PORTFOLIO THEORY (ECGE 1218) Portfolio Theory 2010-2011 Vansiliette Thomas PORTFOLIO THEORY (ECGE 1218)

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Text of PORTFOLIO THEORY (ECGE 1218) Portfolio Theory 2010-2011 Vansiliette Thomas PORTFOLIO THEORY (ECGE...

  • 1 Portfolio Theory 2010-2011 Vansiliette Thomas

    PORTFOLIO THEORY (ECGE 1218)

    NB: Ce résumé ne reprend que les chapitres du livre, il n'est en aucun

    cas exhaustif. Il est nécessaire de bien regarder les slides du

    professeur pour avoir une vue d'ensemble du cours.

    Malheureusement je n'ai pas pu résumer tous les chapitres vu au

    cours (il manque le 3, 4, 26).

    En espérant que cette synthèse vous aide.

    Bon Courage !!

    Thomas

    Sommaire Chapter 1 : The investment environment ............................................................................................... 4

    1.1 Real assets versus Financial assets .............................................................................................. 4

    1.2 A taxonomy of financial assets .................................................................................................... 4

    1.3 Financial markets and the economy ........................................................................................... 5

    The informative role of financial markets ........................................................................................... 5

    Consumption timing ............................................................................................................................ 5

    Allocation of risk .................................................................................................................................. 5

    Separation of ownership and management ........................................................................................ 5

    Corporate governance and corporate ethics ...................................................................................... 6

    1.4 The investment process .............................................................................................................. 6

    Saving, investing and safe investing .................................................................................................... 6

    1.5 Markets are competitive ............................................................................................................. 6

    The risk-return trade-off ..................................................................................................................... 6

    Efficient markets ................................................................................................................................. 7

    1.6 The players .................................................................................................................................. 7

    Financial intermediaries ...................................................................................................................... 7

    Investment bankers ............................................................................................................................. 8

    1.7 Recent Trends .............................................................................................................................. 8

    Globalization ........................................................................................................................................ 8

    Securization ......................................................................................................................................... 8

  • 2 Portfolio Theory 2010-2011 Vansiliette Thomas

    Financial Engineering........................................................................................................................... 9

    Computer Networks ............................................................................................................................ 9

    Chapter 2: Asset Classes and Financial Instruments ............................................................................. 10

    2.1 The Money Market .......................................................................................................................... 10

    Treasury Bills (T-Bills) ........................................................................................................................ 10

    Certificates of Deposit (CDs) ............................................................................................................. 11

    Commercial Paper ............................................................................................................................. 11

    Bankers’ Acceptances (letter of credit) ............................................................................................. 12

    Eurodollars ........................................................................................................................................ 12

    Repurchase agreements .................................................................................................................... 12

    Haircut ............................................................................................................................................... 12

    Federal Funds .................................................................................................................................... 12

    Brokers’ Calls ..................................................................................................................................... 12

    The LIBOR Market .............................................................................................................................. 13

    The TED spread .................................................................................................................................. 13

    Swap Rates ........................................................................................................................................ 13

    Overnight Indexed Swaps (OIS) ......................................................................................................... 13

    2.2 The Bond Market ............................................................................................................................. 14

    Treasury Notes and Bonds ................................................................................................................ 14

    Inflation-Protected Treasury Bonds .................................................................................................. 14

    Federal Agency Debt ......................................................................................................................... 14

    International Bonds ........................................................................................................................... 15

    Municipal Bonds ................................................................................................................................ 15

    Corporate Bonds................................................................................................................................ 15

    Mortgages and Mortgage-Backed Securities .................................................................................... 16

    2.3 Equity Securities .............................................................................................................................. 16

    Common Stock as Ownership Shares ................................................................................................ 16

    Charasteristics of Common Stock ...................................................................................................... 17

    Stock Market Listings......................................................................................................................... 17

    Preferred Stocks ................................................................................................................................ 17

    Depository Receipts........................................................................................................................... 17

    2.4 Stock and Bond Market Indexes ...................................................................................................... 17

    Dow Jones Averages .......................................................................................................................... 17

    Standard & Poor’s Indexes ................................................................................................................ 18

  • 3 Portfolio Theory 2010-2011 Vansiliette Thomas

    International Indexes ........................................................................................................................ 18

    2.5 Derivative Markets .......................................................................................................................... 18

    Options .............................................................................................................................................. 18

    Futures Contracts .............................................................................................................................. 18

    Chapter 14 : Bond Prices And Yields ..................................................................................................... 19

    14.1 Bond Characteristics ...................................................................................................................... 19

    Treasury Bonds and Notes ......................................................................