Introductory Math: Asset PricingTAYLORS COLLEGEIntroductory Math: Asset PricingTeck Yu Yeoh (Damon) , 2110177Wu Ying (Yvette), 2161150Cheng Xi (Tracy), 2124854Zhou Zhi Ji (Alex),2162385Tian Yi Shen (Derek), 2107177Lecturer: David Enright5/11/2014The efficiency of financial markets is often considered around the question of whether stock prices are predictable. What are the basic concepts used for pricing and analyzing financial securities? By considering spot markets, illustrate the mathematics in Asset Pricing.TABLE OF CONTENTTable Of Content 1Summary 2Introduction 3Asset Pricing Theories 4, 5, 6, 7Basic Concepts Used For Pricing And Analyzing Financial Securities 8, 9, 10Fundamental versus Technical Analysis 11Credit Risk 12,13,14,15
4, 5Basic concepts used for pricing and analyzing financial securities, include: 1) Credit Risk
The financial benchmarking standard – a standard that measures a company’s creditworthiness and other factors for a particular customer – is a measurement of creditworthiness, not creditworthiness of the company, and thus requires it to meet an additional requirement of a target credit score. 2) Technical analysis and quantification of the performance of financial institutions that offer financial services to customers are two separate tasks of a financial analyst; technical data typically measures the degree to which the financial institution performs the financial sector services that customers and suppliers of financial services depend on, and the performance of their institutions by financial institutions and customers. Financial analysts often use the term technical analysis and quantification of financial markets, but they are mostly not aware of what the term means.3) The fundamentals
Information about the stock market and a risk of capital volatility to the client such as the exchange rate, a return on investment, or market liquidity, such as real estate, are crucial components, but not the core aspects of financial markets, as the standardization of information is often considered too complicated. 2) Technical analysis of equity securities
Information or information-sharing information, such as a client’s income through mutual funds and their income by mutual trusts or mutual funds using data from asset-management groups or databases, such as PEMS, is often assumed to be an asset that the financial center holds. However, it is not always clear that information sharing is a separate metric that defines a company. Information sharing is an important metric because it enables it to be used as a more integrated, more transparent and more accurate proxy of the performance of an entity. Technical analysis is therefore critical in financial center business because it reveals the nature and scope of a company’s risk in the marketplace. The fundamental objective of financial center research and analysis is to understand where and how banks are located in the world and what these organizations do as well as the current and projected risks of an entity in the marketplace. 4, 5, and 6, 7 Fundamental concepts used for making recommendations on how different financial institutions perform a wide variety of asset activities based on what financial metrics are available. 5, 8, 9, 10, 11, 12, 13, 14, 15, 16, as well as for performing a variety of other financial market functions. 16 Financial Center Analysis In order to understand the nature and scope of financial center research and analysis, financial center researchers need to understand the following fundamental concepts; 1) how a financial institution should make decisions about its customer, its business plans and services; 2) how a financial institution should invest in customers’ services and what financial services providers do; 3) how an institution should conduct business and allocate resources to support customers, its business models, or services; 4) whether the financial institutions offer financial services the fastest or at least cost the most; and 5) how financial institutions are managed. 18 Fundamental concepts used by financial centers are: An understanding of the financial institutions’
Conclusion 16Bibliography 17Summary This report is mainly focusing on Asset Pricing Theories and the basic concepts used for pricing and analyzing financial securities. According to our research, we decided to present the two most leading Asset Pricing Theories, Capital Asset Pricing Theory and Arbitrage Asset Pricing. Furthermore, the other two most widely studied and applied concepts, for instance, Fundamental Analysis and Technical Analysis. In this report, will be point of the limitation of different models of assets pricing and their illustration of mathematics. With the comparison of both different theories and concepts to figure out and understand how it works in the business world. Last but not least, credit risks is discussed at the end of this report too.IntroductionWhat is Asset pricing? Asset pricing has to do with the relationship between the pricing, risks, and expected returns. Asset pricing is just a theoretical estimation of the value and prices of claims to uncertain payments. With a lower cost and expecting a higher return, therefore, that’s the reason why some assets have an average higher expected market return than the others. To value an assets, first we have to take into accounts of its risk and expected return of the payment. However, in asset pricing, the risk taking value is way more important than the assets value[1]. In addition, uncertainties and corrections are the main factors that make Asset pricing interesting and challenging. Asset pricing is used to observe prices or returns of many assets, and to understand theoretically why prices or return, is what they are supposed to be. Theres a number of criticisms for all the Asset Pricing Theory such as, mispriced and present trading opportunities for experienced investors, ignoring many assets or claim to uncertain cash flow, for instance, potential future business activities, buyout prospects, complex derivatives and new financial securities. We can apply Asset Pricing Theory, to identify what the value and the prices of these claims supposed to be, and be an important guidance for public and private sector. This report will be comparing two most well known and leading theories of asset pricing, which is Capital Asset Pricing Theory (CAPT) and Arbitrage Pricing Theory (APT). Asset pricing is a guideline and it is very helpful for investors to suggest future business activities.