In this paper we present a critical viewpoint on interpretation of one of the most important innovation in the recent world economy. This is erivatives’ market, the options segment in particular. The standard options such as plain vanilla, nonstandard exotics or hybrid options and more recent specification called credit derivatives are actively traded around the world absorbing a significant volume of cash flows. The goal of the paper is to present the misunderstanding of the core problems in this field. This is an option price discovery. The modern probability and statistics theories are applied to provide investors and institutions information regarding the cost of the investment risk and on the other hand develop a better proximity between given historical data and analytical theory. We will show bellow that critical arguments are related to the basic fundamentals of the investment sciences that unfortunately are still difficult to comprehend by theoretical researchers, supervisory organizations, and investors.

This paper develops an integrated model of asset pricing and moral hazard. In particular, we combine a version of the Capital Asset Pricing Model (CAPM) with a multi-agent moral hazard model. The excess dollar returns for risky stocks, optimal contracts for managers (agents) that involve relative performance, and equilibrium stock prices are explicitly characterized. We show that the CAPM linear relation in terms of the expected dollar returns still holds in the presence of moral hazard and that our  is given by the ratio of the covariance between a firm’s stock return and the market return over the variance of the market return, with both returns adjusted for the compensation to the managers. The equilibrium price of a stock decreases with its idiosyncratic risk, but the expected excess dollar return of the stock is independent of it. Consequently, the risk premium, which is defined as the ratio of the excess return to the stock price, increases with idiosyncratic risk. We also show that the risk aversion of the principal in our model leads to less emphasis on relative performance evaluation than in a model with a risk-neutral principal. This result may shed light on why the empirical evidence for relative performance evaluation is mixed, even though the theoretical prediction based on a risk-neutral principal strongly supports it. In addition, we show that if the manager of a firm is compensated based solely on his own performance, then the expected dollar return of the firm increases with its idiosyncratic risk. This exercise illustrates that, in the presence of moral hazard, contracting plays a key role in the determination of the expected return of a stock. Furthermore, we show that under certain conditions, the equilibrium contract is a linear combination of the stock price and the level of the market portfolio.

In this paper, we develop a methodology to identify money managers who have private information about future asset returns. The methodology does not rely on a specific risk model, such as the Sharpe ratio, CAPM, or APT. Instead, it relies on the observation that returns generated by managers with private information cannot be replicated by those without it. Using managers’ trading records, we develop distribution-free tests that can identify such managers. We show that our approach is general with regard to the nature of private information the managers may have, and with regard to the trading strategies they may follow.

Most existing empirical studies on affine term structure models have primarily focused on in-sample Þt of historical bond yields and ignored out-of-sample forecast of future bond yields. Using an omnibus nonparametric procedure for density forecast evaluation developed in this paper, we provide probably the first comprehensive empirical analysis of the out-of-sample performance of affine term structure models in forecasting the joint conditional probability density of bond yields. We show that although it is difficult to forecast the conditional mean of bond yields, some affine models have good forecasts of the joint conditional density of bond yields and they significantly outperform simple random walk models in density forecast. Our analysis demonstrates the great potential of affine models for financial risk management in fixed-income markets.

本文对VaR的理论与计算模型进行了系统地介绍，并结合中国证券市场的数据进行了深度分析。针对其中具有代表性的Risk Metrics方法、ARCH类模型、混合正态以及广义误差分布中涉及到的有关参数进行估计，提出了适合中国证券市场的主要参数。具体结果如下： 1． 结合中国证券市场主要指数估计了Risk Metrics模型中的最优衰减因子，结果如下表： 最优衰减因子 上海综指 0.944 上证A指 0.942 深圳成份 0.920 深圳成A 0.917 均 值 0.93075 2． 就混合正态模型而言利用中国证券市场主要指数的标准化收益率估计出两个正态分布的参数值与概率值，结果如下表： 正态一 正态二 P值 均值1 标准差1 均值2 标准差2 上证综指 0.107349 0.711383 -0.214843 1.843125 0.775636 上证A指 0.107312 0.714149 -0.229415 1.864664 0.782019 深圳成份 0.044483 0.822448 -0.144945 2.196894 0.860187 深圳成A 0.057668 0.759801 -0.153388 1.795529 0.774296 3． 结合中国证券市场四个主要指数的标准化收益率提出了广义误差分布模型的参数v值，结果如下：上海综合的v=1.14； 深圳成份的v=1.19；上海A指的v=1.13；成份A指的v=1.24。但与其他发展中国家证券市场的v值相比，我国的证券市场稳定性较好，极端事件出现的概率相对较少。 4． 将AIC准则尝试性地应用到ARCH类模型的定阶中来，并取得了较好的效果；

Abstract: This paper is mainly to achieve two aims: 1. present industry analysis on investment banking business; 2. value Goldman Sachs stock through different methods. The paper is consisted of eight parts. Part one is introduction. In part two we make a general review on I-banking industry. In part three we present the profile of Goldman Sachs Group. Then in part four we will analyse GS financial data, based on its latest annual reports. In part five, we will briefly list business risks for GS. In part six we compare fundamental valuation ratios of three biggest investment banks. In part seven we present relevant valuation theory and then value Goldman Sachs stock through three methods: Dividend Discount Model, Price multiples and a simple Residual Income Model. As a final step, in the eighth part we draw a general conclusion of the paper.

This is the first study that uses Merton’s (1974) option pricing model to compute default measures for individual firms and assess the effect of default risk on equity returns. The size effect is a default effect, and this is also largely true for the book-to-market (BM) effect. Both exist only in segments of the market with high default risk. Default risk is systematic risk. The Fama-French (FF) factors SMB and HML contain some default-related information, but this is not the main reason that the FF model can explain the cross-section of equity returns.

Using daily data from May 2000 to January 2004, this study examines the risk, return, security selection and market timing performance of China’s security investment funds, in comparison with the performance of SIFs in the U.S. Our results indicate that China investment funds show superior marketing timing performance while U.S. fund managers display stronger security selection ability. These results imply that the potential synergy for Sino-U.S. joint venture investment funds could be tremendous. Additional analysis of the trading volume of closed-end funds in China illustrates that investors’ interests in SIFs are strongly and positively related to fund performance. Results also indicate that Chinese investors favor professionally managed funds more than direct investment in stocks during negative market conditions.

China’s non-performing loans were as high as 35 percent of state banks’ total loans, or about RMB 3,549 billion (about 40 percent of its GDP) in 2000. The adequacy ratios of the four state banks were only between 1.4 percent to 4.6 percent in September 2000. Moreover, non-bank financial institutions as a group as early as 1996 had non-performing assets equal to 50 percent of their total assets. By Western accounting standards, China’s most financial institutions are insolvent. Be conventional standards for measuring financial sector robustness, China is past the point at which a systemic banking crisis might be expected. China faces enormous risks delaying the state bank reforms due to increasing capital account leaks, increasing large proportion of household deposits in banks’ total liabilities, and gradual structural shift of Chinese saving behavior. China needs to resolutely address the financial reforms soon to avoid a financial crisis, which will lead to a broad anti-regime coalition against the Chinese government. Nevertheless, China faces enormous difficulties. First, the 2000 Chinese official estimate puts the financial cost of restructuring the state banks at RMB 2,260 billion ($273 billion), or close to 30 percent of GDP. Second, the current AMC scheme is fraught with difficulties. Finally, the required financial sector reforms are closely interlinked with many other reforms such that a sequential or partial approach will not be effective.

This study employs a non-parametric approach to investigate the volatility risk premium in the major over-the-counter currency option markets. Using a large database of daily quotes on delta neutral straddle in four major currencies ? the British Pound, the Euro, the Japanese Yen, and the Swiss Franc ? we find that volatility risk is priced in all four currencies across different option maturities and the volatility risk premium is negative. The volatility risk premium has a term structure where the premium decreases in maturity. We also find evidence that jump risk may be priced in the currency option market.