Blog Posts

Fixed income analysis involves evaluating the value and risk of debt securities. These analyses play a role in deciding whether to buy, sell (short sell), hold, hedge, or avoid a particular security. Fixed income products, which primarily consist of bonds, are issued by various entities, including government treasuries, government agencies, companies, and international organizations. This […]

In finance and investment, one popular approach is the benchmark-driven investment strategy. This method involves tying the target return of an investment portfolio to a specific index or a combination of indices within a sector, such as the S&P 500. The ultimate goal for fund managers is to outperform the chosen benchmark and generate higher […]

Portfolio management is an essential aspect of the finance and investment world, which involves the strategic allocation of assets to optimize risk and return. A key area of focus in this discipline is the optimization of dedicated portfolios. (We wrote about dedicated portfolio theory here.) These portfolios are specifically designed to generate a predictable stream […]

In trading and investment management, numerous theories and strategies have been developed to help traders/investors achieve their financial goals. One such strategy is the Dedicated Portfolio Theory (DPT), which focuses on creating investment portfolios specifically designed to meet predetermined future cash flow needs. In this article, we’ll discuss the applications, examples, advantages, and disadvantages of […]

Copulas have become a valuable tool in the field of quantitative finance, particularly in the areas of trading, investing, portfolio management, and risk management. They are widely used to model and minimize tail risk, as well as in portfolio optimization applications. This article explores the various ways in which copulas are utilized in financial markets […]

Modern portfolio theory revolves around creating an optimal portfolio that maximizes the expected return for a given level of risk. Yet, traditional portfolio optimization methods often consider only the first two moments of the return distribution: mean and variance. Mean is basically returns – i.e., how much has this asset generated per year or how […]

The First-Hitting-Time Model (FHTM) is a mathematical concept that originates from the field of stochastic processes, which we’ve covered in our article on probability theory in trading. It’s more recently gained prominence in finance, particularly in trading and portfolio management. The model is used to predict the time it takes for a random process to […]

In finance, replicating portfolios have emerged as a popular tool for managing risk and enhancing returns. By creating a portfolio that replicates the cash flows of a specific financial instrument, investors can achieve a level of security and predictability. This article will look at the concepts of static and dynamic replication, as well as static […]

There are several assets that can be considered stores of value that hold their value over time and are less dependent on infusions of liquidity and good economic conditions. Including some level of “anti-growth” assets in a portfolio can help to mitigate risk and provide a store of value for a more balanced portfolio or […]

The duration gap is an important financial and accounting term commonly used by banks, pension funds, and other financial institutions to assess their risk due to fluctuations in interest rates. This article looks at the concept of duration gap, discussing its significance and how it helps institutions manage asset-liability mismatches.   Key Takeaways – Duration […]