Volume 8, Number 3 (2010) View PDF… Read more
3rd Quarter (2010)
BOOK REVIEWS: This Time is Different: Eight Centuries of Financial Crisis
This Time is Different: Eight Centuries of Financial Crisis Carmen M. Reinhart and Kenneth S. Rogoff Reviewed by Bruce Grantier View PDF… Read more
CASE STUDIES: Momentum Stocks
Jack L. Treynor View PDF… Read more
An Improved Implied Copula Model and Its Application to the Valuation of Bespoke CDO Tranches
John Hull and Alan White In Hull and White (2006) we showed how CDO quotes can be used to imply a probability distribution for the hazard rate over the life of the CDO. This is known as the implied copula model. In this paper we develop a parametric version of the implied copula model and… Read more
SURVEYS AND CROSSOVERS: The Libor/SABR Market Models: A Critical Review
Sanjay K. Nawalkha This paper reviews the LIBOR market model (LMM) and the LMM-SABR model. While a plethora of interest rate models, such as fundamental models, single-plus models, double-plus models, and triple-plus models, can be used for valuation of plain vanilla derivatives, only a few models such as the LMM and the LMM-SABR have been… Read more
Do Informed Investors Cause Momentum?
James H. Scott and Jorge A. Murillo We show that there will be expected momentum in stock returns if there are informed and uninformed investors, and if informed investors know the mean of the stocks future fundamental value. We use analysts estimates to construct a truncated valuation formula and find not only that stock prices… Read more
A Bayesian Approach to Stress Testing and Scenario Analysis
Riccardo Rebonato I present a new approach to stress testing that combines the elicitation of subjective (marginal or conditional) probabilities of events with the specification of a simple causal structure among them. By so doing, stress events are placed in an approximate but coherent probabilistic framework. The approach only requires the risk manager to provide… Read more
The Asset Growth Effect in Stock Returns
Michael J. Cooper, Huseyin Gulen and Michael J. Schill We document a strong negative relationship between the growth of total firm assets and subsequent firm stock returns using a broad sample of U.S. stocks. Over the past 40 years, low asset growth stocks have maintained a return premium of 20% per year over high asset… Read more
INSIGHTS: Some Lessons Learned in 42 Years of Business
Charles E. Harris From 1984 to 2008, I had the pleasure and privilege of serving as Chairman and CEO of Harris & Harris Group, LLC, a publicly traded venture capital firm based in New York. Upon my retirement, I decided to summarize lessons I learned in my 42 years in business for the benefit of… Read more