Volume 6, Number 3, Third 2008 View PDF… Read more
Third Quarter (2008)
BOOK REVIEWS: The Age of Turbulence: Adventures in a New World
Volume 6, Number 3, Third Quarter 2008 The Age of Turbulence: Adventures in a New World Alan Greenspan Reviewed by Bruce Grantier View PDF… Read more
CASE STUDIES
Jack L. Treynor Volume 6, Number 3, Third Quarter 2008 View PDF… Read more
Humpbacks in Credit Spreads
Deepak Agrawal and Jeffrey R. Bohn Volume 6, Number 3, Third Quarter 2008 Models of credit valuation generally predict a hump-shaped spread term structure for low quality issuers. This is understood to be driven by the shape of the underlying conditional default probabilities curve. We show that (a) recovery assumptions and (b) deviation of bond’s… Read more
A Structural Analysis of the Default Swap Market, Part 1 (Calibration)
Lisa R. Goldberg, Rajnish Kamat and Vijay Poduri Volume 6, Number 3, Third Quarter 2008 We analyze the default swap market with the two factor I2 structural model, which is driven by firm value and firm leverage. As we show empirically, the de- fault swap market incorporates these risks differentially over time, by region, by… Read more
The Structure of Hybrid Factor Models
Jose Menchero and Indrajit Mitra Volume 6, Number 3, Third Quarter 2008 We study the problem of augmenting fundamental risk models with statistical factors in order to capture the risk associated with omitted factors. The statistical factors are estimated by applying principal component analysis to the cross-sectional residuals. We show that in the limit of… Read more
Optimal Trading Strategy with Optimal Horizon
Edward E. Qian Volume 6, Number 3, Third Quarter 2008 Portfolio implementation is an essential part of active investment strategies. The trading horizon-the length of time allocated for trade implementation, is an important consideration in portfolio trading. Previous research on optimal trading limits the trading horizon as a fixed value. In this paper, we treat… Read more
Where Do Alphas Come From?: A New Measure of the Value of Active Investment Management
Andrew W. Lo Volume 6, Number 3, Third Quarter 2008 The value of active investment management is traditionally measured by alpha, beta, volatility, tracking error, and the Sharpe and information ratios. These are essentially static characteristics of the marginal distributions of returns at a single point in time, and do not incorporate dynamic aspects of… Read more