Is there a pure-ALPHA?

Posted on May 15th, 2008 by silvia.
Categories: Derivatives.

Basics:

1. -Investing has attached two types of risk: the risk specific to the underlying you invest in and the market risk.

2. Therefore, we have also 2 types of returns corresponding to each risk.

Key points to keep in mind:

1. The first risk decreases as you are investing in more underlyings meaning: The Power of Diversification.

2. The breakdown between the two types of return is identified through:

Stock Return = alpha + (beta x market return)

For the story above:

Alpha = the return earned for accepting exposure to underlying-specific risk. Alpha is theoretically uncorrelated with with beta.

Beta = the measure of an underlying exposure to the overall risk of investing in the specificmarket. An underlying with a beta <1is less risky than the overall market and vice versa . The market itself has a beta =1.

The specific risk can be diversified and this means that the return associated with accepting it must be zero for the market as a whole so in this case we are left with the beta return over the market.

And now the interesting part: the trend to separate beta from alpha investing.

Example: X uses index futures contracts to obtain exposure to the beta risk and return of a given asset class. Futures contracts can be bought for less than their face value so X spends Eur20 to obtain $100 of exposure to the, let’s sat ABC Index. The rest of EUR80 X invests them with a manager that is focused on providing “pure alpha”., meaning that, the manager tries to eliminate the exposure to beta risk (and beta return), leaving just alpha risk and return. How can the manager accomplish this: by selling short the relevant index futures contract, or by offsetting long and short positions in different stocks.

1 comment.

The idea behind a structured product

Posted on April 17th, 2008 by silvia.
Categories: Derivatives.

Is simple: to create an investment product that combines some of the best features of equity and fixed income. 

How can you accomplish this: by creating a mix of investments that can include bonds, equities, commodities, currencies and derivative products. The mix of investments in a basket determines its potential payout, level of capital protection, tenor, potential risks and other considerations. 

To be more specific, a structured product is a synthetic instrument that appeared on financial markets in order to respond to the client’s need of portfolio diversification. 

Through a structured product you can invest in a market, in a certain instrument or in a basket of instruments much more easily than going on that specific market where legal framework might be restrictive, costs are higher and practically impossible to directly invest in the desired security. 

It is important to know that a structured product, as simple as it can be - and it is not always like this – always has a derivative attached. The derivative component is often an option. Some products use the derivative component as a put option, other products use the derivative component to provide for a call option. 

These curios investment opportunities can be divided into 4 categories as their associated risk is getting higher:
- Capital protection;
- Partial capital protection;
- Certificates (not capital protected);
- Leveraged certificates.
Through these categories we can determine the client’s risk tolerance from very conservative to growth attitude. 

The capital protection products protect a portion of the invested capital (up to 100%) and can offer some guarantees on investment performance. Capital protected products offer a defensive investment and might be an ideal way to invest in financial markets with little or no capital risk. The capital is protected only if the structure is held until maturity, it can guarantee a minimum coupon so that the downside of the structure is limited to a certain gain. 

Partial capital protected products, as their name suggests, do not offer a 100% notional protection but the protection level can be established along with the investors depending on the structure, underlying, tenor and other determinants. 

Certificates are mainly performance tracking products on single stocks, indices, sectors, themes, commodities, interest rates, currencies. The investment performance of these certificates will parallel to the underlying asset and the investors will not be able achieve outperformance. Performance tracking products are designed for medium to longer-term investors who want to invest in a specific market, sector, theme or underlying that are represented by a respective Certificate.  

Leveraged products can offer to investors accelerated exposure to the underlying asset, can enable investors to participate on either side of the market benefiting from price increases (Long products) or price decreases (Short products). These types of Certificates are designed for self-directed active investors and have a high risk-return profile so they may not be suitable for inactive or conservative investors. 

This was a short introduction in the structured products universe, basic information for retail investors who are opened to new types of investment alternatives and to innovative ideas that can offer a new perspective to the world we live in and its investment opportunities.

3 comments.

Ajustari futures

Posted on April 8th, 2008 by bear.
Categories: Derivatives.

Pentru ca majorarile de capital social nu afecteaza doar pe investitorii de pe piata la vedere, ci si pe jucatorii de pe piata futures, modificarile caracteristicilor instrumentelor financiare derivate sunt absolut necesar de constientizat.
Documentul atasat prezinta diferentele derivate din aceste modificari de capital social, precum si cuantificarea efectiva a acestora.

Ajustare futures

0 comments.

Top BMFMS ianuarie ‘07

Posted on February 1st, 2007 by bull.
Categories: Derivatives.

Anul 2007 a debutat cu aproape 500.000 de contracte incheiate pe bursa de derivate de la Sibiu. Liderul din prima luna a anului a fost SSIF Broker cu 130.418 contracte futures si options, detronand astfel liderul pe aceasta piata pe anul 2006, si anume Vanguard. Acesta s-a plasat pe locul doi cu 111.557 contracte. Bronzul a fost luat de Carpatica Invest cu 75.420 contracte. Obisnuiti ai podiumului precum Estinvest sau BT Securities nu au reusit sa intre in top 5, ocupand locul 6 (48.919 contracte) si respectiv locul 9 (38.532 contracte).

Top BMFMS 01.07.

1 comment.