“Discrete” suggests one receives the interest amount at the end of a period. Discrete net and gross returns for one period Discrete net return for several periods: As you can see below, you need to combine discrete net returns by multiplication. Gross return for several periods (discrete) However, this doesn’t seem right in some cases: For example, in the case […]
1) Descriptive statisticsDescribes, summarizes, and presents data (with graphs, tables, key figures). You only describe the data you actually have. Example: You graph the maximum speed for a set of 4 cars. 2) Analytical / inferential statisticsAnalyzes data samples and tries to make statements about a larger group (population) from which the data samples were chosen. For example, if you […]
Index funds hold ( a big part of) the investment products represented in an index. They often charge low fees and are ideal for investors who want to go with the market. However, due to an index fund’s costs (e.g., management costs), its profitability always lacks behind the index it follows.
They are often used as a proxy for the market. There are broad (non-specific) as well as specific indices. In general, there are four different ways for an index to calculate its price.
The relationship between mean and mode can show you the distribution of the data. If the data is normally distributed (not skewed) the mean and the median are the same.Median: There is an equal number of values on each side of the Median. Mean: There is an equal sum of values on either side of the mean. If the data […]
Modeis like the most often occurring value in your set of datai.e. Dataset: 1, 2, 3, 3, 4 -> Mode is 3 There can also be multimodal datasets. Eg. 1,2,2,3,3. Here the mode is 2 and 3. Medianis the value in the middle of your data set. (values have to be ranked from low to high)i.e. Dataset: 1, 2, 3, […]
Hedging, either one wants to secure (lock-in) the price of future spot market positons ( long hedge ), or one wants to secure the price of currently owned spot market positions. Trading, one takes risks in order to make profits. In arbitrage, one tries to realize price differences of different positions (eg. a stock and future on that stock)
The (futures) exchange guarantees the fulfillment of the trades. The (futures) exchange calculates the payment obligations of the clearing members. (often even daily resettlement) The (futures) exchange allows effective pricing for the derivatives The (futures) exchange allows standardization (fixed quantity, fixed place, fixed delivery dates, standardized contract types) The standardization work of an exchange organization leads to more liquidity for […]
With a swap, you exchange future cash flows with another investor (usually in the same currency – that’s also called a plain vanilla swap). For example, you could exchange interest rates. Let’s assume you feel that the interest rate will decrease while another investor wants to secure himself against rising interest rates. Therefore you might want a variable interest rate […]
If you buy a spot market instrument you have to bare the total cost of carry (financing costs) immediately at the point you buy it. On the other side, if you buy a future you can bare the financing costs at a later point. Therefore it seems reasonable that a future will cost more. (Money you have now is always […]