Capital asset pricing model

The newsvendor problem is a mathematical model which is used to determine the optimal stock under uncertainty. In the following, the newsvendor context under cost minimization will be introduced. Let h be the unit holding cost respectively the unit overage cost (as we regard the pure cost context) and b the unit penalty of not serving demand (or unit backorder cost) respectively the unit underage cost. Then, the target inventory B is equal to the mean demand µ plus safety stock SS. The safety…

Rubinstein (1979) developed the binomial option pricing model which converges to the Black-Scholes formula in the continuous limit and demonstrates the advantage in valuing American-style options. The model approximates the behavior of an asset price by the upward and downward changes in the asset price over a particular interval of time. As shown in Figure 1, an asset with a current price of S follows a multiplicative binomial process in which the asset price can either go up to uS or down…

parameters such as ω, α, and β of GARCH-M model with different error distributions for all subset data were significant at 1% level with correct signs which provide evidence in favor of ARCH and GARCH effect. The significant value of ARCH term (α) implies that past stock price innovation influence on current volatility whereas significant GARCH parameter (β) suggest that current volatility of stock price is influenced by past volatility. For asymmetric models (EGARCH-M and TGARCH-M), almost all…

Theoretical Framework The Proportional Odds Model A binary logistic regression model estimates the odds and the probability of experiencing an event for the dichotomous outcome variable on a set of predictors. The logistic regression model is defined as: ln(Y′) = logit [π(x)] = ln = α + β1X1 + β2X2 + …+ βpXp. (1) where logit [π(x)] is the log odds of success, and the odds is a ratio between the probability of having an event and the probability of not having that event.…

CDS was used as the guarantee. However, a single-name derivative is priced (versus basket CDS applied in Italian securitization law). As an underlying asset of hypothetical CDS Target portfolio is selected. The price of CDS is then compared with a real CDS market data. As the creation of hypothetical CDS is a very complex process, the standard model (Hull & White, 2000) used as the basis with applying slightly different assumptions…

portfolio theory that is suggested by Harry Markowitz in his article “Portfolio selection” in the Journal of Finance. Markowitz portfolio theory basically helps in making optimum portfolio by interpreting, and evaluating risk and return of different risky assets. Basically, the portfolio theory is all about analyzing the balance in between the minimizing risk and maximizing return. However, the objective of this theory is to select one’s investment in that which could diversify the risk without…

relationship, two models are used: CAPM and Fama-French models. Before estimating the models, we can see through Table 1 (Pair-Wise Correlations among Variables), that there is a positive relationship among all the variables used in our models, since all correlation coefficients stated in the table by…

We want the neural network to predict the stock price at a future date using stock price, EMA, RSI and MACD data of today and the last few days. The neural network can be configured to have a specified number of hidden layers. In addition to hidden layers the neural network has an input layer and an output layer. In the input layer we give the input that is stock price, EMA, RSI and MACD data of today and the last few days. The hidden layer comes between the input layer and the output layer. At…

has some visible impact on Bharat stock market in short run. Impulse response also proves this result. Bharat stock market was not found integrated in long run with other selected markets and short run relationship is also not confirmed by all the models. So portfolio diversification benefits are available for international investors in different selected stock markets under the study in long run as well as in short…

of underlying assets which may be a commodity, metal, money currency, any stock or indices. The main purpose of derivatives is to avoid risk. Major uses of derivatives Following are the major uses of derivatives Risk management and Financial engineering Derivatives are used to avoid risk through hedging and managing finance through derivative technique. To…