(Orne MOonenae eer PLO .0 kh Reve the Scheer and work the qusone 1+ The price issih Ast prices reflect nd asaya all walle information. ‘+ No ie lunch ~ No manage shoul beable ene no une han) cms Maske icine 1 Wakeform efi rca ncrport al at priccand vole dae, + Sem-seong form cient — Pris feel public formation. + Serng-orm efficient - All informa fc In pce Noone can conser ar excess, “THE BEHAVIORAL FINANCE PERSPECTIVE 1. Consmgion ads Framing The may incre iris ace heer sve or costed. + Secon bine Foo uten consarpion ‘be ha ving income or Ee : a gee poco efweleo met int pa. 2 nitoal aoe page + Sonnet pt Added dicount tes cans prs devi fom fanart ics 3. chino porta theory (I: Tae acted pion in yrs sccolingo hk pak 4. Adaptive mses pokes AME): 1 pl Neri al hy oo ge wok, ‘hen ad them. Mast lp to sure ‘Copstie iro and Emotional Bases + Cog eros Res fem comple Information or ably to ance + Emotional biases Sponancos action that Ae hon nda seins, {Common Behavioral Bias Bale Reeranes~ Som en india emptor cogaitedvonares + Cognnive dimonanee~ Neal onic fom ‘ntrmaten har conaie ont bel + Gomervatom bias = Fphasng normation tied nrg frat ver now dt. Coppi cont lr wo snl ew ds + Confmaion is - Seng da sapon Uae dinsuning sorry fac + Repsemranene big Ha ooops Ian ud cs ew formation. 1 Be rte neglect To ede weight onthe hase at leg probly af A pen. + Simple neglect ~ Inking oo mich frm ‘tl aew ape of lfration + Corl bar Tn el cy ae re ‘onal nr coor das hy sly ave + Hindsighe bar ecing seta oucore 5 ‘tobe ad cece 2 oece ear gtl eater eens « Ricigc argent, Santee + SER erp cera elon ee eae aetna Pea tener eee eee geste nila ‘informacion or ability eo interpret. eee eae Scans somata camila gie "+ Selfattribusion bias ~ Slf-enbancing bins plus Seater SES ONSET an Sree « Sepang hag tet icra cartires ener ei alte ttatenes ~ Evestetataiat ayo & es BER ihc wn eee [eo pee ee efor xfer rouse Wo se RIBS tre ng eg cin Soe » Segeanlon tear eee ees PEO pe tty core eeane eel pp Teena ee Ski eT en Bete dt lt ene tes aera pees - Hee oe tat | SY cere ne sol he tng soup Ge. “groupshink’) jemeeee ee es pcaty Semraices iertt = A ces aan ee ‘coecam ete posh esT rete een PMs IS Objectives and Constraint: Individaals ‘+ RETTLLU: ta rar de horn, aes guid palette umque ccareance + Rik Tolerance Willig aby, neal ‘Willngnes deemed by porholopea ctor. Abily determined by inc of peri neon to manetary grate ar time hin, Oval ‘ligne fs than bly, bow wing Trwilingnn is reste than sity, honor Siey anusupge incor elaction wo recone «Renu Obj Minors urn ed ro mectcien sabjciven TVM or ons year ‘cleat. Constant: "Tne oro, Ulysses, pe redremeat ad eement.Avae dence by ‘aca adjust PS Tae Inde me avy conider ex, igus Spending needs met bythe porta. Tipe play Wadi bar il TEER concen ules tte vl Ca ateap rnnead pl conned nia rman Aid ei da of secu or ins ge hing of sok, x. “Taes and Private Wealth Management ae Aoaation Forma (leeds vel acral tation: EVIE [1 Hal afer capil pins ation FUE (Ca) 1B conte / act alc a wart of petiod 9 noua weah asaton FVIE, = ((L+ 1 JP Ania in fic taco mc, Siebeltl gee Pall Ipg 8+ Rl Hl wae) fete capt ssa at: Te glpueag! (= we PVE, «(0 rp T) TB, Acre Euan ex Ree (Rte oat proaches ila te tele port) y= Vinal veneer Ara uit Tex Rte Ty =1-Bo5/ (An vel efetve x) eset ers ta af Iced Acorn end bene cont ec cunt ae aera a ee, aed in Bt, CIDAY FVIF, = (1+ U4) Tacx act: Back-end hens. Con sae sre x a foe ine. Pur, (le) UT > Ty > Frou? FY en freee Dr of Retr). nae Manning Caio api eb jo sail ‘rb hbase) + Pb wie uvive ~Prebthaond sarees Pte ares)are. Delivery ofl sare o the repayment epic ae eens cng ffiikemtng) ghee ara” ‘ (ert Tax Optimization Strategics ene 1 esting pans rem aie oe TB esting rite od Sieoespunecie Rratwas a(t + Conacher ae eee eset a Se eeteecsaon {itralegeaee ees 2 cal pete havi ce = the unatying gaia 0 be tamed orf the eocemary Faun PV —wPOATE Seen whee fst |. Exchange funds multiple vestry comin eae ie Ring ot rye eae en eerie hata eal and. Each now owns a peo rata shave of the new fu a derail Fed dering ne tars ofthe bx fund ae sd egg a Managing A Prat Basins ee het fea tT) Seg bayer tak aby and bd pep. Mose es feeeecee ia eee altteimslt—seJ eae ute naiek f+ e0-nelft—1) ed after ax value of che git v et Tan cera VityzP te) cn pale ee kal 3 4 Tonty — M88 Tr To) 7 4 sp pop agri pe Bere a ae i eee ee Se a Seo, Bee SS eae eagle dpeebaalad memes “le We 4 Th Cee eee + Siew iba } Halk si = Teter Tot Tr Life Inurance Demand zal 7 is i exe Se (Tze rs) less demand far life iasurance. +f eSeH LN it “+ Human Capieal Volatility — High volley of Ha i iE i Teoh thee eee — ~ EDI netesne er * Slikcaes whither ee labtiyadlow dena i nae ae shy { ' Lig + Monce the ance boro pia vaue and * aba oC eth ah baie of dex HL tdaldals 4 © settembre a Sige ne eet deel ree i 4 eereeee) Qe HG i * twee | U seboe e e “Sean ns wan ani AML i 4 ie H eo | S tals ‘3 oes : - oer at et ited High i i coos AMT had eh hedged ening alc ofthe sal eis le Bene F = ! | + Torr ely ape aver oes renee HOR. 1 i aenase mae siukeueeor ! l caaltuitd 4 in il + Bay protective pts (poi isurnce). + Prepaid vane forwards (IVP) The det prs | ‘heewner nwt—equnalen ro bcroning. The lea willbe pid by dering sarc a foeSinger and Teshaar Analyse ei Ho emis pally eed Cie tae ee el al Fo The Taylor Rae [0 2(90 Pap GOP.) Sects! | rests tae) Cob-DooglaProdection Funcom, Y= AK: ts he cone orp aed ail ok ‘Serna the ol rel Sooo es Yet einem maper As onl Boor petkaely TF) Peepers tear SOUT fc cupat chic of L(0.+8 1) Ths Geena the CO dared ae pd cheng el crus Ope ayaa aK RisrA Ren Himodel Nee ne ~a)+¥te-2] Relive vale models Tred scokd ts S&P xings yd Problem Limieons owing eonomi Da meairement enor and bates Limestone of hinorcl existe xpoer das determine ex eid and rem Pern Filing vo account for con Miinecpcation of cnlaton Feeeenliee Model and input uncerainy Foreating Tole ‘Scale Rie ae A eA Diode Row mod: cee its nll Kroner mod 8B siegas~alt} Rik Premium Approach ro expected bond en oxo scars =, +4 (RyRy) Tres kd ‘Aval>1 indicts tat qt are anderdied nd svi cree ae. Yardeni Model: AMAL TEG)]> Omari aioe A(LTEG} <0 is ear Moving Average Pie Earings Ratio, PAOyear MAE) Cops ret aa titre weg te denrmne vate the mate Koc une pied “Tobin's @ and Egy Brin arcmin am ng 1 he sock shoud dln Caer ea a ene ciay ee eee Caer + "Eeonomie ie Decision Toward Strategy ee eee eres = sofa ps pees oes = '¢ With higher real or nominal interest rares. 2a + Seomeeranee este pea le leateg rf fom prising changes ay vel epee wo ‘em + Nel inca pce n-th) ad pat sl ec aga Sy yg Forpar ans of Discounts and Caency Eee Fee ble ae“The minimum variance hag ratio (MVTIR):¢ sageion of pa ching in ao the porto {pc clang in ale th eg eee. “The alg os the Bt lope cote af chat egson. + "Soong pve conlaon herwen Kan 2 Ialge mito > 1.0 rede ot of es eee, ere ee eee Se ee eee Seana: TR ace oe a Anes cae cee ae Prepon grates oa - See eindaamadauls er ne aihin ie cine eee eres Souq Steep erm oe SS rica See ee see S10: FIXE! Meine) Dolla duro of bond or por, abo he ‘onion to dela destin, DDD = (Sala) - eine duran 0.0188) AadjatingPotflio Dollar Dusstion DDD changes tees rey chang oa ie prs Toe allie prt DD: er DD rcblncing rin = SEEDY Spread Duration ‘Sev of mn Ties cane spa +" Nominal Spread ~ Spread berwsen 3 non: Thar ands Tenary curity of me msg + Lovo Nelasley Spread Spee re the Tey sport ove ©: Opti Adjted Spr = Cosme ig (eam ines i oe ‘Contingent Immunization Acie management slong por ir cea prespectral hat ‘eimai mde sie gered ‘Cashion Spread Dileence beeen reran ot lmsounied sexys and salty et eur, + Requed Terminal Vole A perder Tabi rhea vac ef porto arpounded the sty nt en. + Dollar Safety Margin ~ Dire beeen siren vl of prio and vl ened © hie rue terminal wale al. he eon mmanizaion (1) por tain = dation of lebih, 2) PV of aes SV ofits (3) range fst rations» of ‘ange of ably drain *+ Cashflow machin - Slang bonds tha have (Gs that correspond ohooh ably seam + Combietion marching ~ Crema deraton tmatched pore hat ah cosh ow red Ahn Be few yea PTAs Se) fect of Leverage on Return RR, +BIEx(R, 0] Effet of Leverage on Duration p= DID Coa y Hedging formula wing duration: et acess = r= Pe) CTD conven Defer Se DDy-DD, DD, Remember, if yi bers given, ince as alpen. ‘Types of Credit Risk Defer Cri sped vk + Dorwngrde ise Crait Dervatives +" Cra opins ‘nay credit opcon:payo bted on cd vent occusing ad he undying sets price OV «max esl) 0 ‘© Chaar ls OW =a Capea — raised) «nacional xk cor. + Goals opto pel oe he sundersing eyed spread Credit forward. Pane a cement it Findon of the cit sped over te benchmark tthe ime the contract maces FV = pend at Iratny contac spread = raion ie tor + Gra swaps Pode eri rare ‘© Cadi defile napa provide proven psn deface an unde edt stcmen ‘Covered Interest Rate Parity URP) He er Fand Sin DOR Forward premium, fy, fora frig caren is roughly ult the incest ate dle FS) yaa 6 % edging Caren Risk 1 Forward Hedge Sl ecg cate adhe cane Forward + Prony Hedge = Short scond forcigncurency that coeled wih the long oe carency. + Coo Hedge = Gontoct adver te origina Foreign comeney fora hid curency. Beskevea Yield Change: shprice ction ‘mun ona bond denominated in foeg 100 Ay i bss pole RAR RAR) RY) uration of sn option = opin dl tion ofthe underyng eof the nding ke of the option a ro Crting A Indl Pro Earn Ry =(b Ru tha, toot Ra) HE) ‘+ Holding Raed Sol Anas ~Fralte the individual secs nthe nunoges polo. image mise run © map oa ont wun ironors each retry seabaceree Vlerne active risk) + (ena active risk)? $513: ALTERNATIVE INVESTMENT! ‘Common Feature of Alternative Investments, + Tow guy relied Dadian ans * iia ae + Acceso infomation ones Foe Private Wealth Clients a) * Sibilcy + Comminiaion bewsen avr and cca Deion ri of ratonally changing a stategy Concent pornane Real Exe + Diet venient: Ownentip of rides comme al eater agar land + Inder inenmene Ownciip drcugh unl Fn eg inde «+ Henchmae NCR NARETT Prat Ey + "Sabra ince are p companies, mide mrs pt comp and rat iment input eres + Dining feat of ve abr: ‘fdedopmen ofthe conpuny eeeng te inves lan. + Benchmars: Pviad by Cambri Ascites and Thorson Vest Econom. Commodi + Diet inet ~ Parcs fhe psa commadiy or deat + Inde inven = vests i compass ‘thot busine aoe wih commode + Benchmark Dow ner AKG Commodiy Index S&P Comotiy Inde. “Managed Futures Funds taro enlyin devaives marks, while Ie fe endo wren spor marr ond se eee + Generate postions asco indies dg unser oc om inva + Beachmas MLM: CTA Indie‘Buyout Funds «Last acre of th rae egy markt + Dit ino mide marker and mapa. 4 Cape wey ling cating gh pita placerets, IPOs or hough divdend Tovpeliaton Aetmtrciee Bone 2 Roche pb irs on 1 odie aes, longc al ears Dine Seariin 2 On conse be pr fhe dg fan lam May ob par th pres om + One way to cont abou by sacar ‘tip indo prac ep faa + Boheyatr doesn slr og only lg nd choad Hodge Fund Clsifation Conemblesbge Deira sce Ene ate Fy ake era Bist ecors ai Bedoffaais Gb mace args Medes sur st Mogeatirage Limiations of Hedge Fund dies Seon eter ‘Weighing schemes pul bin * Surivonhip bias BSC ‘contained Risk Sten (an neice ik manapemene yer or FRM ri sro fh ins red chan «ecstrnd, van =[i,-(}vy “Hiri Va rank acl pe reruns Monte Cara tee bt allows assumptions of any dsibaons nd cotelatons Extensions to VaR: 1 Treremental Vat (I) ithe ler ofa init on the veal VaR conan + Eine 2) wand CHA on cena tees «Elster ai a peed sarin eel oe corti Ct or lah Val eee ip Methods Fr Managing Mache Rss Poin rigid Tee ad Soke ey its pete opm, Boe tere las sere erica, eecertetccsr ey re Sanam eee So es ESE ee (Changing Porflio Duration with Bond Future Say es Syathetic Equity Indes fom Bills yoo Ry ‘Changing the Portfolio Beta with Equity Futures sonme(*5* [i Altering Deb and Equity Allocations ‘som equity to bond sll eity Resa bay ood eure From bonds wo qui: ell bond for and buy guy fare. Option Se = "Comereh Cal + Protective Pay ball Spread ie 5 Cola: ay pater sides ball pend 1 tei ming niin +" GAME Used wo ini the ot of booing, etc ri, py of edacing effect lan et Teeree acl ay = (NPI, LIBOR — see rae" 360) 4+ Puc Used anand ru onan mt Mating eel rts lho pay a inveet ae por (ND, ee ee “LIBORKD 360) + Gap: Sei ofl (ape). Flor Seis pus (lowes) Iara Rae Col Combiation of csp ar oor. Change Portfolio Duration with Snape MD aang = MPa = MD ng > =MD hans <0 MD nt = MD, a MD Mining Guideline + Toloner anc daraton, poy Sed + Torae sme dram, we Fac Guerney Sap Tin tidal curency ep ‘ast ntonl rip The eoarerparee sally exchange epic on the cine ‘ine and ver them tata, Posic erst pajmenc ae not aly nee + Equity Soap ~ One counterparty makes payments Ite on zn equiy poison. Counterparty mals payment baad on another equity. a bond ot Fra pamens + Saptons An option on wap Tncret Rate Swaptions yer Swaption gs ths buyer he gh tobe the Raed ate part + ReciverSwapion =e the buyer the rgh 0 Sethe uel te ese $516: TRADING, MONITORING, & Ceenend ‘ie pred = 2 « femeton poke) ~ (ae pucion marten pow the des ‘compa ois set odes for exrcation | + Autornted scion okra a eetonic line marke + Bolen mares broke aa a0 1+ Hybrid marke: combine quote driven, order: Seven, ner markers Market Quality + Alogi mart has (1) smal bidask spreads (2) mie depth and) rshene, ‘+ Tranparne marie inven con obtain p= tea nd poste information. + ari of completion Execution Costs (Bap conta wade inclade commons, ‘ates, samp dates, and fo. + Tipit cst nce she bi-ask qe, market or mer rn eeand ey “+ Nile weighted average pice (VWAP) ina wohl seg of ersadon pices Jing «day ‘aranogsr of WAP. tas andes. * Simple te compere, * Came applic qickly to eahance decisions. Saeco eer eee octane PREC ae elo eee et i gopher oanDecomponton of plementation Shordll Insplementation Short (1S) sabre Pooler aes ee pe poi invemen 18 Price nial bench (BP ot desion price DP) {rth ates when Sedan ro ade ide, fen he at aig dy ing Koved he pe Hse path ssc i heb ot mee in ly ‘Soar len ied rin te Ba ‘neon pe EP) che pice whem te ode oul ‘Chacon pie ithe pic fhe cui if fur of herder eared Expl coma are comentions cfs [Rel pei ete diferente ren the aon pad ha rt clon pe ‘Baby ec lipegy ens cat on eg Si ila 1 ‘ocd pce moremet fom the yan fre was enero f ot xr woe ll ‘Mived wade opportunity cost MFTOC) isan ‘ppomuiy inv pin de the ey ‘Stomp the ede sth dion ‘vlton pric of he ker and decom pie ‘etl inplencnetin cnt exp crs © ‘el a» dey conte» MTOC Candas eve se esa n the spplcaio. i tee = oe en pease “Trang Teton Algorithmic trading is a form of automaced | Sate ieee opial parvciption,epporranistic, and spevalized Aponte tum his 3 componene rtiipaton satel spe gl paripaion srucge and Markt, Soe, and Active Management. igen le * Setpetetonne ‘pa Ry MASA. "SP ucts tek he rade el pis thatae sth sal arf wading wee” Benchiass tng mac ps oe Ava bench shoul met the alling «+ Vata SR One basen up onc the 1. Specie navance 2 Appropeiae 5 Mewar 4 Umguow tle 5. Bele ctrensiovesmen opinions + Varvd pcesimugee Geol 1 Teccom ting elt mnie opp ‘ co. Tpaly ete header arty. 4 “eine Ferocmade-aead Rerwrchaed 7, Caen rer tc casio secs based benchmark the mos appropriate an mec all the beachok ster, |y Minor semati bias beeen she account Sh he enchmak ear 2. Mina wckng err 3. Seropareiion wth he manage vee Low tno facro and Micro Peformance Acibuton 1 acm aroun 's performed tthe find ‘pentor el Levels of anand P Neconriione + Rik ie sore + Mir arbi sls individual poion ‘ater han the woe fand. The mangers ‘alse ee he direnceBereen the oro ar benchmark irs “Miers Peformance Attbetion Sen-vallta a +3°(0jwafRry~Ras) + Yowai[Rej Ras) aeeaieciae Tieynor Meare hows the an re (over the ‘id a) eared po nt of ot ‘Sharpe Ran eas eur pr unt oft de Ay-Re re SSmrdes Pont Ape Kaowe Senet +The gue delaras that mas appr vrs: hose hat mus appar but nly freee ee 1+ How eden and conc ered omiione anna om the sccoune i formance Besenatone ARA, etl etn onthe scone pd Ry = Re +a (fue) = peice sccnane em Review the Sweets ae clas lids. 1M computes the sd jute potent the mart a eee | | | | | ofrararsta: Information Rai is is ctr pr sada 35573" oraion of ee rea mp = See ey ear Us.ssan ans