金融市场与金融机构 第四章
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Slide 4-10
Risk Attitudes
Certainty Equivalent (确定性等值 ) is the amount of cash someone would require with certainty at a point in time to make the individual indifferent between that certain amount and an amount expected to be received with risk at the same point in time.
Demand Curve is Bd in Figure 1 which connects points A, B, C, D, E.
Has usual downward slope
Slide 4-18
Supply and Demand Analysis of the Bond Market
Slide 4-ຫໍສະໝຸດ Baidu9
Slide 4-9
Risk Attitude Example
You have the choice between (1) a guaranteed dollar reward or (2) a coin-flip gamble of $100,000 (50% chance) or $0 (50% chance). The expected value of the gamble is $50,000.
3. Risk
A. Risk of bonds , Bd , Bd shifts out to right B. Risk of other assets , Bd , Bd shifts out to right
4. Liquidity
A. Liquidity of bonds , Bd , Bd shifts out to right B. Liquidity of other assets , Bd ,Bd shifts out to right
Derivation of Supply Curve
Point F: Point G: Point C: Point H: Point I: P = $750 P = $800 P = $850 P = $900 P = $950 i = 33.0% i = 25.0% i = 17.6% i = 11.1% i = 5.3% Bs = 100 Bs = 200 Bs = 300 Bs = 400 Bs = 500
Slide 4-23
How Factors Shift the Demand Curve 1. Wealth
A. Economy , wealth , Bd , Bd shifts out to right
2. Expected Return
A. i in future, RETe for long-term bonds , Bd shifts out to right B. πe , relative RETe , Bd shifts out to right
Slide 4-13
Benefits of Diversification
1. Diversification almost always beneficial to risk-averse investor 2. Less returns of securities move together, greater is risk reduction from diversification
Part II Principles of Financial Markets
UNDERSTANDING INTEREST RATES Chapter 3 BEHAVIOR OF INTEREST RATES Chapter 4 THE RISK AND TERM STRUCTURE OF INTEREST RATES Chapter 5 THE THEORY OF EFFICIENT CAPITAL MARKETS Chapter 6
Supply Curve is Bs that connects points F, G, C, H, I, and has upward slope
Slide 4-20
Market Equilibrium
1. Occurs when Bd = Bs, at P* = 850, i* = 17.6% 2. When P = $950, i = 5.3%, Bs > Bd (excess supply): P to P*, i to i* 3. When P = $750, i = 33.0, Bd > Bs (excess demand): P to P*, i to i*
Slide 4-21
Loanable Funds Terminology
1. Demand for bonds = supply of loanable funds 2. Supply of bonds = demand for loanable funds
Slide 4-22
Shifts in the Demand Curve
Slide 4-15
Supply and Demand Analysis of the Bond Market
Slide 4-16
Derivation of Demand Curve
i = RETe = (F - P) P
Point A:
P = $950 i = ($1000 - $950) = .053 = 5.3% $950 Bd = 100
Slide 4-6
(Ri)(Pi)
-.015 -.006 .036 .042 .033 .090
.10 .20 .40 .20 .10 1.00
The expected return, for Stock BW is .09 or 9%
Determining Standard Deviation (Risk Measure)
Slide 4-3
Determinants of Asset Demand
Slide 4-4
Expected Return
Example: What is the expected return on the Mobil Oil bond if the return is 12% two-thirds of the time and 8% one –third of the time?
Slide 4-1
Part II Principles of Financial Markets
Chapter Four
BEHAVIOR OF INTEREST RATES
Slide 4-2
Chapter Outline
Determinants of Asset Demand Loanable Funds Framework: Supply and Demand in the Bond Market Liquidity Preference Framework: Supply and Demand in the Market for Money
Slide 4-14
What determines the level of interest rates?
Loanable Funds Theory A theory of interest rate determination that views equilibrium interest rates in financial markets as a result of the supply and demand for loanable funds
Slide 4-7
How to Determine the Expected Return and Standard Deviation
Stock BW Ri Pi -.15 .10 -.03 .20 .09 .40 .21 .20 .33 .10 Sum 1.00
Slide 4-8
(Ri)(Pi) -.015 -.006 .036 .042 .033 .090
Slide 4-11
Risk Attitude Example
What are the Risk Attitude tendencies of each?
Mary shows “risk aversion” because her “certainty equivalent” < the expected value of the gamble. Raleigh exhibits “risk indifference” because her “certainty equivalent” equals the expected value of the gamble. Shannon reveals a “risk preference” because her “certainty equivalent” > the expected value of the gamble.
Slide 4-12
Risk Attitudes
Certainty equivalent > Expected value Risk Preference风险爱好
Certainty equivalent = Expected value Risk Indifference风险中立 Certainty equivalent < Expected value Risk Aversion风险厌恶 Most individuals are Risk Averse.
(Ri - R )2(Pi) .00576 .00288 .00000 .00288 .00576 .01728
Determining Standard Deviation (Risk Measure)
s=
i=1
S ( Ri - R )2( Pi )
n
s= s=
.01728
.1315 or 13.15%
Mary requires a guaranteed $25,000, or more, to call off the gamble. Raleigh is just as happy to take $50,000 or take the risky gamble. Shannon requires at least $52,000 to call off the gamble.
2 1 RET p1 RET1 p2 RET 2 0.12 0.08 10.68% 3 3
e
In general
R Ri Pi
i 1
Slide 4-5
n
How to Determine the Expected Return
Stock BW Ri Pi
-.15 -.03 .09 .21 .33 Sum
s
(R
i 1
n
i
R) ( Pi )
2
Standard Deviation, s, is a statistical measure of the variability of a distribution around its mean.
Note, this is for a discrete distribution.
Point B:
P = $900 i = ($1000 - $900) = .111 = 11.1% $900 Bd = 200
Slide 4-17
Derivation of Demand Curve
Point C: P = $850 i = 17.6% Bd = 300 Point D: P = $800 i = 25.0% Bd = 400 Point E: P = $750 i = 33.0% Bd = 500
Slide 4-24
Factors that Shift Demand Curve
Slide 4-25
Risk Attitudes
Certainty Equivalent (确定性等值 ) is the amount of cash someone would require with certainty at a point in time to make the individual indifferent between that certain amount and an amount expected to be received with risk at the same point in time.
Demand Curve is Bd in Figure 1 which connects points A, B, C, D, E.
Has usual downward slope
Slide 4-18
Supply and Demand Analysis of the Bond Market
Slide 4-ຫໍສະໝຸດ Baidu9
Slide 4-9
Risk Attitude Example
You have the choice between (1) a guaranteed dollar reward or (2) a coin-flip gamble of $100,000 (50% chance) or $0 (50% chance). The expected value of the gamble is $50,000.
3. Risk
A. Risk of bonds , Bd , Bd shifts out to right B. Risk of other assets , Bd , Bd shifts out to right
4. Liquidity
A. Liquidity of bonds , Bd , Bd shifts out to right B. Liquidity of other assets , Bd ,Bd shifts out to right
Derivation of Supply Curve
Point F: Point G: Point C: Point H: Point I: P = $750 P = $800 P = $850 P = $900 P = $950 i = 33.0% i = 25.0% i = 17.6% i = 11.1% i = 5.3% Bs = 100 Bs = 200 Bs = 300 Bs = 400 Bs = 500
Slide 4-23
How Factors Shift the Demand Curve 1. Wealth
A. Economy , wealth , Bd , Bd shifts out to right
2. Expected Return
A. i in future, RETe for long-term bonds , Bd shifts out to right B. πe , relative RETe , Bd shifts out to right
Slide 4-13
Benefits of Diversification
1. Diversification almost always beneficial to risk-averse investor 2. Less returns of securities move together, greater is risk reduction from diversification
Part II Principles of Financial Markets
UNDERSTANDING INTEREST RATES Chapter 3 BEHAVIOR OF INTEREST RATES Chapter 4 THE RISK AND TERM STRUCTURE OF INTEREST RATES Chapter 5 THE THEORY OF EFFICIENT CAPITAL MARKETS Chapter 6
Supply Curve is Bs that connects points F, G, C, H, I, and has upward slope
Slide 4-20
Market Equilibrium
1. Occurs when Bd = Bs, at P* = 850, i* = 17.6% 2. When P = $950, i = 5.3%, Bs > Bd (excess supply): P to P*, i to i* 3. When P = $750, i = 33.0, Bd > Bs (excess demand): P to P*, i to i*
Slide 4-21
Loanable Funds Terminology
1. Demand for bonds = supply of loanable funds 2. Supply of bonds = demand for loanable funds
Slide 4-22
Shifts in the Demand Curve
Slide 4-15
Supply and Demand Analysis of the Bond Market
Slide 4-16
Derivation of Demand Curve
i = RETe = (F - P) P
Point A:
P = $950 i = ($1000 - $950) = .053 = 5.3% $950 Bd = 100
Slide 4-6
(Ri)(Pi)
-.015 -.006 .036 .042 .033 .090
.10 .20 .40 .20 .10 1.00
The expected return, for Stock BW is .09 or 9%
Determining Standard Deviation (Risk Measure)
Slide 4-3
Determinants of Asset Demand
Slide 4-4
Expected Return
Example: What is the expected return on the Mobil Oil bond if the return is 12% two-thirds of the time and 8% one –third of the time?
Slide 4-1
Part II Principles of Financial Markets
Chapter Four
BEHAVIOR OF INTEREST RATES
Slide 4-2
Chapter Outline
Determinants of Asset Demand Loanable Funds Framework: Supply and Demand in the Bond Market Liquidity Preference Framework: Supply and Demand in the Market for Money
Slide 4-14
What determines the level of interest rates?
Loanable Funds Theory A theory of interest rate determination that views equilibrium interest rates in financial markets as a result of the supply and demand for loanable funds
Slide 4-7
How to Determine the Expected Return and Standard Deviation
Stock BW Ri Pi -.15 .10 -.03 .20 .09 .40 .21 .20 .33 .10 Sum 1.00
Slide 4-8
(Ri)(Pi) -.015 -.006 .036 .042 .033 .090
Slide 4-11
Risk Attitude Example
What are the Risk Attitude tendencies of each?
Mary shows “risk aversion” because her “certainty equivalent” < the expected value of the gamble. Raleigh exhibits “risk indifference” because her “certainty equivalent” equals the expected value of the gamble. Shannon reveals a “risk preference” because her “certainty equivalent” > the expected value of the gamble.
Slide 4-12
Risk Attitudes
Certainty equivalent > Expected value Risk Preference风险爱好
Certainty equivalent = Expected value Risk Indifference风险中立 Certainty equivalent < Expected value Risk Aversion风险厌恶 Most individuals are Risk Averse.
(Ri - R )2(Pi) .00576 .00288 .00000 .00288 .00576 .01728
Determining Standard Deviation (Risk Measure)
s=
i=1
S ( Ri - R )2( Pi )
n
s= s=
.01728
.1315 or 13.15%
Mary requires a guaranteed $25,000, or more, to call off the gamble. Raleigh is just as happy to take $50,000 or take the risky gamble. Shannon requires at least $52,000 to call off the gamble.
2 1 RET p1 RET1 p2 RET 2 0.12 0.08 10.68% 3 3
e
In general
R Ri Pi
i 1
Slide 4-5
n
How to Determine the Expected Return
Stock BW Ri Pi
-.15 -.03 .09 .21 .33 Sum
s
(R
i 1
n
i
R) ( Pi )
2
Standard Deviation, s, is a statistical measure of the variability of a distribution around its mean.
Note, this is for a discrete distribution.
Point B:
P = $900 i = ($1000 - $900) = .111 = 11.1% $900 Bd = 200
Slide 4-17
Derivation of Demand Curve
Point C: P = $850 i = 17.6% Bd = 300 Point D: P = $800 i = 25.0% Bd = 400 Point E: P = $750 i = 33.0% Bd = 500
Slide 4-24
Factors that Shift Demand Curve
Slide 4-25