现代投资理论 英文版·第4版PDF电子书下载

PART ONE 1

BACKGROUND 1

1 Introduction to Modern Investment Theory 1

PART ONE 1

BACKGROUND 1

1 INTRODUCTION TO MODERN INVESTMENT THEORY 1

CHAPTER 1 The Function of Financial Markets 1

Savings-Investment Foundation 1

Efficiency of Financial Markets 2

THE DEVELOPMENT OF MODERN INVESTMENT THEORY 2

Stages of Efficiency 3

Financial Assets 3

WHY SHOULD YOU LEARN MODERN INVESTMENT THEORY? 4

The Role of Financial Intermediaries 5

2 SECURITIES AND MARKETS 6

Bank Discount Rate 6

2 Securities and Markets 6

Government Bonds 7

SECURITIES 7

Disintermediation and Securitization 8

Financial Innovation 9

Country Efficiency 9

The Catalyst for Change 10

Types of Innovations 11

The Implications of Savings 11

Corpotate Fixed Income Securities 11

Sensitivity of Price to Various Properties 12

Degrees of Moneyness 13

Interest Rates and Arbitrage Efficiency 14

Corporate Stock 14

Summary 15

Selected References 15

The Structure of the System 17

CHAPTER 2 The Flow-of-Funds System 17

Sectoring 18

The Preparation of a Matrix and Its Use 20

Forwrd and Futures Contracts 20

Options and Warrants 20

Federal Reserve Flow-of-Funds Data 21

The Shares of Investment Companies and Mutual Funds 22

Credit Flows 23

Market Pressure to Assume Equilibrium Prices 24

The Difference Between Primary and Secondary Markets 24

THE FINANCIAL MARKETS 24

Implications of Analysis 25

Organizde Exchanges for Common Stock and Bonds 25

Summary 27

Organized Exchanges for Futures Contracts 27

Organized Exchanges for Options 27

Selected References 28

The Individual Choice 29

The Interest Rate in an Exchange Economy 29

CHAPT ER 3 Foundations for Interest Rates 29

The Over-the -Counter Market 30

Computerized Trading Techniques 30

Optimum with Exchange 31

Combined Effect 33

SUMMARY 34

Market Equilibrium 35

3 Some Statistical Concepts 38

3 SOME STATISTICAL CONCEPTS 38

Behavior of Individual Economic Units 39

Interest Rates in a World with Risk 39

THE SIMPLE OR MARGINAL PROBABILITY DISTRIBUTION 39

The Population Expected Value and Variance 40

The Sample Mean and Variance 40

Utility for Financial Assets 40

THE JOINT PROBABILITY DISTRIBUTION 42

Utility for Other Assets 42

Utility for Financial Liabiliues 42

The Sample Covariance 43

Market Equilibrium 43

Maximizing Utility for the Economic Unit 44

The Action of All Economic Units 45

Summary 46

The Population Covariance 46

Appendix：The Equilibrium Prices of Financial Assets 47

The Correlation Coefficient 48

Market Equilibrium：Two Economic Units 50

The Coefficient of Detemination 50

THE RELATIONSHIP BETWEEN A STOCK AND THE MARKET PORTFOLIO 51

Market Equilibrium：Multiple Financial Assets 51

The Charaeteristie Line 52

The Beta Factor 53

Selected References 53

Residual Variance 54

CHAPTER 4 Prices and Yields for Bonds and Money Market Instruments 55

Review of Present Values 55

Present Value When Interest Is Compounded More Than Once a Year 56

Annuities 56

SUMMARY 57

Coupons and Principal Payments 57

The Price of a Bond 57

Continuous Compounding 57

Price When Next Coupon Payment Is Less Than Six Months Away 58

Zero-Coupon Bonds 60

Yield Calculations for Bonds 60

Holding Period Return 61

Current Yield 61

Implicit Reinvestment Rate Assumption 61

Yield for Perpetuilies 62

Yield-to-Maturity for Zero-Coupon Bonds 62

Money Market Instrument Returns 63

Summary 64

Implications 64

Selected References 65

CHAPTER 5 Inflation and Returns 66

PART TWO 66

PORTFOLIO MANAGEMENT 66

4 COMBINING INDIVIDUAL SECURITIES INTO PORTFOUOS 66

The Historical Record in Brief 66

4 Combining Individual Securities into Portfolios 66

PORTFOLIO MANAGEMENT 66

PART TWO 66

THE RISK AND EXPECTED RETURN OF A PORTFOLIO 68

The Portfolio s Rate of Return 68

The Portfolio s Expected Rate of Return 69

The Nature of Inflation Premiums 69

Unanticipated Inflation 70

The Portfolio s Variance 70

COMBINATION LINES 72

The Fisher Effect 72

Nominal Interest Rates and Inflation, Theoretically 73

Empirical Evidence on Nominal Interest Rates 74

Problems in Empirical Testing 74

Testing for the Effect of Inflation 75

The Cases of Perfect Positive and Negative Correlation 75

The Fisher Effect More Directly 77

A Summing Up 77

Nominal Contracting Effects 77

Debtor-Creditor Claims 78

Depreciation 78

Inventories 78

The Mechanics 79

Inflation Indexed Bonds 79

Empirical Testing 79

Corporate Value 79

Other Aspects 80

Summary 80

Borrowing and Lending at a Risk-Free Rate 80

SUMMARY 81

Selected References 81

APPENDIX1：FORMULAS FOR THE EXPECTED RATE OF RETURN AND VARIANCE OF A PORTFOLIO 82

Definition of Term Structure 83

CHAPTER 6 The Term Structure of Interest Rates 83

The Pure Expectations Theory 84

Forward Rates of Interest 85

Substitutability of Maturities 86

Technical Problems 87

Arbitruge and Market Efficiency 88

Uncertainty and Term Premiums 89

Market Segmentation 90

5 FINDING THE EFFICIENT SET 92

Term Structure Implications 92

General Equilibrium Notions 92

5 Finding the Efficient Set 92

Cox-Ingersoll-Ross Theory 92

THE MINIMUM VARIANCE AND EFFICIENT SETS 93

Other Models of the Term Structure 93

Multifactor Models 94

FINDING THE EFFICIENT SET WITH SHORT SELLING 94

Lattice-Type Models 95

The Isoexpected Return Lines 96

Summary 97

Empirical Evidence 97

Selected References 98

The Isovariance Ellipses 99

The Critical Line 101

The Coupon Effect 101

CHAPTER 7 Price Volatility, Coupon Rate, and Maturity 101

The Duration Measure and Its Changing Behavior 103

Relationship between Duration and Maturity 105

FINDING THE MINIMUM VARIANCE WITHOUT SHORT SELLING 106

Relationship between Duration and Changes in Interest Rates 106

Relationship between Duration and Coupon Payment 106

Volatility Duration 108

Modified Duration Formula 109

Convexity 109

TWO IMPORTANT PROPERTIES OF THE MINIMUM VARIANCE SET 109

The Convexity Measure 110

Illustration of Price-Change Estimates Using Modified Duration and Convexity 111

Further Observations on Convexity 112

Immunization of Bond Portfolios 113

Immunization with Coupon Issues 114

An Illustration 114

Fisher-Weil Duration 116

Mapping the Stochastic Process 116

Testing for Immunization Effectiveness 117

Additional Immunization Considerations 118

Equilibration between Coupon and Noncoupon Bond Markets 118

Coupon Stripping 119

SUMMARY 119

Term Structure of Pure Discount Bonds 120

APPENDIX2：A THREE-DIMENSIONAL APPROACH TO FINDING THE EFFICIENT SET 120

Arbitrage Efficiency between the Markets 120

Summary 122

Selected References 123

CHAPTER 8 The Default-Risk Structure of Interest Rates 125

Promised, Realized, and Expected Rates 125

Distribution of Possible Returns 126

APPENDIX3：USING LAGRANGIAN MULTIPLIERS TO FIND THE MINLMUM VARIANCE SET 128

Empirical Evidence on Default Losses 128

APPENDIX4：PROOF OF PROPERTY II 130

Credit Ratings and Risk Premiums 131

Some Studies of Bond Ratings 132

Cyclical Behavior of Risk Premiums 133

APPENDIX5：UTILITY AND RISK AVERSION 134

The Market Segmentation Effect 135

Issuers and Use in Acquisitions 137

Development of the Market 137

Speculative-Grade（Junk）Bonds 137

Risk versus Return 138

Event Risk 139

Empirical Evidence 141

Risk Structure and the Term Structure 141

Summary 143

Selected References 144

Introduction to Contract 146

CHAPTER 9 Derivative Securities：Interest-Rate Futures 146

Features of Futures Markets 148

Margin Requirements 148

Money Market Instruments 148

Quality Delivery Options 149

Longer-Term Instruments 149

Marking-to-Market and Price Movements 149

Hedging and Speculation 151

Some Hedging Fundumentals 151

Futures and Spot Prices 152

Long Hedges 152

6 FACTOR MODELS 152

6 Factor Models 152

FACTOR MODELS TO ESTIMATE VOLATILITY OF RETURN 153

The Single -Factor Model 153

Hedge Rations 154

Short Hedges 155

Basis Pisk 155

The Single-Factor Model s Simplified Formula for Portfolio Variance 155

More on Basis Risk 156

Sources of Basis Risk 158

Market Efficiency 158

Possible Reasons for Deviation of Forward and Futures Rates 159

Summary 160

An Example Where the Single-Factor Model Works 160

Selected References 161

An Example of a Potential Problem with the Single-Factor Model 163

CHAPTER 10 Derivative Securities：Options 163

Option Valuation 163

Expiration Date Value of an Option 164

Multifactor Models 165

Valuation Prior to Expiration 165

Estimating Portfolio Variance Using a Multifactor Model：An Example 167

Hedging with Options 168

Black -Scholes Option Model 169

MODELS FOR ESTIMATING EXPECTED RETURN 171

Debt Options 172

Features of Futures Options 172

Use of Debt Options 173

Caps, Floors, and Collars 174

Valuation of Debt Options 175

Firm Characteristics（Factors）That Induce Differentials in Expected Returns 176

Yield Curve Options 177

Estimating and Projecting Factor Payoffs 178

Debt Plus Option Characteristic 179

Conversion Price/Ratio 179

Convertible Securities 179

A Test of the Accuracy of Expected Return Factor Models 180

Value of Convertible Securities 180

Premiums 181

Simulating the Performance of the Expected Return Factor Model 182

Summary 183

Other Reasons for Premiums 183

SUMMARY 184

Appendix A：Put-Call Parity 184

Appendix B：Application of Option Pricing Concepts to Valuing Convertible Securities 186

Selected References 190

CHAPTER 11 Derivative Securities：Swaps 192

Swap Features 192

An Illustration 193

Valuation Issues 194

Comparative Advantage 194

Completing Markets 195

Default Risk 195

PART THREE 196

7 THE CAPITAL ASSET PRICING MODEL 196

RISK，EXPECTED RETURN，AND PERFORMANCE MEASUREMENT 196

Skirting Tax Laws and Regulations 196

PART THREE 196

RISK，EXPECTED RETURN，AND PERFORMANCE MEASUREMENT 196

7 The Capital Asset Pricing Model 196

THE ASSUMPTIONS OF THE CAPITAL ASSET PRICING MODEL 197

AssumptionⅠ：Investors Can Choose Between Portfolios on the Basis of Expected Return and Variance 197

Credit Risk, Maturity, and Systemic Risk 197

Swap Valuation：A Summing Up 197

Default Provisions 198

Value at Risk 199

Secondary Market Values 200

Assumption Ⅲ：There Are No Frictions in the Capital Market 201

AssumptionⅡ：All Investors Are in Agreement Regarding the Planning Horizon and the Distributions of 201

Summary 201

Swaptions 201

The Capital Market Line 202

THE CAPITAL ASSET PRICING MODEL WITH UNLIMITED BORROWING AND LENDING AT A RISK-FREE RATE 202

Selected References 202

Option-Adjusted Spreads 203

CHAPTER 12 Embedded Options and Option-Adjusted Spreads 203

An Illustration 204

The Basic Methodology 204

The Nature of the Call Feature 205

Forms of the Provision 206

The Relationship Between the Risk of an Asset and Its Expected Rate of Return 206

Putable Bonds 207

Redemption versus Callability 207

The Call Featrure s Valuation 208

The Positioning of Characteristic Lines under the Capital Asset Pricing Model 208

Interest-Rate Expectations 209

The Positions of Individual Assets in Expected Return, Standard Deviation Space 209

The Call Feature and Convexity 210

Valuation in an Option Pricing Context 211

Empirical Evidence on Call Valuation 212

The Sinking Fund 212

Characteristics of the Provision 213

Value of the Sinking Fund 214

Empirical Evidence 215

Summary 215

Selected References 216

THE CAPITAL ASSET PRICING MODEL WITH NO RISK-FREE ASSET 217

CHAPTER 13 Mortgage Securities and Prepayment Pisk 217

Some Features of Mortgages 217

Mortgage Pass-Through Security 218

Agency Pass-Throughs 218

Nonagency Pass-Throughs 219

Mortgage Derivatives 219

THE CAPITAL ASSET PRICING MODEL WHEN A RISK-FREE ASSET EXISTS BUT WE CAN T SELL IT 220

Collateralized Mortgage Obligations（CMOs） 220

Floaters and Inverse Floaters 221

Stripped Mortgage-Backed Securities 221

Planned Amortization Class（PAC）and Targeted Amorization Class（TAC）Securities 221

Prepayment Option and Its Valuation 222

Prepayment and Convexity 222

SUMMARY 222

Measures of Prepayment 223

Coupon Rate and Age 224

Additional Factors Explaining Prepayment 225

Modeling Prepayment Experience 226

Prepayment Behavior of Certain Derivatives 227

Planned Amortization Class Securities 227

Optiion-Adjusted Spread Approach 227

Other Asset-Backed Securities 230

Summary 230

Selected References 231

8 Empirical Tests of the Capital Asset Pricing Model 232

8 EMPIRICL TESTS OF THE CAPITAL ASSET PRICING MODEL 232

Risk and Return form Foreign Investment 233

The Black Jensen, and Scholes Test（1972） 233

CHAPTER 14 Controlling Currency Risk 233

EARLY TESTS OF THE CAPITAL ASSET PRICING MODEL 233

Exchange Rate Risk Management 234

Forward Exchange Market 235

The Fama-MacBeth Study（1974） 235

Illustration of Spot and Forward Exchage Rates 236

A Single European Currency（Euro） 236

Underlying Relationships 238

The Law of One Price 238

Purchasing Power Parity 238

ROLL S CRITIQUE OF TESTS OF THE CAPITAL ASSET PRICING MODEL 238

Previous Tests as Tautologies 239

Interest -Rate Parity 240

Interest-Rate Parity Approximation 242

Covered Interest Arbitrage 242

Can the Capital Asset Pricing Model Ever Be Tested? 243

Empirical Evidence Concerning Interest-Rate Parity（IRP） 243

Currency Options 244

Currency Futures 244

Other Ways to Shift Risk 244

Currency Swaps 245

THE OTHER SIDE OF THE ISSUE 245

Tautologies Can t Prediet the Future 245

Valuation Implications 246

Currency/Interest-Rate Swaps 246

Can You Reject the CAPM if You Find No Efficient Portfolios with Positive Portfolio Weights? 247

The Amount to Hedge 248

The Cost of Curreucy Hedging 248

Sensitivity Analysis to Alernative Market Indices 248

MORE RECENT TESTS OF THE CAPM 248

Testing a Contained CAPM 248

Black s Universal Hedging 249

Closing Thoughts 249

Currency-Option and Multiple-Currency Bonds 250

Some Institutional Characteristics 250

Euro and Foreign Bonds 250

Summary 251

Selected References 252

SUMMARY 254

CHAPTER 15 The Influence of Taxes 254

Tax Treatment of Capital Gains 255

Original Issue Discount（OID）Bonds 255

Capital Gains Treatment for Taxable Coupon Bonds 256

The De Minimis Rule 257

Capital Gains Treatment for Municipal Bonds 257

Tax Timing Options 257

9 The Arbitrage Pricing Theory 258

9 THE ARBITRAGE PRICING THEORY 258

Municipal Bonds and the Taxation of Interest Income 258

The Nature of the Municipal Market 259

Taxable versus Tax-Exempt Yields 259

DERIVING THE ARBITRAGE PRICING THEORY 259

The APT with an Infinite Number of Securities 260

Value of the Tax Exemption Feature 261

Variation of Implied Tax Rate 262

The Effect of Tax Reform and Supply 263

Implied Tax Rate and Maturity 263

Preferred-Stock Taxt Effects 264

Straight Preferred-Stock Investments 264

Auction-Rate Preferred Stock 265

The APT with a Finite Number of Securities 265

Summary 266

Selected References 266

EMPIRICAL TESTS OF THE APT 267

Intial Empirical Tests 267

The Issues Involved 268

CHAPTER 16 The Social Allocation of Capital 268

Is the APT Testable in Principle? 268

Ceilings on Borrowing Costs 269

The Effect of Usury Laws 270

THE CONSISTENCY OF THE APT AND THE CAPM 270

The Negatives of Interest-Rate Ceilings 271

SUMMARY 271

Government Guarntees and Insurance 272

The Transfer of Underlying Risk 273

Interest-Rate Subsidies 274

Option-Pricing Valuation 274

The Effect of the Subsidy 274

Effectiveness of the Subsidy 275

Financial Intermediation Through Borrowing and Relending 276

The Situation Illustrated 277

Regulations Affecting Investor and Borrowet Behavior 278

The Effect of Government Intermediation 278

The Effectiveness of This Approach 279

The Costs to Society 279

Qualificatiion for Tax-Exempt Financing 280

10 THE TRACKING POWER OF MARKOWITZ PORTFOLIO OPTIMIZATION 281

10 The Tracking Power of Markowitz Portfolio Optimization 281

Policy Implications 281

Benefits, Costs, and Externalities 281

CONDITIONS REQUIRED FOR THE EFFICIENCY OF CAP-WEIGHTED PORTFOLIOS 282

WHEN CAP-WEIGHTED PORTFOLIOS ARE EFFICIENT 282

Summary 283

Selected References 284

WHEN CAP-WEIGHTED PORTFOLIOS ARE INEFFICIENT 284

What If We Disagree? 284

Index 285

What If Some of Us Can t Sell Short? 285

Tax Avoidance 286

Foreign Investors 287

Human Capital 287

The Benefits of Portfolio Optimization 287

Interest Only（IOs）, Principal Only (POs), and Residual Class Securities 288

A SIMPLE TEST OF THE EFFICIENCY OF THE CAP-WEIGHTED INDEX 288

TRACKING TARGETS WITH STOCK PORTFOLIOS 291

Tracking Targets with Factor Models 293

Tracking a Target with the Markowitz Bullet 294

TRACKING THE RATE OF INFLATION WITH THE MARKOWITZ BULLET 297

SUMMARY 299

APPENDIX 6：FINDING THE PORTFOLIO WITH THE MINIMUM VOLATILITY OF DIFFERENCES 300

11 Measuring Portfolio Performance 305

11 MEASURING PORTFOLIO PERFORMANCE 305

MEASURING THE RATE OF RETURN TO A PORTFOLIO 306

THE NEED FOR RISK-ADJUSTED PERFORMANCE MEASURES 307

RISK-ADJUSTED PERFORMANCE MEASURES BASE D ON THE CAPITAL ASSET PRICING MODEL 309

The Jensen Index 311

The Treynor Index 314

The Sharpe Index 315

Misspecifying the Market Pricing Structure 317

PITFALLS IN MEASURING PERFORMANCE WITH THE JENSEN, TREYNOR, AND SHARPE INDICES 317

Misspecification of the Market Index 321

MEASURING PERFORMANCE USING THE ARBITRAGE PRICING THEORY 324

MEASURING PERFORMANCE WITHOUT THE USE OF AN ASSET PRICING MODEL 327

SUMMARY 330

PART FOUR 341

INTEREST RATES AND BOND MANAGEMENT 341

PART FOUR 341

INTEREST RATES AND BOND MANAGEMENT 341

12 The Level of Interest Rates 341

12 THE LEVEL OF INTEREST RATES 341

THE REAL AND NOMINAL RATES OF INTEREST 342

INTEREST RATES AND THE SUPPLY AND DEMAND FOR MONEY 343

The Transactions Demand for Money 343

The Speculative Demand for Money 344

The Total Demand for Money 346

The Supply of Money and the Equilibrium Interest Rate 348

INVESTMENT, SAVING, AND NATIONAL INCOME 350

THE INTEREST RATES 353

A Tax Cut 355

THE EFFECT OF A CHANGE IN FISCAL POLICY 355

Monetizing the Deficit 359

SUMMARY 360

13 THE TERM STRUCTURE OF INTEREST RATES 367

13 The Term Structure of Interest Rates 367

THE NATURE AND HISTORY OF THE TERM STRUCTURE 368

DRAWING THE TERM STRUCTURE 371

METHODS OF COMPUTING THE YIELD TO MATURITY 375

The Arithmetie Mean Yield to Maturity 375

The Geometric Mean Yield to Matruity 376

The Internal Yield to Maturity 376

A BRIEF OVERVIEW OF THE THREE THEORIES OF THE TERM STRUCTURE 376

THE MARKET EXPECTATIONS THEORY OF THE TERM STRUCTURE 377

THE LIQUIDITY PREFERENCE THEORY OF THE TERM STRUCTURE 380

THE MARKET SEGMENTATION THEORY OF THE TERM STRUCTURE 383

DERIVING THE MARKET S ORECAST OF FUTURE INTEREST RATES FROM THE TERM STRUCTURE 386

Finding the Market s Forecast from Arithmetic Mean Yields 386

Finding the Market s Forecast with Internal Yields 388

SUMMARY 392

APPENDIX 7：AVERAGING MULTIPLE RATES OF RETURN 393

14 Bond Portfolio Management 407

14 BOND PORTFOLIO MANAGEMENT 407

ESTIMATING THE EXPECTED RETURN OF A BOND FOR PORTFOLIO ANALYSIS 408

Forecasting Expected Returns on Treasury Bonds 408

Forecasting Expected Returns on Corporate Bonds 411

A DURATION-BASED APPROACH TO ESTIMATING THE RISK OF A BOND PORTFOLIO 413

A MARKOWITZ APPROACH TO BOND RISK MANAGEMENT 414

DIVIDING THE PORTFOLIO BETWEEN BONDS AND STOCK 416

SUMMARY 416

15 INTEREST IMMUNIZATION 422

15 Interest Immunization 422

CASH MATCHING AND INTEREST IMMUNIZATION 423

ALTERNATIVE MEASURES OF DURATION 425

Macaulay s Duration 425

Fisher-Weil Duration 426

Duration and Yield Elasticity 426

Duration and the Response of the Value of a Stream of Payments or Receipts to a Change in Discount R 427

Cox, Ingersoll, Ross Duration 430

IMMUNIZING WITH MACAULAY S DURATION：THE CASE OF A SINGLE-PAYMENT LIABILITY 431

The Effect of Interest Rate Changes on Present Values 432

The Effect of Interest Rate Changes on Terminal Values 433

COMPUTING THE MACAULAY DURATION AND INTERNAL YIELD OF A BOND PORTFOLIO 435

Combination Lines for Internal Yield and Duration 439

IMMUNIZING WITH THE MACAULAY DURATION：THE CASE OF A MULTIPLE-PAYMENT LIABILITY 439

A TEST OF THE RELATIVE EFFECTIVENESS OF THE THREE DURATION MEASURES 441

SUMMARY 445

16 EUROPEAN OPTION PRICING 454

THE PRICING OF DERIVATIVE SECURITIES 454

16 European Option Pricing 454

PARY FIVE 454

PART FIVE 454

THE PRICING OF DERIVATIVE SECURITIES 454

PRICING OPTIONS UNDER RISK NEUTRALITY AND UNIFORM PROBABILITY DISTRIBUTIONS 455

Valuing a Call Option 455

Valuing a Put Option 457

The Relationship Between Option Values and Stock Values 459

The Effect of a Change in Stock Variance on Option Values 463

BINOMIAL OPTION PRICING 465

Binomial Call Option Pricing over a Single Period 466

Binomial Put Option Pricing over a Single Period 469

Binomial Option Pricing over Multiple Periods 470

VALUING OPTIONS USING THE BLACK-SCHOLES FRAMEWORK 474

The Black-Scholes Value for a Call Option 478

Estimating the Variance of the Stock sReturn 481

The Relationship Between Black-Scholes Put and Call Values and Underlying Stock Pritces 482

The Black-Scholes Value for a Put Option 482

PUT-CALL PARITY 484

Using the Black-Scholes Framework to Value Options on Stocks That Pay Dividends 484

APPENDIX 8：PROOF THAT αVc/αVs IS THE PROBABILITY OF EXERCISE FOR A CALL OPTION ON A STOCK WITH A 487

SUMMARY 487

17 AMERICAN OPTION PRICING 497

17 American Option Pricing 497

THE LOWER LIMITS TO THE VALUE OF AMERICAN OPTIONS 498

Market forces Supporting the Hard Floor 498

Floors Supporting American Call Options 498

Market Forces Supporting the Soft Floor 499

Floors Supporting American Put Options 501

When the Right to Exercise Early Has No Value 502

THE VALUE OF EARLY EXERCISE 502

How Dividend Payments May Induce Early Exercise of American Call Options 503

Early Exercise of American Put Options 504

THE BINOMIAL MODEL AS AN AMERICAN OPTION-PRICING MODEL 504

SUMMARY 506

APPENDIX 9：THE GESKEROLL-WHALEY AMERICAN OPTION-PRICING MODEL 507

18 Additional Issues in Option Pricing 512

18 ADDITIONAL ISSUES IN OPTION PRICING 512

USING THE OPTION-PRICING FORMULAS TO FIND THE MARKET S ESTIMATE OF THE STOCK S VARIANCE 513

BIAS PROBLEMS IN OPTION-PRICING MODELS 514

Changing Volatility as a Source of Bias in Option-Pricing Models 516

Bias from Using European Models to Value American Options 518

Pricing Bias Resulting from Error in the Model s Inputs 519

OPTION STRATEGIES 520

The Straddle 520

The Butterfly Spread 522

Computing the Expected Return on an Option Strategy 523

Delta, Gamma, and Theta 524

Getting Delta Neutral 526

Portfolio Insurance 530

COMPLEX SECURITIES AS PORTFOLIOS OF OPTIONS 533

Common Stock as an Option 533

Bonds as Portfolios of Options and Option Complements 535

SUMMRY 536

19 Financial Forward and Futures Contracts 541

19 FINANCIAL FORWARD AND FUTURES CONTRACTS 541

CHARACTERISTICS OF FORWARD AND FUTURES CONTRACTS 542

THE DETERMINATION OF FORWARD PRICES 543

The Relationship Between the Forward Price and the Current Commodity Price 544

The Relationship Between the Forward Price and the Expected Commodity Price 548

The Consistency of the Two Expressions for the Forward Price 551

Market Value of Previously Issued Forward Contracts 552

DETERMINATION OF FUTURES PRICES 553

The Sign of the Premiums for Various Financial Futures 556

The Significance of the Premiums to Investors and Financial Managers 556

THE SECURITY UNDERLYING A FUTURES CONTRACT TO BUY TREASURY BONDS 557

HEDGING WITH BOND FUTURES CONTRACTS 562

USES OF STOCK INDEX FUTURES 563

FULL COVARIANCE APPROACH TO CONSTRUCTING A FUTURES OVERLAY 564

SUMMARY 566

ISSUES IN INVESTMENT MANAGEMENT 573

PART FIVE 573

20 The Effect of Taxes on Investment Strategy and Securities Prices 573

ISSUES IN INVESTMENT MANGEMENT 573

20 THE EFFECT OF TAXES ON INVESTMENT STRATEGY AND SECURITIES PRICES 573

PART SIX 573

THE TAX STRUCTURE 574

What Investment Income Is Taxed? 574

Capital Gains and Losses 575

TAXES AND INVESTMENT STRATEGY 575

Computing After-Tax Rates of Return 575

The Locked-In Effect 577

Dividend Clienteles 579

THE EFFECT OF TAXES ON SECURITIES PRICES 581

The Effiect of Dividends on Expected Stock Returns 581

Relative Expected Returns on Taxable and Tax-Exempt Securities 584

SUMMARY 587

21 STOCK VALUATION 594

21 Stock Valuation 594

A FRAMEWORK FOR VALUING COMMON STOCKS 595

Dividends versus Earnings 596

The Constant Growth Model 596

The Multistage Growth Model 597

COMPUTERIZED THREE-STAGE STOCK VALUATION 601

PRICE-EARNINGS RATIO 607

What Determines the Level of the Price-Earnings Ratio? 608

Changes That Can Be Expected in the Price-Earnings Ration over Time 608

SUMMARY 609

22 Issues in Estimating Future Earnings and Dividends 612

22 ISSUES IN ESTIMATING FUTURE EARNINGS AND DIVIDENDS 612

PAYING IN ADVANCE FOR GROWTH 613

THE LINK BETWEEN GROWTH AND STOCK VALUATION AND RISK AND EXPECTED RETURN 619

THE ACCURACY OF PREDICTIONS OF GROWTH IN EARNINGS AND DIVIDENDS 623

Is Past Growth a Reliable Guide to Future Growth? 623

The Accuracy of Short-Term Professional Forecasts 625

The Accuracy of Growth Forecasts Made by Protessional Analysts 625

The Accuracy of Long-Term Professional Forecasts 628

The Accuracy of Market Forecasts of the Growth in Earnings Per Share 629

IMPLICATIONS FOR INVESTMENT STRATEGY 634

SUMMARY 637

23 Market Efficiency：The Concept 641

23 MARKET EFFICIENCY：THE CONCEPT 641

FORMS OF THE EFFICIENT MARKET HYPOTHESIS 642

THE SIGNIFICANCE OF THE EFFICIENT MARKET HYPOTHESIS 645

RISK AND EXPECTED RETURN IN AN EFFICIENT MARKET 647

QUICK AND ACCURATE RESPONSE TO NEW INFORMATION 650

SYSTEMATIC PATTERNS IN STOCK PRICES RELATED ONLY TO TIME-VARYING INTEREST RATES AND RISK PREMIA 651

FAILURE OF SIMULATED TRADING STRATEGIES 653

MEDIOCRITY IN THE PERFORMANCE OF INFORMED INVESTORS 655

SUMMARY 656

24 MARKT EFFICIENCY：THE EVIDENCE 661

24 Market Efficiency：The Evidence 661

Measuring Stock Price Response 662

DO SECURITY PRICES RESPOND RAPIDLY AND ACCURATIELY TO THE RECEIPT OF NEW INFORMATION? 662

The Response of Stock Prices to the Announcement of a Stock Split 665

The Pesponse of Stock Prices to Quarterly Earnings Reports 667

Further Evidence on the Reaction of Stock Prices to Positive and Negative Events 669

THE BEHAVIOR OF CHANGES IN STOCK PRICES 673

Studies of Serial Correlation 673

Studies of Seasonality 677

The Day-of-the -Week Effect 677

DO TRADING RULES FAIL UNDER SIMULATION? 693

SUMMARY 710

APPENDIX10：ADDITIONAL PROPERTIES OF THE MINIMUM VARIANCE SET 718

Appendix10：Additional Properties of the Minimum Variance Set 718

Appendix11：Invest Software 727

APPENDIX11：INVEST SOFTWARE 727

Glossary 729

GLOSSARY 729

Index 737

INDEX 737