This slide is presented in Management College of Innsbruck, Austria, 2015. The topic is referred to Social Enterprise in Taiwan. Three cases are included in this presentation.
master thesis presentation for pricing theory under negative interest rate en...Stephan Chang
This document contains a mix of text, numbers, formulas and code snippets related to quantitative finance modeling. It discusses topics like derivative pricing under negative interest rates, the SABR model, implied volatility, and mean reversion. Various formulas are presented for pricing derivatives, calculating implied volatility, and estimating parameters for models like SABR.
The document provides background information on the 2012 UBS rogue trading scandal. It discusses UBS's history and previous controversies. It describes how trader Kweku Adoboli made unauthorized trades that ultimately lost UBS $2 billion. The scandal led to executive resignations and damaged UBS's reputation. It also lowered credit ratings and market share for UBS. The document raises questions about preventing future scandals and discusses lessons around managing moral hazard and operational risk.
LTCM's case in 1998 would be presented in this slide.
It's my mid-term project at NCCU, Money and Banking department, for the course of " Option- Theory and Application. "
High frequency trading for the flash crashStephan Chang
The document analyzes data from the "Flash Crash" event of May 6, 2010, where major stock market indices experienced an extraordinary decline and recovery in a short period. The researchers find that:
1) High frequency traders (HFTs) did not cause the Flash Crash and did not hold large enough positions to influence prices significantly.
2) The crash was triggered by a large sell order of 75,000 futures contracts worth $4 billion.
3) During the crash, HFTs traded faster but followed the same strategies as normal days, while intermediaries were caught on the wrong side of price moves.
This slide is presented in Management College of Innsbruck, Austria, 2015. The topic is referred to Social Enterprise in Taiwan. Three cases are included in this presentation.
master thesis presentation for pricing theory under negative interest rate en...Stephan Chang
This document contains a mix of text, numbers, formulas and code snippets related to quantitative finance modeling. It discusses topics like derivative pricing under negative interest rates, the SABR model, implied volatility, and mean reversion. Various formulas are presented for pricing derivatives, calculating implied volatility, and estimating parameters for models like SABR.
The document provides background information on the 2012 UBS rogue trading scandal. It discusses UBS's history and previous controversies. It describes how trader Kweku Adoboli made unauthorized trades that ultimately lost UBS $2 billion. The scandal led to executive resignations and damaged UBS's reputation. It also lowered credit ratings and market share for UBS. The document raises questions about preventing future scandals and discusses lessons around managing moral hazard and operational risk.
LTCM's case in 1998 would be presented in this slide.
It's my mid-term project at NCCU, Money and Banking department, for the course of " Option- Theory and Application. "
High frequency trading for the flash crashStephan Chang
The document analyzes data from the "Flash Crash" event of May 6, 2010, where major stock market indices experienced an extraordinary decline and recovery in a short period. The researchers find that:
1) High frequency traders (HFTs) did not cause the Flash Crash and did not hold large enough positions to influence prices significantly.
2) The crash was triggered by a large sell order of 75,000 futures contracts worth $4 billion.
3) During the crash, HFTs traded faster but followed the same strategies as normal days, while intermediaries were caught on the wrong side of price moves.
This document discusses the LIBOR Market Model (LMM) for pricing interest rate derivatives. It covers:
1. The HJM framework and finite number of time periods with lognormal LIBOR rates. This is the Brace-Gatarek-Musiela (BGM) model which is also known as the LMM or LFM.
2. Assumptions of the BGM model including positive, continuous LIBOR rates that follow a lognormal process.
3. Pricing of interest rate derivatives like caplets, floorlets, caps and floors using the Black formula under the risk-neutral measure. Caplets and floorlets are priced individually and then summed to obtain prices for caps
Solomon Asch's conformity experiments showed that people are inclined to conform their opinions to those of the group, even when the group's opinion conflicts with objective evidence. This tendency towards herding behavior has also been observed in individual investors. Studies of retail brokerage data found evidence that buying and selling decisions of individual investors are highly correlated and influenced by past stock returns, even when not driven by institutional investors, taxes, or risk preferences. The herding causes investors to concentrate their buying in fewer stocks than their selling and to be net buyers of stocks with unusually high trading volume. As a result, individual investors have the potential to systematically affect asset prices through their correlated behavior.
Hedging or market timing? selecting the interest rate exposure of corporate d...Stephan Chang
1. The document examines how firms choose the interest rate exposure of newly issued debt. It analyzes whether firms are hedging interest rate risk or timing the market.
2. Empirical analysis of debt issuances by chemical firms from 1994-1999 finds that firms' cash flow sensitivity to interest rates does not predict their choice of fixed or floating rate debt.
3. Firms are more likely to issue floating rate debt when yield spreads are higher, indicating they are timing the market rather than hedging firm-specific risks. The findings suggest firms manage macroeconomic and industry risks rather than hedging internal risks.
This document discusses the LIBOR Market Model (LMM) for pricing interest rate derivatives. It covers:
1. The HJM framework and finite number of time periods with lognormal LIBOR rates. This is the Brace-Gatarek-Musiela (BGM) model which is also known as the LMM or LFM.
2. Assumptions of the BGM model including positive, continuous LIBOR rates that follow a lognormal process.
3. Pricing of interest rate derivatives like caplets, floorlets, caps and floors using the Black formula under the risk-neutral measure. Caplets and floorlets are priced individually and then summed to obtain prices for caps
Solomon Asch's conformity experiments showed that people are inclined to conform their opinions to those of the group, even when the group's opinion conflicts with objective evidence. This tendency towards herding behavior has also been observed in individual investors. Studies of retail brokerage data found evidence that buying and selling decisions of individual investors are highly correlated and influenced by past stock returns, even when not driven by institutional investors, taxes, or risk preferences. The herding causes investors to concentrate their buying in fewer stocks than their selling and to be net buyers of stocks with unusually high trading volume. As a result, individual investors have the potential to systematically affect asset prices through their correlated behavior.
Hedging or market timing? selecting the interest rate exposure of corporate d...Stephan Chang
1. The document examines how firms choose the interest rate exposure of newly issued debt. It analyzes whether firms are hedging interest rate risk or timing the market.
2. Empirical analysis of debt issuances by chemical firms from 1994-1999 finds that firms' cash flow sensitivity to interest rates does not predict their choice of fixed or floating rate debt.
3. Firms are more likely to issue floating rate debt when yield spreads are higher, indicating they are timing the market rather than hedging firm-specific risks. The findings suggest firms manage macroeconomic and industry risks rather than hedging internal risks.
Are the fama and french factors global or country specific?
1. Are the Fama and French Factors
Global or Country Specific ?
John M. Griffin / Arizona State University
Speakers: 張博能/ 歐哲源/ 姚博⽂文
The Review of financial Studies Summer 2002 Vol. 15, No. 3, pp. 783-803
ⓒ 2002 The Society for Financial Studies
1st group, 2nd presentation, 2015
Financial Management @ NCCU
4. Key Result
This paper proposed
1. Portfolio and individual stock
2. In-sample & out-of-sample pricing
3. Two practical applications
# Capital Caculation
# Performance Evaluation
# Additional Foreign Factor lead to pricing error.
# Country-specific model explains the return better.
5. Agenda
Background introduction |
Related literature | Basic research idea
Today’s presentation
Data & Descriptive statistics |
Sorted portfolios | Individual securities
Out-of-sample evidence |
Additional Evidence | Conclusion
1
2
3
7. Three-factor model
Related Works
Expect return = Excess market return
+ Size factor (SMB)
+ Book-to-market factor (HMB)
Fama & French (1992,1993,1995,1996,1998)
1
Fama & French (1998)
Global Model = World market return
+ WorldBook-to-market factor (WHMB)
2
8. Global or Domestic
Important ?
In US stock market,
consider expected return estimates
Global Factors’
model
Country-Specific Factors’
model
8.41%
Difference!
11. BE / ME Effect
Related Works
1
Book-to-the-market equity is spurious.
# Black(1993), Mackinlay(1995)
- Data Mining Bias / Data Snooping Fallacy
# Kothari(1995)
- Selection Biases
12. BE / ME Effect
Related Works
Book-to-the-market equity captures the
“Risk Factor. ”
# Fama & French (1992,1993,1996)
2
# Chan(1991), Davis(1994), Fama&French(1998)
In addition to US stock’s Market, B/M is
significant in other market in the long run.
14. Other critics
Two main groups
1
Size and Book-to-market equity both are due to
inverstors’ overreaction. They [Lakonishok,
Shleifer, and Vishny(1994), Hauge (1995)] argue
that investor systematically overreact to
corporates’ news.
# Underpricing of the Value
# Overpricing of the growth
15. Other critics
Two main groups
2
Daniel and Titman (1997) challenge the risk-
based interpretation.
Firm characteristics(fundamentals) explain
returns better than Fama & French’s risk factor’s
idea.
# Davis, Fama, French(2000), challenge
Daniel’s and Titman’s idea again.
17. One way to further examine the
empirical validity is to use the
international data.
18. International data
Related Work
J
apanese stock return has powerful explanation
in characteristic instead of factor loading.
[Daniel, Titman, and Wei(2011)]
Liew and Vassalou (2000) shows that Fama & French’s
model still works in several international markets.
Fama & French (1998) implies that using world two-
factor model lead to explain international expected
return better.
19. The key point
This paper try to present
World-factor model and country-specific model
would be compared in this research.
B/M-sorted portfolio ,size-sorted portfolio and
individual security data should examined.
1
2
20. Three empirical models
Our objective work
1
World-factor regression-
rit = αi + bi(WMRFt) + si(WSMBt) + hi(WHMLt) + εi
WMRF: World market return in excess risk-free rate
WSMB: The difference between the returns on
small and large capitalization portfolio.
(SMB, small minus big)
WHML: The difference between the return on high
and low B/M portfolios. (HML, high minus low)
22. We should know,
Something details
egressions’ return is dollars-denominated.
RThe WDt-1 shows that the market capitalisation
of these countries in the sample attributable to the
domestic market in the previous month.
Also, WFt-1 indicates the similar reason that the
previous period foreign capitalisation would affect
the foreign capitalisation in this month.
24. The “Big Three” in our work
To sum up,
World-factors regression model
International regression model
Domestic regression model
# Return = World factors
# Return = Domestic Factors + Foreign Factors
# Return = Domestic Factors
55. Out-of-sample evaluation
( )
International(6,factors) world domestic
US 9.9% 9.89% 9.87%
Japan 8.89% 8.9% 8.86%
UK 8.16% 8.22% 8.13%
Canada 7.3% 7.33% 7.25%
◇ 結果:三種模型在預測報酬的誤差上都相當⼤大,
但domestic models 誤差較world & international models ⼩小
56. Additional Evidence
Formation of the world factors
Other International model
Usefulness of factors
Cross-sectional tests
} Domestic
模型較好
} Foreign Factor
解釋⼒力低
57. Formation of the world factors
➜ 如此⼀一來,的確可以提⾼高world
model的解釋能⼒力
但是不管組成國家為哪些,domes&c模型表現⽐比較好。
➜
前者分析是透過兩種⽅方式value-‐weighted和
equal-‐weighted各形成的三因⼦子模型
➜ 另⼀一種建構size和BE/ME的⽅方法是忽略各國間的差異
➜
foreign
factor也是以類似的⽅方法建構