Active Portfolio Management: A Quantitative Approach for Producing Superior Returns and Controlling Risk

Active Portfolio Management: A Quantitative Approach for Producing Superior Returns and Controlling Risk
Average customer rating:

One to add to your reading list

Practical approach and mathematically rigorous at the same time

Theoretical framework with no practical examples.

This is the seminal text for Quantitative Finance

Very boring and dry

Active Portfolio Management: A Quantitative Approach for Producing Superior Returns and Controlling Risk
Richard C. Grinold , and Ronald N. Kahn
Manufacturer: McGraw-Hill
ProductGroup: Book
Binding: Hardcover

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ASIN: 0070248826

Book Description

"This new edition of Active Portfolio Management continues the standard of excellence established in the first edition, with new and clear insights to help investment professionals."

-William E. Jacques, Partner and Chief Investment Officer, Martingale Asset Management.

"Active Portfolio Management offers investors an opportunity to better understand the balance between manager skill and portfolio risk. Both fundamental and quantitative investment managers will benefit from studying this updated edition by Grinold and Kahn."

-Scott Stewart, Portfolio Manager, Fidelity Select Equity ® Discipline

Co-Manager, Fidelity Freedom ® Funds.

"This Second edition will not remain on the shelf, but will be continually referenced by both novice and expert. There is a substantial expansion in both depth and breadth on the original. It clearly and concisely explains all aspects of the foundations and the latest thinking in active portfolio management."

-Eric N. Remole, Managing Director, Head of Global Structured Equity, Credit Suisse Asset Management.

Mathematically rigorous and meticulously organized, Active Portfolio Management broke new ground when it first became available to investment managers in 1994. By outlining an innovative process to uncover raw signals of asset returns, develop them into refined forecasts, then use those forecasts to construct portfolios of exceptional return and minimal risk, i.e., portfolios that consistently beat the market, this hallmark book helped thousands of investment managers. Active Portfolio Management, Second Edition, now sets the bar even higher. Like its predecessor, this volume details how to apply economics, econometrics, and operations research to solving practical investment problems, and uncovering superior profit opportunities. It outlines an active management framework that begins with a benchmark portfolio, then defines exceptional returns as they relate to that benchmark. Beyond the comprehensive treatment of the active management process covered previously, this new edition expands to cover asset allocation, long/short investing, information horizons, and other topics relevant today. It revisits a number of discussions from the first edition, shedding new light on some of today's most pressing issues, including risk, dispersion, market impact, and performance analysis, while providing empirical evidence where appropriate. The result is an updated, comprehensive set of strategic concepts and rules of thumb for guiding the process of-and increasing the profits from-active investment management.

Customer Reviews:

One to add to your reading list.......2007-06-30

I know many have this book and have never read it. Others read this book but never really understand it. However, if you can read it and understand it, it can offer a powerful tool for how to allocate capital. It actually is the basis for most indexing and quantitative methodologies. When applied to fundemental approaches to investment it can be quite powerful.

Sadly, though not enough money managers embrace what this book is trying to say with regards to risk and return.

Practical approach and mathematically rigorous at the same time.......2006-02-01

Excellent book for whom is looking for a practical approach that at the same time is presented through a rigorous mathematical methodology. The book is absolutely superior over the academic textbooks that usually limit themselves to CAPM and efficient market theory. Grinold and Kahn go much forward and at the same time had managed to clearly and meticulously show the CAPM model, its limitations and the more sophisticated tools developed from it. Beside of showing the active way of managing a portfolio, the serious mathematical presentations through which the different theories such as CAPM are described are very convincing of how difficult it could be to beat the market.

Theoretical framework with no practical examples........2005-01-20

There is important information in this book but most of us need to see numerical examples to reinforce theoretical concepts. This book really comes up short in this area. It provides some discussion with the formulas/equations it presents but is very incomplete in terms of worked out examples. Yes, including worked out examples might might mean a book three times as long, but the book would then be many, many times more useful to practitioners.

As it currently stands the book can only benefit the super-genius-theoretical types who do not need to see examples to understand OR someone who ALREADY really understands the concepts.

The book rather frequently presents variables or constants without explicitly defining them for the reader (it assumes we know what they mean from the accompanying discussion).

The book gives exercises, but without answers what good are these?

The one thing the book does is make you realize there is a lot you do not know. You can find ideas in portfolio management that exist by reading this book but if you are at all like me you are going to have to look elsewhere for the answers. I have had better luck with Google searches for stuff like Style Analysis.

The book shows how smart the authors are: they know stuff that must of us do not. Unfortunately this is the feeling I get as I read sections of their book. They intend to keep it this way. Bottom line: the book fails to bridge the gap between theory and practice.

This is the seminal text for Quantitative Finance.......2004-11-11

If you work for one of the top alpha quant shops (Barclays, Goldman, etc.), this text is a the proverbial must read. These are the guys that essentially invented quantitative finance in its modern form, building upon the [only somewhat applicable] concepts of Sharpe and Rosenberg and demonstrating how they can be harnassed to drive alpha. Anybody who has given this text a poor review obviously doesn't work in quantitative finance (chances are they're merely stock-pickers). If you want to understand how to drive alpha and beat the market, this text goes a lot further than explaining the simple concepts of information ratio and tracking error; instead, this book touches on the beauty of multi-factor models and covariance risk management.

Very boring and dry.......2004-10-05

This book is a funny phenomenon in itself: it seems that every portfolio manager keeps a copy on her desk, but nobody I've talked to likes the book, or has even really read it. I read it and had to struggle hard to go from one page to the next. It's one of the WORST books I've ever read in any field. The book attempts to give the reader a comprehensive overview of the portfolio management discipline. Unfortunately, it's extremely dry, to the point of boring the reader to death. A lot of pages are also wasted on topics of dubious value, while important subjects like global management is treated lightly. I highly recommend against this book. It's a waste of money.

Why the Bottom Line ISN'T!: How to Build Value Through People and Organization

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A Good Read!
Intangibles in Organizational Effectiveness
Clever title or false premise?
Ulrich & Smallwood - have done it again !
Put this book in your shopping basket!

Why the Bottom Line ISN'T!: How to Build Value Through People and Organization
Dave Ulrich , and Norm Smallwood
Manufacturer: Wiley
ProductGroup: Book
Binding: Hardcover

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ASIN: 047144510X

Book Description

Offers a broad view of leadership and shareholder value based on multiple business disciplines

In Why the Bottom Line Isn't! authors Dave Ulrich and Norm Smallwood argue that sustainable shareholder value comes increasingly from assets not accounted for on an organization's balance sheet. These assets include a company's reputation, its ability to attract talent, and its ability to react quickly to new opportunities in the marketplace. Why the Bottom Line Isn't! harnesses research from a number of disciplines including human resources, finance, and leadership to establish a hierarchy of such intangibles. The authors extrapolate from these intangibles to establish leadership tools that will help create sustainable shareholder value. The book offers a broad, expansive perspective on leadership while eschewing convoluted theory for concrete practice.

Dave Ulrich, Ph.D., (DOU@UMICH.EDU) has been listed by BusinessWeek as the top "guru" in management education. He has co-authored 10 books and over 100 articles, serves on the Board of Directors of Herman Miller, and has consulted with over half of the Fortune 200 companies. He is currently on professional leave as Professor at the University of Michigan to serve as Mission President for the Church of Jesus Christ of Latter-day Saints in Montreal.

Norm Smallwood (nsmallwood@rbl.net) is co-founder of Results-Based Leadership (www.rbl.net), which provides education and consulting services based on this book as well as the ideas in Results-Based Leadership: How Leaders Build the Business and Improve the Bottom Line, which he co-authored with Ulrich. He has led leadership development, business strategy, organization capability, change management, and HR projects for a wide variety of clients spanning multiple industries.

Customer Reviews:

A Good Read!.......2004-05-20

Authors Dave Ulrich and Norm Smallwood use a bottom-line approach to assess various business intangibles that build actual value, such as a vision of future growth and improved capabilities. They present the keys to creating value by mustering intangible assets in a well-organized, highly structured way. Unfortunately, the intangible factors and the growth steps they discuss are well-traveled territory. But while other books may describe how to develop these "soft" qualities in a more intriguing or more original way, this volume handily dissects, quantifies and explains them step by step. Here, the vague is made concrete. Even a bean counter could understand the bottom line value of innovation, improved internal systems and enhanced organizational culture with this explanation. We recommend it to those who want to invest in intangible assets in a tangible setting, for very tangible reasons.

Intangibles in Organizational Effectiveness.......2004-03-11

This book argues that competitively successful organizations seek to constantly build long-term value by strategically managing some of their intangibles. As we know, intangibles are not accounted for in an organization's financial statements. By exploring the world of intangibles, the authors explore a new idea or a new bottom-line, which has the building of long-term market value as its central theme. The authors have identified 7 key intangibles that have to be nurtured. They include the following: shared mindset, talent, speed, learning, accountability, collaboration, and quality of leadership. They have built their formulations on the basis of their own real experiences or a survey of the practices followed by globally successful organizations. The book is based on an Architecture which is the central model on which its contents revolve (p.13).

Some of the prominent features of the book are as follows: Firstly, the book explores a new bottom line suggesting that the intangibles are as or even more important as the hard strategies, systems and processes; for it is the focus on the intangibles that helps build customer, investor, and employee confidence about the future.

Secondly, the book should be seen as outlining an agenda to focus on for HR managers; this is to charge them to increase the shareholders' value through helping develop each of the intangibles. The present crisis of HR department globally emanates from the allegation against it that it indulges in wasteful expenditure in non-measurable activities. Thus the book suggests that HR managers have to become coaches, architects, designers and facilitators of organizational capabilities.

Thirdly, the observations and formulations of the authors are based on inter-disciplinary perspectives within management segments, and are not just reflections of organization theory or effectiveness or just better HR management. They have drawn from researches from disciplines such as human resources management, financial management, IT, and leadership.

Fourthly, the book succeeds well as a solid guide that makes a complex subject simple to the reader by putting before her the essence of various functional perspectives related to management of intangibles. The discussion helps in gauging what works and what does not, and why.

Fifthly, the book contains some remarkably interesting and effective tips of leadership building at the top as well as leadership-building as a way of organizational life. The authors point out that when leaders identify and implement the seven intangibles identified in the Architecture, they "create intangible value" (p. 251).

The book is an essential reading for any executive who wants to better handle the complexities of managerial life in the era of chaotic competition. It surely helps the reader see a larger picture. Though the book has been written in extremely user-friendly way, I feel if it had a simpler title it would have carried a much higher attention value of potential lay readers. Still, there is no doubt that it will be especially liked by those managers and leaders who want to build confidence about shaping their future in the chaotic business world.

Debi S. Saini
MDI, Gurgaon, India

Clever title or false premise?.......2003-11-26

This book appears to be based on two false premises. One, the bottom line is the bottom line, if organisations manage to get more value out of their people the bottom line changes. Two, there's no such thing as an intangible - market value of a business is tangible value. The big omission is any definition of value even though the authors constantly refer to this concept.

An ideal read for HR people who want to talk a good job but of little use for those who genuinely want to find practical ways to add value through people.

Ulrich & Smallwood - have done it again !.......2003-11-10

Dave Ulrich and Norm Smallwood have done it again- created a wonderful book which is an invaluable toolkit for aspiring and practising managers."Why the Bottom Line Isn't" is a highly relevant and accessible resource for busy executives, which can also save your organisation substantial dollars in consulting fees.This book is also recommended reading for non- executive Board directors and investors.
As the authors outline in their introduction, "Why the Bottom Line Isn't", began when they asked a simple question- How can two companies in the same industry, with similiar earnings, have vastly different market values. In addressing this question, Ulrich and Smallwood explore the world of intangibles and a new bottom-line, that has building long -term market value as the central theme.
Based upon their extensive consulting experience and drawing from diverse disciplines, such as finance/accounting and organisation behaviour,the authors focus on how to identify and build intangibles within one's organisation.An Architecture for Intangibles is created and this four layer model provides the framework and structure for " Why the Bottom Line Isn't". As the framework is developed,the reader is taken on a journey that focuses on the leadership implications- and resulting actions- for each layer( and their various components) of the architecture for intangibles. Ulrich,Smallwood and Zenger's excellent work from Results Based Leadership(Harvard Press 1999)on "leadership brand" is also integrated.
This outstanding book is really a treasure chest resource - it is full of useful hints,quizzes,question and process lists, tips and exercises. It also contains questionnaires and is supported by extensive reference notes and web links, for those requiring further information and support.
The practical emphasis is demonstrated via the utilisation of many company examples and stories that support the many insights which are presented. The communication style which the authors employ is also very appealing and engages the reader.Close attention to education objectives are also very evident, with the authors utilising fresh techniques in tackling complex issues within organisations. For example,to surface sacred cows which exist in most organisations,they recommend treating them as you would a computer virus, because they have the same deadly impact on your operations, as computer viruses have upon IT systems.As a result,a virus detector list of 27 items is produced
In summary, this book is essential reading for any executive who is wanting to better handle the complexities of life in 21st century organisations.

Put this book in your shopping basket!.......2003-10-31

David Ulrich's ideas have pretty much defined the HR profession for the last decade. That by itself is a reason to make sure you've read this book. What is even more important is that Ulrich & Smallwood outline how HR activities can help to increase the shareholders value as measured in stock price (at least, this is what HR could do, if they would do it right, the reality is that often HR just seems to be wasting money). Given that shareholders become more and more demanding, that's another good reason to read this book. So I was a bit surprised to see that this book is not high on the Amazon bestseller list when I'm writing this review (sales rank 12.407 when I wrote this and only 4 other reviews written).
Not only does the book contain a lot of valuable advice, it's structure and writing style make it easy to get the message. For instance, you'll find most principles illustrated with examples of companies such as General Electric, South West Airlines, Sears, ... and each chapter ends with a section with leadership implications.
While reading the book, I had myself going "yes" most of the time and I really think that this book should be on your reading list. So why did I only give it 4 stars? Personally I would have seen a more provocative writing style, more examples of how other companies screw up, etc. I think that more counter-examples would really have driven the books's message home.

Valuing Enterprise and Shareholder Cash Flows: The Integrated Theory of Business Valuation

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Valuing Enterprise and Shareholder Cash Flows: The Integrated Theory of Business Valuation
Z. Christopher Mercer
Manufacturer: Peabody Publishing, LP
ProductGroup: Book
Binding: Hardcover

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ASIN: 0970069855

Book Description

Simply put, this book helps the reader understand the why of business valuation. Most business valuation texts deal with the how by focusing on an interesting amalgamation of seemingly unrelated financial concepts. These concepts appear as pieces of a puzzle. The reader implicitly knows that the pieces somehow relate to each other and should fit together; however, the puzzle seems impossible to put together, since there is no picture on the front of the box to guide you.

This book is the picture on the front of the box because once the why of business valuation is understood, the how becomes much more straightforward. Instead of dealing with disjointed pieces, the completed puzzle emerges.

Book Description

Investment courses are in demand by 800,000 business majors and lifelong learners in non-degree programs every year. Schaum's Outline of Investments, Second Edition, presents this authoritative learning guide to the decade's hottest topicmaking money grow. Contains clear and concise explanations of investment principles, contemporary investment strategies, and international markets.

Customer Reviews:

A Gem for Supplemental Studies.......2005-03-30

Schaum's Outlines consistently provide good topical studies. I have read several of their finance and accounting books to supplement my CFA curriculum studies. The "solved problems" present a myriad of practical questions / scenarios, followed by detailed solutions. I consider this format a great way to learn!

INVESTMENTS helps round out a finance students' or investment professionals' understanding of a variety of concepts.

The book excels at presenting topical material in an orderly way. Chapters nicely segue into others. Authors Francis and Taylor's early chapters cover various financial instruments (money market securities, common and preferred stock, corporate bonds, US securities, municipal bonds) and then progress to the financial environment in which these instruments operate.

The book explores financial statement analysis, portfolio management and analysis and also specific applications of short positions, hedging, arbitrage, security valuation, put and call options, and capital market theory.

I give this book a 4-star rating instead of 5 because the end-of-chapter problems (true false and multiple choice) are not supplemented with detailed explanations to the correct answer. This being said, I give much credit to the effectiveness of the Solved Problems throughout the book. They are practical and have enhanced my understanding of topics.

The book could be improved if the authors would provide problem-solving guidance using financial calculators. I use an HP 12-C calculator extensively and perhaps had an easier time solving problems with it rather than mulling through the algebraic formulas.

All in all, for the serious CFA candidate or student of investments, I highly recommend this book for supplemental reading. I've learned a lot and hope you do too!

Good introduction to the beginning student of investment.......2002-03-06

This book gives an excellent elementary introduction to investment techniques and concepts for the beginning student of business or economics. It is full of useful examples and solved problems as is characteristic of all books in this series, and it also gives adequate explanation of the terms and results in most areas of investment activity. Some of the parts of the book which are particularly well-written or helpful include: 1. The diagram of the corporate bond rating process . 2. The flowchart detailing a primary offering made through a syndicate of investment bankers. 3. The summary of the different security market indices. 4. The discussion of the "naive buy-and-hold strategy" and their use as benchmarks against which other investment strategies may be compared. 5. The discussion of the Dupont framework for analyzing equity returns and growth to reveal the sources of the growth of the firm. 6. The discussion of time-series comparisons for the ratios of a firm. 7. The discussion of the various problems involved when doing financial statement analysis. 8. The discussion on arbitrage. 9. The treatment of moving averages and the accompanying illustration of different moving averages. 10. The discussion of the random walk theory in the context of the efficient markets theory. The random walk theory has been been taken to be axiomatic by most financial analysts but has recently been challenged recently by empirical studies of financial data. 11. The treatment of the different levels of market efficiency, including the weakly efficient, the semistrong efficient, and the strongly efficient market hypotheses. 12. The discussion of the anomalies in market data that point to deviations from the efficient market hypothesis. 13. The chapter on portfolio analysis via the use of covariance and the treatment of the efficient frontier. 14. The treatment of the capital asset pricing model.

A Good Book For The Do-It-Yourselfer.......1998-09-11

A good book for someone who wants to learn the mathematics and mechanics of the various financial instruments.

Discounted Cash Flow: A Theory of the Valuation of Firms (The Wiley Finance Series)

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Discounted Cash Flow: A Theory of the Valuation of Firms (The Wiley Finance Series)
Lutz Kruschwitz , and Andreas Loeffler
Manufacturer: Wiley
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Binding: Hardcover

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ASIN: 0470870443

Book Description

Firm valuation is currently a very exciting topic. It is interesting for those economists engaged in either practice or theory, particularly for those in finance. The literature on firm valuation recommends logical, quantitative methods, which deal with establishing today's value of future free cash flows. In this respect firm valuation is identical with the calculation of the discounted cash flow, DCF. There are, however, different coexistent versions, which seem to compete against each other. Entity approach and equity approach are thus differentiated. Acronyms are often used, such as APV (adjusted present value) or WACC (weighted average cost of capital), whereby these two concepts are classified under entity approach.

Why are there several procedures and not just one? Do they all lead to the same result? If not, where do the economic differences lie? If so, for what purpose are different methods needed? And further: do the known procedures suffice? Or are there situations where none of the concepts developed up to now delivers the correct value of the firm? If so, how is the appropriate valuation formula to be found? These questions are not just interesting for theoreticians; even the practitioner who is confronted with the task of marketing his or her results has to deal with it. The authors systematically clarify the way in which these different variations of the DCF concept are related throughout the book

ENDORSEMENTS FOR LÖFFLER: DISCOUNTED 0-470-87044-3

"Compared with the huge number of books on pragmatic approaches to discounted cash flow valuation, there are remarkably few that lay out the theoretical underpinnings of this technique. Kruschwitz and Löffler bring together the theory in this area in a consistent and rigorous way that should be useful for all serious students of the topic."

--Ian Cooper, London Business School

"This treatise on the market valuation of corporate cash flows offers the first reconciliation of conventional cost-of-capital valuation models from the corporate finance literature with state-pricing (or 'risk-neutral' pricing) models subsequently developed on the basis of multi-period no-arbitrage theories. Using an entertaining style, Kruschwitz and Löffler develop a precise and theoretically consistent definition of 'cost of capital', and provoke readers to drop vague or contradictory alternatives."

--Darrell Duffie, Stanford University

"Handling firm and personal income taxes properly in valuation involves complex considerations. This book offers a new, precise, clear and concise theoretical path that is pleasant to read. Now it is the practitioners task to translate this approach into real-world applications!"

--Wolfgang Wagner, PricewaterhouseCoopers

"It is an interesting book, which has some new results and it fills a gap in the literature between the usual undergraduate material and the very abstract PhD material in such books as that of Duffie (Dynamic Asset Pricing Theory). The style is very engaging, which is rare in books pitched at this level."

--Martin Lally, University of Wellington

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The acme of rigorous mathfin, not for the faint hearted
NOT a stand-alone book
One of the best
Fantastic for finace researchers!

Methods of Mathematical Finance
Ioannis Karatzas , and Steven E. Shreve
Manufacturer: Springer
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Binding: Hardcover

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ASIN: 0387948392

Book Description

Written by two of the best-known researchers in mathematical finance, this book presents techniques of practical importance as well as advanced methods for research. Contingent claim pricing and optimal consumption/investment in both complete and incomplete markets are discussed, as well as Brownian motion in financial markets and constrained consumption and investment. This book treats these topics in a unified manner and is of practical importance to practitioners in mathematical finance, especially for pricing exotic options.

Customer Reviews:

The acme of rigorous mathfin, not for the faint hearted.......2005-09-07

For those working in higher levels of pure mathematics or physics Ioannis Karatzas's and Steven E. Shreve's Methods of Mathematical Finance will be the most accessible for helping you understand what all the fuss is about in finance and Wall Street. From the groves of academe, finance as it is practiced looks like so much "nonsense on stilts." However, serious intellectual work has been done examining finance and transactions under limits, spaces, stochastic paths and operators, and this work is the most rigorous explication of the foundations of this thinking, and its most natural extensions and applications.

This work is explicitly not for MBAs or other `phynance-lite" types who view interest rates as single factor driven and think the alpha and omega of option pricing as the Black-Scholes model. While the work rigorously addresses interest rates and option pricing from a mathematical standpoint, it is better thought of as applying Brownian motion to contingent events and time series, which for the purposes of this volume are financial values and the volatility of outcomes.

Another audience will be advanced students studying financial engineering or mathematical finance. This book is foundational required reading in most of the French DEA programs dealing with stochastic applications to finance.
One major caution: unless you have an intuitive grasp of programming from reading math presented in the "definition-theorem-proof" form of academia, you will be at a loss as to how to bridge this work to a practical application. I know of students who floundered around with Mathematica and this volume before coming across more accessible works written for practitioners and programmers in mind. This work is for those well trained in mathematics who want to learn about finance. For learning about programming optimal savings and consumption portfolios, option prices, etc. other works, such as those by Mark Joshi, are your better choice.

NOT a stand-alone book.......2004-04-24

Very rigorous and methematically precise, but how can this text not even mention Ito's lemma? Well, because it isn't really a "sequel to Brownian Motion and Stochastic Calculus by the same authors" but more like the second half of that book. Unless you have their BM&SC or another similar reference by your side you won't get very far . . . and this fact is not at all apparent from reading the editorial description or jacket review.

For a self-containted text with both the basic math background AND the finance I recommend either Lamberton and Lapeyre (fairly complete but with some technical proofs referred to BM&SC) or Joshi (lots of applications, less mathy). Neither of these will be as comprehensive or rigorous as the 2-volume Karatzas and Shreve but both are good introductions to the subject.

One of the best.......2001-07-01

The application of highly sophisticated mathematical techniques to finance is now commonplace and is considered also of great practical importance. Mathematical modeling in finance is now very entrenched in investment houses and trading firms and this will only increase in years to come. This book is an excellent overview of mathematical finance and is written for mathematicians who have no background in finance. The book could be read easily by anyone with background in stochastic processes at the level of the author's earlier book "Brownian Motion and Stochastic Calculus". Since it is written for mathematicians, it follows a "definition-theorem-proof" format. However the authors do interject a lot of explanation into the dialog, especially that concerning finance.

Chapter 1 is an overview of a Brownian motion model of financial markets. Financial assets are considered to have prices evolving continuously in time and driven by Brownian motion. They do however g!ive references for models that assume discontinuous asset prices. The authors define a financial market rigorously in terms of (progressively) measurable processes for the risk-free rate, mean rate of return, dividend rate, and volatility. The after a discussion of portfolio, gains, income, and wealth processes, the authors define a notion of a viable market, namely one where there are no arbitrage opportunities. They then define standard and complete financial model and characterize their properties in terms of martingales.

Chapter 2 is a treatment of options pricing theory, with the assumption of a complete standard, financial market. These contingent claims are given a brief historical introduction at the beginning of the chapter. European contigent claims are treated first, followed by a discussion of forward and futures contracts. The Black-Scholes option pricing formula is then derived. American contingent claims are then discussed and defined as an income proc!ess and a settlement process. With the assumption that the discount payoff process is bounded from below and continuous, the value of the American contingent claim is given in terms of the Snell envelope of the payoff process. The discussion illustrates the difficulties in valuing American claims, based as they are on an arbitrary exercise time.

Chapter 3 is a study of a "small" single investor who begins with an initial endowment and invests in a standard complete market. The discussion reads more like one from a book on utility theory and portfolio analysis. Indeed, the Legendre transform of the utility function appears when attempting to mazimize utility from consumption plus expected utility from terminal wealth. The (nonlinear) Hamilton-Jacobi-Bellman equation appears in thes considerations as expected.

In chapter 4, the equilibrium problem is considered. In such a model, security prices are determined by the law of supply and demand. There are a finite !number of agents with utility functions and there are endowment processes. The endowments can be traded via a financial market of stocks and money market funds. The goal of the chapter is to find the equilibrium condition where endowments are consumed and the net supply of securities is zero. The authors give a rigorous proof of the existence and uniqueness of equilibrium. In addition, they give interesting examples of equilibrium markets that can be computed explicitly.

The next chapter is much more involved and studies how to do arbitrage pricing in incomplete markets. Portfolio constraints force the market to be incomplete, and the authors show how buyers and sellers in such a market can calculate the hedging price of a claim in terms of "dual" processes in a family of auxiliary markets. Since this is a constrained optimization problem, one would naturally think Lagrange multipliers would appear, and this is indeed the case, with the dual processes being the analog!ue of Lagrange multipliers. The usual unconstrained problem then is the result of this. Their approach here is extended in the last chapter of the book where the problem of optimal consumption and investment in a constrained financial market is considered. This is specialized to a deterministic case and the dual to the constrained problem satisfies a linear Hamilton-Jacobi-Bellman equation. This duality between the Lagrangian and Hamiltonian points of view is not surprising to the astute reader (and particularly the physicist reader).

Fantastic for finace researchers!.......2000-04-25

The book is challenging. But if you want to do real good work in finance. You must read it.

An Applied Course in Real Options Valuation

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Excellent Book

An Applied Course in Real Options Valuation
Richard L. Shockley
Manufacturer: South-Western College Pub
ProductGroup: Book
Binding: Hardcover

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ASIN: 0324259638

Book Description

APPLIED COURSE IN REAL OPTIONS VALUATION, offers an excellent guide to option pricing in today's fast paced business world. This innovative text not only provides the theories of option pricing but includes real-world examples and situations.

Customer Reviews:

Excellent Book.......2007-02-07

I took Dr.Shockley's RO course back in school. Dr Shockley's approach to the subject is radically different from any other book I have seen. He's actually taken the time to explain the various models and concepts in finance come together. The approach to options doesn't start with heavy derivations and equations of stochastic processes - it starts with the concepts of NPV, abritrage and leads on to options (and real options). The book is full of handy examples and solid explanations. Pick up any standard text in microeconomics (Silberberg, or Hirshleifer or Henderson and Quandt)- and you will see the one equation repeat over and over again - the First Order Condition tying in the ratio of Marginal Quantities (Costs, Utilities etc), the ratio of prices (wages etc) and the lagrangian multiplier. If finance is related to micro economics, one expects to see atleast one instance of this equation in a standard finance text. I haven't found it any - Dr Shockley's book was the first one I found that tied what we're doing in finance to the underlying concept of equilibrium as defined in microeconomics. Fama's theory of finance is the only other book (that I've looked at) that starts finance where micro left off, but then who has the time or strength to read it after a 10 hour day.
In future editions of this book, I would love to see some development of stochastic processes, the concept of filtrations, Ito's Lemma etc. Dr S can write on this subject at the level that is deeper (and more satisfying) than Wilmott, and more easy to access than say Shimko or Shreve or even Baxter. I think that will add to the value of the book - it can be the gentle introduction to some more advanced concepts, for students and busy practitioners who have very little time (even if they like it) for the math that one sees in some of the advanced derivatives book.

Thanks for putting this book together Dr Shockley!

Valuation Methods and Shareholder Value Creation

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A great book with excellent support web site
All the valuation methods that you ever wanted to read about

Valuation Methods and Shareholder Value Creation
Pablo Fernandez
Manufacturer: Academic Press
ProductGroup: Book
Binding: Hardcover

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Similar Items:

Principles of Cash Flow Valuation: An Integrated Market-Based Approach (Graphics Series)
Valuation: Measuring and Managing the Value of Companies, Fourth Edition
Discounted Cash Flow: A Theory of the Valuation of Firms (The Wiley Finance Series)
CFROI Cash Flow Return on Investment Valuation : A Total System Approach to Valuing the Firm
EVA and Value-Based Management: A Practical Guide to Implementation

ASIN: 0122538412

Book Description

Valuation Methods and Shareholder Value Creation provides a comprehensive examination of valuation tools and guidance for analyzing and valuing a business. It covers the basics of valuation methods and shareholder value creation in addition to rigorous approaches to discounted cash flow valuation and real options for valuing a company.

By examining eight different methods of discounted cash flow valuation and discussing the pros and cons of each method, Fernández offers thorough, accessible coverage of corporate valuation. With examples and case studies from international markets, this book provides well-structured guidance for students and executives alike.

* Highlights quantitative analyses of firm value
* Emphasizes qualitative management assessments
* Integrates data from international companies

Customer Reviews:

A great book with excellent support web site.......2002-11-18

A great book with clear explanations and excellent support web site.
The book describes many tools on how to do the valuation (DCF, ratios, real options etc.). I particularly like the explanation of eight models of DCF. Chapters 19, 20 and 21 are the best ones I have ever read about discounted cash flow valuation.
For finance professionals, "Valuation methods and shareholder value creation" is a wonderful book to study, to keep and to look up for reference. I strongly recommend investment bankers (and clients), finance managers and MBAs to have one.
It explains Adjusted Present Value much better than Copelandýs and Damodaran's books. Now, I understand it!!!

All the valuation methods that you ever wanted to read about.......2002-11-14

In his new book on valuation, Pablo Fernandez presents and analyzes a variety of valuation methods. The book is comprehensive in covering ALL of the methods and contains a wealth of information, data and examples on the relevant topics. The book is a valuable source for obtaining details on the different methods. However, there is a risk, although small, that the number of trees may overwhelm the reader and the reader may miss the forest.
In Part III, which is the theoretical part of the book, he examines all the various approaches for Discounted Cash Flow Valuation. In particular, Pablo Fernandez makes the unusual claim that for FCF in perpetuity with a constant growth rate of g, the discounted value of the tax shield (DVTS) is not the present value of the tax shield (PVTS). Furthermore, he defines the PVTS as follows: PVTS = T*D*Ku/(Ku - g). At first sight, this definition of the PVTS seems very strange. To obtain this result, which is in direct contradiction with the formulas in Copeland's book, he assumes that the return to levered equity Ke does not depend on whether the growth rate is zero or nonzero. This departure from the accepted definition of the PVTS may surprise those readers who are familiar with other books on valuation.
In common with other books on valuation, the examples on the cost of capital are restricted to cash flows in perpetuity. Without providing the necessary justification, the author assumes that the formulas for the cost of capital carry over to finite cash flows. The book would be strengthened if there were numerical examples that linked the discussion on the cost of capital directly to the finite cash flow statements that are derived from the usual financial statements.

p-adic Numbers: An Introduction (Universitext)

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I only wish I could give more stars...
enthousiasm-adique
This is a wonderful book for several reasons.

p-adic Numbers: An Introduction (Universitext)
Fernando Quadros Gouvea
Manufacturer: Springer
ProductGroup: Book
Binding: Paperback

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Introduction to Elliptic Curves and Modular Forms (Graduate Texts in Mathematics)
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ASIN: 3540629114

Book Description

There are numbers of all kinds: rational, real, complex, p-adic... The p-adic numbers are less well known than the others, but they play a fundamental role in number theory and in other parts of mathematics. This book is an elementary introduction to p-adic numbers.
Most other books on the subject are written for more advanced students. This book can almost be viewed as an introduction to be read in preparation for reading these more advanced texts. Readers who want to have an idea and appreciation of the subject but do not need to become specialists will probably find what they need in this book, while other texts may be too technical.

Customer Reviews:

I only wish I could give more stars..........2002-10-22

This is the best introduction-level mathematics textbook I have ever read, and I have read (and own) many. Every theorem and definition is well-motivated, and problems for the reader are interspersed within the text to make sure that every subtle nuance of the exposition is understood. Though introductory, Gouvea manages to incorporate some relatively advanced topics, (as far as undergraduate mathematics goes) such as the Weierstrass Preparation Theorem, local rings, and analysis in C_p. All this and the topic at hand is fascinating to boot. p-adic numbers are perfect for anyone wishing to pick up an amazingly interesting topic not found in most undergraduate or graduate courses. In conclusion, I recommend this book to the set of people interested in p-adic numbers, and its complement.

enthousiasm-adique.......2000-07-11

You're curious about beautifull topics in math, but reading a classical texbook, browsing through a list of lemma and therorems just get you sleep ? Read this one. The idea behind theorems, and why and how they came alive are so nicely exposed that this book can replace your favorite bed time one.

This is a wonderful book for several reasons........1999-12-28

This book really grabbed me on a number of points. First, in addressing a rather abstract topic (often not included in a basic undergraduate curriculum) it does a good job trying to compute concrete examples. It stays broad, as not to lose the reader on the messy details of any particular part of the theory. Hence the book is good even for students who are a little weak on their background. It is well-organized and exposed for an introductory-level text.

In particular, its proofs are rather clear, concise, and meaningful. There are only a couple points where Gouvea uses trickery (a la Rudin) to prove things, and he is honest enough to warn before they come. Indeed, the footnotes are quite entertaining, especially for one who has read enough math books to catch his jokes. Overall, the read is casual. It is good for independent reading.

The problems in the book are also worthy of praise. They are interspersed after proofs and in the middle of exposition, as ways to make sure the reader is following. Indeed, they are always pertinent and carefully planned. In addition, they point out ways in which mathematics authors often skip over details which the reader should actually verify for him/herself. Specifically, they perpare a student for reading graduate-level texts (which are notoriously full of this occurrence). Pedagogically, therefore, this is a very important tool, and useful book for a budding math student.

Finally, for the graduate student who wants to go down the path of p-adics, Gouvea does a good job of pointing the reader in the several different directions the literature can guide him/her. He gives references to other texts, giving just a taste of their contents, throughout. His eye towards further study is keen.

I must point out again that it is a joyful and entertaining read, in addition to being an exposition of a deeply fascinating (and deeply odd) area of math. This book, because of its clarity, its organization, its promotion of good mathematical reading skills, and its wonderful style occupies a spot on the very exclusive shelf of highest-quality texts in mathematics.

Standards of Value: Theory and Applications
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MUST read for valuation professionals

Standards of Value: Theory and Applications
Jay E. Fishman , Shannon P. Pratt , and William J. Morrison
Manufacturer: Wiley
ProductGroup: Book
Binding: Hardcover

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The Market Approach to Valuing Businesses

ASIN: 0471694835

Book Description

A must-read for appraisers, accountants, judges, attorneys, and appraisal users, this insightful book addresses standards of value as applied in four distinct contexts: estate and gift taxation; shareholder dissent and oppression; divorce; and financial reporting. Here, practitioners will discover some of the intricacies of performing services in these venues, and appraisers will find this book helpful in understanding why the practitioners are asking such questions.

Customer Reviews:

MUST read for valuation professionals.......2007-01-05

This text clarifies and illuminates our understanding of "standard of value" as a term of art. This volume should be in the library of every valuation professional.

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