at which a particular entity's debt will trade. This spread has historically been different for bonds and loans, but the development of the credit derivatives market has caused these spreads to narrow - a logical expectation, as both spreads reflect
More DetailsDig DeeperCredit derivatives pricing is based on the credit or risk spread over a floating rate benchmark (e.g., LIBOR or EURIBOR) at which a particular...
Credit Spreads, Correlation and CDS Indexes
Credit derivatives pricing is based on the credit or risk spread over a floating rate benchmark (e.g., LIBOR or EURIBOR) at which a particular entity's debt will trade. This spread has historically been different for bonds and loans, but the development of the credit derivatives market has caused these spreads to narrow - a logical expectation, as both spreads reflect
More DetailsDig DeeperCredit Spreads, Correlation and CDS Indexes
Credit derivatives pricing is based on the credit or risk spread over a floating rate benchmark (e.g., LIBOR or EURIBOR) at which a particular entity's debt will trade. This spread has historically been different for bonds and loans, but the development of the credit derivatives market has caused these spreads to narrow - a logical expectation, as both spreads reflect
More DetailsDig Deeper
Correlation and Causality
Correlation and Causality
Measures of association are important, because most risk analysis involves more than a single series of prices, rates, or cash flows. Financial managers must analyze the risk of combinations of securities. A portfolio manager may have hundreds of different stocks, bonds, or loans in a portfolio and wants to measure and minimize the risk of the entire portfolio. A corporate
More DetailsDig DeeperMeasures of association are important, because most risk analysis involves more than a single series of prices, rates, or cash flows. Financial managers must...
Correlation and Causality
Measures of association are important, because most risk analysis involves more than a single series of prices, rates, or cash flows. Financial managers must analyze the risk of combinations of securities. A portfolio manager may have hundreds of different stocks, bonds, or loans in a portfolio and wants to measure and minimize the risk of the entire portfolio. A corporate
More DetailsDig DeeperCorrelation and Causality
Measures of association are important, because most risk analysis involves more than a single series of prices, rates, or cash flows. Financial managers must analyze the risk of combinations of securities. A portfolio manager may have hundreds of different stocks, bonds, or loans in a portfolio and wants to measure and minimize the risk of the entire portfolio. A corporate
More DetailsDig Deeper
Calculating Prices and Yields
Calculating Prices and Yields
Calculating the yields on different financial instruments is an essential skill for every banker. A debt instrument is priced by using its yield to maturity to discount its cash flows, and each type of instrument contains different cash flow structures. Several yield calculations apply to long-term, interest-bearing instruments, including the coupon rate, current yield, yield-to-maturity, bond equivalent yield, and ISMA
More DetailsDig DeeperCalculating the yields on different financial instruments is an essential skill for every banker. A debt instrument is priced by using its yield to...
Calculating Prices and Yields
Calculating the yields on different financial instruments is an essential skill for every banker. A debt instrument is priced by using its yield to maturity to discount its cash flows, and each type of instrument contains different cash flow structures. Several yield calculations apply to long-term, interest-bearing instruments, including the coupon rate, current yield, yield-to-maturity, bond equivalent yield, and ISMA
More DetailsDig DeeperCalculating Prices and Yields
Calculating the yields on different financial instruments is an essential skill for every banker. A debt instrument is priced by using its yield to maturity to discount its cash flows, and each type of instrument contains different cash flow structures. Several yield calculations apply to long-term, interest-bearing instruments, including the coupon rate, current yield, yield-to-maturity, bond equivalent yield, and ISMA
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Valuing Bonds Using Option-Adjusted Spreads
Valuing Bonds Using Option-Adjusted Spreads
Option-adjusted spread (OAS) methodology addresses a major difficulty in valuing bonds with embedded options: the fact that the bond's cash flows change when the options are exercised. By explicitly incorporating an estimate of interest rate volatility into the bond's value, OAS methodology produces better valuations and more informed decisions by fund managers, traders, and issuers. The unit covers the development,
More DetailsDig DeeperOption-adjusted spread (OAS) methodology addresses a major difficulty in valuing bonds with embedded options: the fact that the bond’s cash flows change when the...
Valuing Bonds Using Option-Adjusted Spreads
Option-adjusted spread (OAS) methodology addresses a major difficulty in valuing bonds with embedded options: the fact that the bond's cash flows change when the options are exercised. By explicitly incorporating an estimate of interest rate volatility into the bond's value, OAS methodology produces better valuations and more informed decisions by fund managers, traders, and issuers. The unit covers the development,
More DetailsDig DeeperValuing Bonds Using Option-Adjusted Spreads
Option-adjusted spread (OAS) methodology addresses a major difficulty in valuing bonds with embedded options: the fact that the bond's cash flows change when the options are exercised. By explicitly incorporating an estimate of interest rate volatility into the bond's value, OAS methodology produces better valuations and more informed decisions by fund managers, traders, and issuers. The unit covers the development,
More DetailsDig DeeperTrend Analysis and Regression
Trend analysis can develop a sense of the volatility of a time series by looking at how the historical data varies around the trend line, although trend analysis provides no summary measure of volatility. Trend-fitting calculations are simple, and most spreadsheets automate the process of trend analysis. Regression analysis is a way to describe the relationship between two or more
More DetailsDig DeeperBasic Statistical and Quantitative Methods
The use of quantitative data is at the heart of finance. There are several core evaluative techniques used to interpret quantitative data, so that financial decisions are based on a reasonable forecast of the future. Indeed, all financial decisions contain some implicit forecast. Every decision made by a banker or bank customer is made under conditions of uncertainty. Uncertainty arises
More DetailsDig DeeperUncertain Cash Flow Combinations
Measures of association are important because most risk analysis involves more than a single series of prices, rates, or cash flows, and financial managers must analyze the risk of combinations of securities. Association between assets affects the overall level of risk in the portfolio. Hedging, one of the primary means of reducing risk, depends on determining whether there is positive
More DetailsDig DeeperDuration and Convexity
Interest rate risk is taken seriously by bond investors. Investors want to be able to compare the risk of holding different bonds, since bonds have varying sensitivity to changes in interest rates. Duration and convexity are tools that enable the portfolio manager and individual investor to identify the risk in specific bonds. This not only lets them choose the right
More DetailsDig DeeperDuration Properties
In simple terms, duration or, more specifically, modified duration (which will be defined later) is a measurement of the price sensitivity of a financial instrument (more specifically, any series of cash flows) to changes in interest rates. That is, modified duration is a means to determine, with a high degree of accuracy, how much the present value (or price) of
More DetailsDig DeeperQuantitative and Fixed Income Analysis
The calculation and interpretation of prices, yields, and volatility are critical to risk managers. The key calculations needed to pass the FRM exam are: time value of money (using both discrete and continuous compounding); bond prices and yields; annuities; duration and convexity; correlation; slope of a line (univariate regression); and joint probability and the binomial distribution. In addition, an understanding
More DetailsDig DeeperNet Present Value and Internal Rate of Return
When choosing between investments with unequal cash flows generated over equal time periods, the most common calculations are net present value and internal rate of return. NPV is the sum of all the present values of the cash flows for a given investment. Internal rate of return is the discount rate that will produce a net present value of zero
More DetailsDig DeeperCompound Interest
The frequency of compounding is one of the key differences between quoting conventions in different markets. Annual returns are expressed as an annual nominal interest rate, also called the quoted interest rate, which is the annual rate before compounding. A periodic rate is the nominal rate divided into periods: daily, monthly, quarterly, or semi-annually. If quoted instruments do not have
More DetailsDig DeeperCredit Spreads, Correlation and CDS Indexes
Credit derivatives pricing is based on the credit or risk spread over a floating rate benchmark (e.g., LIBOR or EURIBOR) at which a particular entity's debt will trade. This spread has historically been different for bonds and loans, but the development of the credit derivatives market has caused these spreads to narrow - a logical expectation, as both spreads reflect
More DetailsDig DeeperCorrelation and Causality
Measures of association are important, because most risk analysis involves more than a single series of prices, rates, or cash flows. Financial managers must analyze the risk of combinations of securities. A portfolio manager may have hundreds of different stocks, bonds, or loans in a portfolio and wants to measure and minimize the risk of the entire portfolio. A corporate
More DetailsDig DeeperCalculating Prices and Yields
Calculating the yields on different financial instruments is an essential skill for every banker. A debt instrument is priced by using its yield to maturity to discount its cash flows, and each type of instrument contains different cash flow structures. Several yield calculations apply to long-term, interest-bearing instruments, including the coupon rate, current yield, yield-to-maturity, bond equivalent yield, and ISMA
More DetailsDig DeeperValuing Bonds Using Option-Adjusted Spreads
Option-adjusted spread (OAS) methodology addresses a major difficulty in valuing bonds with embedded options: the fact that the bond's cash flows change when the options are exercised. By explicitly incorporating an estimate of interest rate volatility into the bond's value, OAS methodology produces better valuations and more informed decisions by fund managers, traders, and issuers. The unit covers the development,
More DetailsDig Deeper