{"product_id":"investment-theory-and-risk-management-website-isbn-9781118129593","title":"Investment Theory and Risk Management, + Website","description":"\u003cb\u003eA unique perspective on applied investment theory and risk management from the Senior Risk Officer of a major pension fund\u003c\/b\u003e  \u003cp\u003e\u003ci\u003eInvestment Theory and Risk Management\u003c\/i\u003e is a practical guide to today's investment environment. The book's sophisticated quantitative methods are examined by an author who uses these methods at the Virginia Retirement System \u003ci\u003eand\u003c\/i\u003e teaches them at the Virginia Commonwealth University. In addition to showing how investment performance can be evaluated, using Jensen's Alpha, Sharpe's Ratio, and DDM, he delves into four types of optimal portfolios (one that is fully invested, one with targeted returns, another with no short sales, and one with capped investment allocations).\u003c\/p\u003e \u003cp\u003eIn addition, the book provides valuable insights on risk, and topics such as anomalies, factor models, and active portfolio management. Other chapters focus on private equity, structured credit, optimal rebalancing, data problems, and Monte Carlo simulation.\u003c\/p\u003e \u003cul\u003e \u003cli\u003eContains investment theory and risk management spreadsheet models based on the author's own real-world experience with stock, bonds, and alternative assets\u003c\/li\u003e \u003cli\u003eOffers a down-to-earth guide that can be used on a daily basis for making common financial decisions with a new level of quantitative sophistication and rigor\u003c\/li\u003e \u003cli\u003eWritten by the Director of Research and Senior Risk Officer for the Virginia Retirement System and an Associate Professor at Virginia Commonwealth University's School of Business\u003c\/li\u003e \u003c\/ul\u003e \u003cp\u003e\u003ci\u003eInvestment Theory and Risk Management\u003c\/i\u003e empowers both the technical and non-technical reader with the essential knowledge necessary to understand and manage risks in any corporate or economic environment.\u003c\/p\u003e  \u003cp\u003ePreface xv\u003c\/p\u003e \u003cp\u003eAcknowledgments xix\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 1 Discount Rates and Returns 1\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eEstimating Returns 1\u003c\/p\u003e \u003cp\u003eGeometric and Arithmetic Averages 4\u003c\/p\u003e \u003cp\u003eCaveats to Return Extrapolation 5\u003c\/p\u003e \u003cp\u003eDiscounting Present Values of Cash Flow Streams 7\u003c\/p\u003e \u003cp\u003eInternal Rate of Return and Yield to Maturity 11\u003c\/p\u003e \u003cp\u003eReal and Nominal Returns 14\u003c\/p\u003e \u003cp\u003eSummary 14\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 2 Fixed Income Securities 17\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eCoupon-Bearing Bonds 19\u003c\/p\u003e \u003cp\u003eInfinite Cash Flow Streams (Perpetuities) 21\u003c\/p\u003e \u003cp\u003eGeneral Pricing Formulas for Finite Cash Flow Streams 22\u003c\/p\u003e \u003cp\u003eInterest Rate Risk 24\u003c\/p\u003e \u003cp\u003eAnalysis of Duration 29\u003c\/p\u003e \u003cp\u003eInterest Rate Risk Dynamics 31\u003c\/p\u003e \u003cp\u003eImmunization and Duration 32\u003c\/p\u003e \u003cp\u003eApplications—Liability Discounting and Cash Matching 36\u003c\/p\u003e \u003cp\u003ePension Logic 39\u003c\/p\u003e \u003cp\u003eRisky Coupons 42\u003c\/p\u003e \u003cp\u003eInflation Risk and TIPS 43\u003c\/p\u003e \u003cp\u003eA Bond Portfolio Strategy (Optional) 45\u003c\/p\u003e \u003cp\u003eSummary 48\u003c\/p\u003e \u003cp\u003eAppendix 2.1: Solving Infinite and Finite Power Series 49\u003c\/p\u003e \u003cp\u003eReference 50\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 3 Term Structure 51\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eDiscounting Using Spot Rates 51\u003c\/p\u003e \u003cp\u003eForward Rates 53\u003c\/p\u003e \u003cp\u003eNPV Revisited 56\u003c\/p\u003e \u003cp\u003eShort Rates 57\u003c\/p\u003e \u003cp\u003eThe Bootstrap Method 58\u003c\/p\u003e \u003cp\u003eDuration Redux 62\u003c\/p\u003e \u003cp\u003eSummary 66\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 4 Equity 67\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eThe Determination of Stock Prices 68\u003c\/p\u003e \u003cp\u003eDiscount Rates Redux 70\u003c\/p\u003e \u003cp\u003ePrice and Dividend Multiples 73\u003c\/p\u003e \u003cp\u003eExtrapolating Multiples to Forecast Returns 74\u003c\/p\u003e \u003cp\u003ePitfalls of Trend Analysis 75\u003c\/p\u003e \u003cp\u003eThe Gordon Growth Model 78\u003c\/p\u003e \u003cp\u003eSources of Return 82\u003c\/p\u003e \u003cp\u003eSummary 85\u003c\/p\u003e \u003cp\u003eReferences 86\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 5 Portfolio Construction 87\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eStochastic Returns and Risk 87\u003c\/p\u003e \u003cp\u003eDiversification 92\u003c\/p\u003e \u003cp\u003eThe Efficient Frontier 93\u003c\/p\u003e \u003cp\u003eMarkowitz Portfolio Selection Criteria 97\u003c\/p\u003e \u003cp\u003eCapital Market Line and the CAPM 101\u003c\/p\u003e \u003cp\u003ePerformance Evaluation 106\u003c\/p\u003e \u003cp\u003eSummary 108\u003c\/p\u003e \u003cp\u003eAppendix 5.1: Statistical Review 108\u003c\/p\u003e \u003cp\u003eAppendix 5.2: Risk-Adjusted Performance 112\u003c\/p\u003e \u003cp\u003eReference 113\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 6 Optimal Portfolios 115\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003ePortfolio 1: Minimum Variance Portfolio (Fully Invested) 115\u003c\/p\u003e \u003cp\u003ePortfolio 2: Minimum Variance Portfolios with\u003c\/p\u003e \u003cp\u003eTargeted Return 118\u003c\/p\u003e \u003cp\u003ePortfolio 3: Minimum Variance Portfolios with No Short Sales 119\u003c\/p\u003e \u003cp\u003ePortfolio 4: Minimum Variance Portfolios with Capped Allocations 122\u003c\/p\u003e \u003cp\u003ePortfolio 5: Maximum Risk-Adjusted Return 123\u003c\/p\u003e \u003cp\u003ePerformance Attribution 125\u003c\/p\u003e \u003cp\u003eThe Efficient Frontier (Again) 127\u003c\/p\u003e \u003cp\u003eSummary 129\u003c\/p\u003e \u003cp\u003eAppendix 6.1: Matrix Operations 129\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 7 Data and Applications 135\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eAnalyzing Returns on a 10-Asset Portfolio 135\u003c\/p\u003e \u003cp\u003ePerformance Attribution 137\u003c\/p\u003e \u003cp\u003eChanging the Investment Horizon Returns Frequency 139\u003c\/p\u003e \u003cp\u003eBenchmarking to the Market Portfolio 141\u003c\/p\u003e \u003cp\u003eThe Cost of Constraints 144\u003c\/p\u003e \u003cp\u003eA Bond Strategy 145\u003c\/p\u003e \u003cp\u003eSummary 147\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 8 Anomalies 149\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eDeviations from the CAPM 150\u003c\/p\u003e \u003cp\u003eBehavioral Finance 155\u003c\/p\u003e \u003cp\u003eSummary 161\u003c\/p\u003e \u003cp\u003eReferences 162\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 9 Factor Models 165\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eArbitrage Pricing Theory (APT) 166\u003c\/p\u003e \u003cp\u003eFactor Selection 170\u003c\/p\u003e \u003cp\u003eModel Estimation 172\u003c\/p\u003e \u003cp\u003ePrincipal Components 177\u003c\/p\u003e \u003cp\u003eApplications and Examples 181\u003c\/p\u003e \u003cp\u003eSummary 186\u003c\/p\u003e \u003cp\u003eReferences 186\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 10 Active Portfolio Management 187\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eActive Portfolio Construction and Attribution Analysis 190\u003c\/p\u003e \u003cp\u003ePerformance Attribution 192\u003c\/p\u003e \u003cp\u003eSummary 194\u003c\/p\u003e \u003cp\u003eAppendix 10.1: Active Space 195\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 11 Risk 197\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eThe Failure of VaR 198\u003c\/p\u003e \u003cp\u003eTaxonomy of Risk 200\u003c\/p\u003e \u003cp\u003eVisualizing Risk 202\u003c\/p\u003e \u003cp\u003eEstimating Volatilities 208\u003c\/p\u003e \u003cp\u003eMaximum Likelihood Estimation (Optional) 213\u003c\/p\u003e \u003cp\u003eCredit Risk 215\u003c\/p\u003e \u003cp\u003eAdjusting for Leverage 217\u003c\/p\u003e \u003cp\u003eAdjusting for Illiquidity 221\u003c\/p\u003e \u003cp\u003eOther Risks 221\u003c\/p\u003e \u003cp\u003eSummary 222\u003c\/p\u003e \u003cp\u003eReferences 222\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 12 Monte Carlo Methods 225\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eExample 12.1: Generating Random\u003c\/p\u003e \u003cp\u003eNumbers—Estimating P 226\u003c\/p\u003e \u003cp\u003eExample 12.2: Confirming the Central Limit Theorem 227\u003c\/p\u003e \u003cp\u003eExample 12.3: Credit Default Risk 228\u003c\/p\u003e \u003cp\u003eNon-Normal Distributions 232\u003c\/p\u003e \u003cp\u003eThe Gaussian Copula 234\u003c\/p\u003e \u003cp\u003eSummary 239\u003c\/p\u003e \u003cp\u003eReferences 239\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 13 Systemic Risk 241\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eExtreme Value Theory 242\u003c\/p\u003e \u003cp\u003eEstimating the Hazards of Downside Risks 246\u003c\/p\u003e \u003cp\u003eA Systemic Risk Indicator 252\u003c\/p\u003e \u003cp\u003eSummary 255\u003c\/p\u003e \u003cp\u003eReferences 256\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 14 Incorporating Subjective Views 257\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eMethodological Concepts 258\u003c\/p\u003e \u003cp\u003eAn Example Using Black-Litterman 263\u003c\/p\u003e \u003cp\u003eActive Space 266\u003c\/p\u003e \u003cp\u003eRisk Attribution 267\u003c\/p\u003e \u003cp\u003eSummary 268\u003c\/p\u003e \u003cp\u003eReferences 269\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 15 Futures, Forwards, and Swaps 271\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eInstitutional Detail and Futures Mechanics 271\u003c\/p\u003e \u003cp\u003eThe Relationship between Spot Prices and Forward (Futures) Prices 274\u003c\/p\u003e \u003cp\u003eHedging Basis Risk 276\u003c\/p\u003e \u003cp\u003eHedging Portfolio Risk 278\u003c\/p\u003e \u003cp\u003eFutures Pricing 280\u003c\/p\u003e \u003cp\u003eSwaps 287\u003c\/p\u003e \u003cp\u003eSummary 291\u003c\/p\u003e \u003cp\u003eReferences 292\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 16 Introduction to Options 293\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eOption Payoffs and Put-Call Parity 294\u003c\/p\u003e \u003cp\u003ePricing European Call Options 297\u003c\/p\u003e \u003cp\u003ePricing European Put Options 301\u003c\/p\u003e \u003cp\u003eOption Strategies 302\u003c\/p\u003e \u003cp\u003eReal Options 308\u003c\/p\u003e \u003cp\u003eSummary 314\u003c\/p\u003e \u003cp\u003eReferences 314\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 17 Models of Stock Price Dynamics 315\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eStock Price Dynamics 315\u003c\/p\u003e \u003cp\u003eIto Processes 318\u003c\/p\u003e \u003cp\u003eLognormal Stock Prices 321\u003c\/p\u003e \u003cp\u003eDeriving the Parameters of the Binomial Lattice 325\u003c\/p\u003e \u003cp\u003eBlack-Scholes-Merton Model 327\u003c\/p\u003e \u003cp\u003eThe Greek Letters 330\u003c\/p\u003e \u003cp\u003eMonte Carlo Methods 335\u003c\/p\u003e \u003cp\u003eSummary 338\u003c\/p\u003e \u003cp\u003eAppendix 17.1: Derivation of Ito’s Lemma 339\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 18 Hedging Portfolio Risk 341\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eSimple Hedging Strategies 341\u003c\/p\u003e \u003cp\u003eS\u0026amp;P 500 Index Puts 343\u003c\/p\u003e \u003cp\u003eSelling Volatility 345\u003c\/p\u003e \u003cp\u003eVIX Calls 346\u003c\/p\u003e \u003cp\u003eLiability-Driven Investment 350\u003c\/p\u003e \u003cp\u003eSummary 353\u003c\/p\u003e \u003cp\u003eReferences 354\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 19 Private Equity 355\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eThe Private Equity Model 357\u003c\/p\u003e \u003cp\u003eReturn and Risk Methodology 360\u003c\/p\u003e \u003cp\u003eSummary 366\u003c\/p\u003e \u003cp\u003eAppendix 19.1: CAPM 366\u003c\/p\u003e \u003cp\u003eReferences 369\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 20 Structured Credit 371\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eSecuritization 372\u003c\/p\u003e \u003cp\u003eCredit Enhancement 374\u003c\/p\u003e \u003cp\u003eBasics of Pricing Interest Rate Derivatives 379\u003c\/p\u003e \u003cp\u003eInterest Rate Dynamics 381\u003c\/p\u003e \u003cp\u003eCMO Valuation 383\u003c\/p\u003e \u003cp\u003eThe Crash of the Housing Bubble 385\u003c\/p\u003e \u003cp\u003eSummary 387\u003c\/p\u003e \u003cp\u003eReference 388\u003c\/p\u003e \u003cp\u003eCHAPTER 21 Optimal Rebalancing 389\u003c\/p\u003e \u003cp\u003eTrigger Strategies and No-Trade Regions 390\u003c\/p\u003e \u003cp\u003eAn Optimal Control Problem 392\u003c\/p\u003e \u003cp\u003eImplications 395\u003c\/p\u003e \u003cp\u003eOptimal Rebalancing in a Static\u003c\/p\u003e \u003cp\u003eOptimization Model 396\u003c\/p\u003e \u003cp\u003eThe Comparative Statics of Transaction Costs 398\u003c\/p\u003e \u003cp\u003eReference 400\u003c\/p\u003e \u003cp\u003e\u003cb\u003eCHAPTER 22 Data Problems 401\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eCovariance Estimation 402\u003c\/p\u003e \u003cp\u003eAn Example 405\u003c\/p\u003e \u003cp\u003eEmpirical Results 407\u003c\/p\u003e \u003cp\u003eOverlapping Observations 413\u003c\/p\u003e \u003cp\u003eConclusions 416\u003c\/p\u003e \u003cp\u003eAppendix 22.1: Covariance Matrix Estimation 417\u003c\/p\u003e \u003cp\u003eReferences 420\u003c\/p\u003e \u003cp\u003eAbout the Author 423\u003c\/p\u003e \u003cp\u003eIndex 425\u003c\/p\u003e \u003cp\u003e\u003cb\u003eSTEVEN PETERSON\u003c\/b\u003e is the Director of Research and Senior Risk Officer for the Virginia Retirement System and an Associate Professor at Virginia Commonwealth University’s School of Business. He is directly responsible for the measurement, forecasting, and attribution of risk at both the program and plan levels, with risk broadly defined to include various market and nonmarket risks. Peterson has done consulting for Crestar Investment Bank, SunTrust Bank, Ford Motor Company, Virginia Center for Urban Development (VCU Center for Public Policy), Virginia Department of Social Services, Virginia Division of Child Support Enforcement, LandAmerica, Virginia Retirement System, and Virginia Department of Corrections. \u003c\/p\u003e  \u003cp\u003eAs markets become more competitive, volatile, and inherently more risky, embracing the opportunity to develop the skills that will allow you to become more effective in this investment environment is essential. \u003c\/p\u003e \u003cp\u003e Nobody understands this better than author Steven Peterson. And now, with \u003ci\u003eInvestment Theory \u0026amp; Risk Management + Website\u003c\/i\u003e, he combines his twenty-plus years of academic experience teaching at Virginia Commonwealth University’s School of Business with his professional roles as Director of Research and Senior Risk Officer for the Virginia Retirement System to put this discipline in perspective.  \u003c\/p\u003e\u003cp\u003e Written in a straightforward, conversational tone, \u003ci\u003eInvestment Theory \u0026amp; Risk Management + Website\u003c\/i\u003e emphasizes the underlying theoretical principles of this approach in a setting rich with direct applications using market data. Step by step, it skillfully introduces issues in financial economics and follows this up with information that will help you understand the intuition behind the theory.  \u003c\/p\u003e\u003cp\u003e Designed for every level of expertise, from professional portfolio manager to those just getting started, this reliable resource covers a broad range of topics that are essential to your success. Peterson takes the time to examine equity pricing models and how pricing is approached by practitioners—with some discussion of the caveats associated with these models. He also addresses optimization and statistical concepts more rigorously than most other investment books and provides comprehensive insights on portfolio optimization, construction, and risk management.  \u003c\/p\u003e\u003cp\u003e Along the way, you’ll be introduced to topics of increasing interest to those in the area of investing and risk management, including anomalies, active portfolio management, Monte Carlo techniques, factor models, systemic risk, hedging, and structured finance. And you’ll also gain valuable information on futures, forwards, swaps, and options as well as private equity.  \u003c\/p\u003e\u003cp\u003e Throughout the book, Peterson puts an emphasis on practical application. To that end, most chapters have a set of spreadsheets, containing data and applications, on a companion website. All the data used in the text appears in these chapter spreadsheets, as do all of the tables and figures—allowing you to continue to learn in a hands-on fashion long after closing the book.  \u003c\/p\u003e\u003cp\u003e Applying investment theory and risk management to real-world situations is much easier said than done. With this book as your guide, you’ll discover what it takes to achieve these difficult goals and learn how doing so can improve your long-term investment endeavors.\u003c\/p\u003e","brand":"Wiley","offers":[{"title":"Default Title","offer_id":47989475410149,"sku":"NP9781118129593","price":95.0,"currency_code":"USD","in_stock":false}],"thumbnail_url":"\/\/cdn.shopify.com\/s\/files\/1\/1842\/7735\/files\/9781118129593.jpg?v=1761784250","url":"https:\/\/k12savings.com\/products\/investment-theory-and-risk-management-website-isbn-9781118129593","provider":"K12savings","version":"1.0","type":"link"}