Sunday, May 17, 2020
Using the Treynor Black Model in Active Portfolio Management
Treynor-Black Model Using the Treynor-Black Model in Active Portfolio Management Aruna Eluri, David S. Price, Kelly Walker Course Project for IE590 Financial Engineering Purdue University, West Lafayette, IN 47907-2023 August 1, 2011 Abstract In 1973, Jack Treynor and Fischer Black published a mathematical model for security selection called the Treynor-Black model. The model finds the optimum portfolio to hold in the situation where an investor considers that most securities are priced effectively, but believes he has information that can be used to predict an abnormal performance of a few of them. The theory behind the model is presented, along with numerical examples to highlight specific realistic investment scenarios and how the†¦show more content†¦By blending a portfolio of these assets with an index fund, the investment manager can produce a portfolio that can outperform the benchmark while also keeping risk at a relatively low level. [1] 2 2.1 Theory Assumptions In using the Treynor-Black model, the following assumptions are made. [11] 1. Analysts have a limited ability to find a select number of undervalued securities while the rest are assumed to be fairly priced (i.e. the security markets are nearly efficient). 2. There is a high degree of co-movement among security prices. 3. The â€Å"independent†returns of different securities are almost, but not quite, statistically independent. 4. The costs of buying and selling are ignored in order to treat the portfolio problem as a single period problem. 5. Individual Portfolio managers can estimate the future performance of certain securities that is not reflected in the current price or projected market return of the asset. Page 2 Treynor-Black Model 6. Individual Portfolio managers can estimate the expected risk and return parameters for a broad market (passively managed) portfolio. 7. The quantitative performance measure for a single asset is alpha, which is determined in a subjective manner. 8. All returns areShow MoreRelatedAlternative Beta Funds Are All High Dividend Oriented1361 Words  | 6 Pages 1) Alternative beta funds are all high-dividend oriented and therefore strive to provide low variance on high returns, achieved through a combination of active management and passive tracking of their corresponding benchmark indices. The differing benchmarks mean that each ETF is invested in different sectors and firms and these strategies lead to varying performance. RDV RDV matches the Russell Australia High-Dividend Index; its investments are primarily in large, well established firms suchRead MoreFins 2624 - Portfolio Management Notes Essay14466 Words  | 58 PagesCheryl Mew FINS2624 – Portfolio Management Semester 1, 2011 LECTURE 1 – BOND PRICING WHAT IS A BOND? A bond is a claim on some fixed future cash flows. A commonwealth government bond (CGB) is a bond which pays semi-annual coupons, in which the maturity date/ coupon payment date is on the 15th of every month. A zero coupon bond is a bond with no coupons. The important information of a bond: 1. 2. 3. 4. 5. 6. †¢ 1. 2. Transaction date: T Settlement date:T+2 Coupon payment dates Maturity dateRead MoreCfa Level 3 2013 Summary8327 Words  | 34 Pagesavoided. investments aren t viewed in a portfolio context. Prudent Expert Rule: Revised version of the prudent man rule required by ERISA to guide managers of pension and profit sharing portfolios. The main addition is that the manager must act as someone with familiarity with matters relating to the management of money, not just prudence. Prudent Investor rule: This is a modified version of Prudent Man Rule in that it views asset allocation from a portfolio context. An asset (like derivatives)Read MoreSecurity Analysis Portfolio Management7511 Words  | 31 PagesPROJECT ON SECURITY ANALYSIS PORTFOLIO MANAGEMENT A STUDY ON SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT INTRODUCTION: Traditional    security    analysis   emphasis    the   projection   of   prices   and   dividends   accordingly the potential price the firms common stock and the future   dividend seem were   to   be   forecast   and   the discount allowed 10%. The traditional views    are   on   the   intensive   and current market price   of    security if the current market priceRead MoreCorporate Finance174197 Words  | 697 PagesQuestions 1. In the corporate form of ownership, the shareholders are the owners of the firm. The shareholders elect the directors of the corporation, who in turn appoint the firm’s management. This separation of ownership from control in the corporate form of organization is what causes agency problems to exist. Management may act in its own or someone else’s best interests, rather than those of the shareholders. If such events occur, they may contradict the goal of maximizing the share price of the
Wednesday, May 6, 2020
Descriptive Essay - Original Writing - 1544 Words
As I opened my eyes I saw nothing but darkness. It surrounded me, comforted me, and urged me to go back to sleep. Then, I heard my Dad’s voice cutting through the pitch black. â€Å"Are you still going?†he asked. I rolled over and let out a sleepy moan. He asked again, â€Å"Do you still want to go?†I nodded my head and attempted to arouse my brain. â€Å"Alright, if you are sure you want to.†he mumbled apprehensively as he walked out of my room. I closed my eyes and began to drift back to sleep. I caught myself drifting and threw off the mountain of covers I was buried under. The cool air of my room hit me and woke me instantly. My feet hit the ice cold floor and goose bumps appeared instantly on my skin. It was 5:00 a.m. on December†¦show more content†¦Then, slowly, I reached for the cold, metal handle and opened the door The small house was silent, except for the soft, religious music pouring out of the CD player which sat next to my Grandma’s bed. The house seemed plain; there was not a single decoration in sight. There were six people sitting in the tiny living room. All of them wore tired, melancholy expressions on their faces. It had been a rough night. We exchanged whispered hellos and I set my bag down as my Dad stepped inside and shut the door. I slipped off my shoes and sat down on the ugly, yellow carpet. The memories began to flood back into my mind. Six weeks earlier, while sitting on the same ugly, yellow carpet, I was told my Grandma was going to die. It was a Saturday. I remember because I had gone with my Dad to stay overnight and take care of my Grandma. Upon arriving, my aunt Janet told us my Grandma’s breathing had become uneven the night before. We called a nurse to come and examine my Grandma. The nurse walked into the room where my Grandma had been laying for weeks, made a short examination, then walked back into the living room. All of my Dad’s brothers and sisters had gathered and waited to hear what the nurse had to say. The nurse started off by apologizing for the horrific amount of pain my Grandma was experiencing. Then she dropped the bomb we had all been waiting for. The nurse told us my Grandma’s irregular breathing was
Tuesday, May 5, 2020
Nathaniel Hawthornes free essay sample
As put by Gloria Ehrlich in Nathaniel Hawthorne: A Study of the Short Fiction, â€Å"At the time of writing, Nathaniel Hawthorne was facing the impracticality of his literary vocation as the economic support for his growing family†(Bunge 46). Nathaniel Hawthorne felt misunderstood as an artist and used his story The Artist of the Beautiful to represent what he was going through. In the Artist of the Beautiful Owen Warland has a love and need for beauty, where is everyone else feels the need for objects to be useful. As one critic mentioned, â€Å"Warland has a disinterested search for the beautiful against the criteria of utility and self-interest assumed by society†(Fogle 70). Owen does not feel need to create something for a purpose other than it being delicate, and gently crafted, and all of society thinks he is insane for making trinkets with no use. A crucial scene in the story is when upon receiving the butterfly Annie asks Owen if it is alive only with Danforth to respond â€Å"Do you suppose any mortal has skill enough to make a butterfly, or would put himself to the trouble of making one, when any child may catch a score of them in a summer’s afternoon? (Hawthorne 174). We will write a custom essay sample on Nathaniel Hawthornes or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Robert just assumed that it had to be a real butterfly because he does not understand why anyone would go to all of the effort of creating something that they could easily just go and catch without any trouble, but making the butterfly brought great joy to Owen because he loves that he is able to make beautiful things, and the process that goes into making it. Owen does not need a reason to make things except for the simple purpose of being able to make something extraordinary and pleasing to the eye. Owen was sent to a watchmaker by his family to put some of his gift to good use, but while working under Peter Hovenden rather than repairing clocks he instead did things such as make them play music at each hour. Just as Hawthorne said â€Å"He had always been remarkable for his delicate ingenuity†¦But it was always for the purpose of grace, and never any mockery of the useful†(Hawthorne 161). Both Hawthorne and Warland were misunderstood with their work, doing it for the sole purpose of bringing themselves enjoyment while the rest of the world expected them to produce something for them too. Owen Warland and Robert Danforth are meant to symbolize different types of manhood. As Leland S. Person said â€Å"The Artist of the Beautiful also represents competing models of manhood, registering some of the anxiety Hawthorne felt after his marriage†(Person 58). Richard Fogle believes they both represent abstract ideas, â€Å"Warland becomes the quest for ideal, and Danforth, physical strength†(Fogle 81). Like Hawthorne, Owen is fragile, creative, and very encompassed in his work, Robert is manly, strong, and has a family, the person that Hawthorne wanted to be for his family. One critic suggests that by making Owen’s physical dimensions small and delicate was a â€Å"bizarre way of expressing the insubstantiality he felt vis-a-vis men of action†(Ehrlich 147). This statement suggest that in reality Nathaniel Hawthorne didn’t feel the need to be a Robert Danforth like manly character, but rather disliked him, although he could still dislike manly characters and feel pressured by his family to become one. As Fogle stated, â€Å"Danforth is superior to Warland as strength is to weakness, and he has the advantage of sturdy masculinity. In a sense he is a greater artist†(Fogle 87), this critic is implying that by actually creating and molding materials together, being a blacksmith, Danforth is actually a greater artist than Warland who puts into consideration ideality and beauty. It is not clear what the many characteristic differences between Danforth and Warland are meant to symbolize, but one can infer that Hawthorne felt pressure to be a materialist like Robert Danforth. There is a great deal of evidence that suggests Owens’s struggles as an artist are also related to Nathaniel Hawthorne’s. In the story after going through a brief illness Owen was even more determined to finish his butterfly than ever one critic noted that at the Hawthorne was forty years old and â€Å"had not yet validated his artistic vocation with a substantial book was surely invested in the long disquisition on time, and death†(Ehlrich 148). Hawthorne was very worried that he would not achieve success or be appreciated before his death, as was Owen when he submerged himself in his work after becoming sick. â€Å"In putting Owen through phases of creativity and decline, periods of energetic invention, and then successive destructions of his work followed by intervals of lethargy Hawthorne was examining his own oscillations†(Elhirch 147), Hawthorne put Owen through brief periods of decline in inspiration  as a therapeutic way to make himself feel better about doing the same thing. Fogle stated that â€Å"The artist is in some degree Hawthorne himself, and therefore it is all the more necessary that he avoid manipulating the fictional truth in his favor†(Fogle 86) meaning that the reason Hawthorne did not give his antagonist everything he deserved, for example the love of Annie, is because he is in fact Hawthorne himself and it would be an inaccurate portrayal if Owen got everything the easy way and needed no sympathy.
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