Vikrant Choudhary

Thursday, August 16, 2007

Equity per market value and debt calculation

1. price/ share : $12.40
2. share/issue : 1084

=> market capitalization = price/share * share/issue
= $13,499

DebtCalculation :

cash = $5024
Marektable secutities = $1713

Total cash equivalent = cash + marketable securities = 6737

Long term debt = 26,073
short term debt = 13,884
total debt = long+short = 39,957
Net debt = cash equivalent + total debt =

market value of debt

market price of debt(%) = 95%
market value of debt = Netdebt * market price =

enterprice value = market capitalization + market value of debt

Tuesday, August 14, 2007

Beta calculation

Beta :
Beta measure the volatility of the firm/stock w.r.t market.
if ( Beta > 0) => more volatile .... else less volatile.

NetBeta value of stock x = abs(Long cash Beta) - abs(short cash beta)

Beta of x for market m= Covariance(stock x, Maket m) / variance(m)

eg :

X X% diff from mean
M M% Diff with mean return










100000

100000




100055 0.00055 -0.003147525 100360 0.0036 -0.00282108 8.87942E-06

101706 0.016500924 0.0128034 102765 0.023963731 0.017542651 0.000224606

101100 -0.005958351 -0.009655875 101912 -0.008300491 -0.014721571 0.00014215
Average
0.003697525

0.00642108
0.000125212 Cov(x,m)
Variance
8.90233E-05

0.000177476











Beta
0.705512902





Thursday, April 26, 2007

How to invest your money in Mutual funds :

This page is for layman user. This page tell why should one go for Mutual funds and why not. You may get better material than this. But i wrote this with my experience. Any comment on this is deeply appreciated.

What is mutual funds:
funds -> money/stock/security mutual ->feeling same
Mutual funds => its a financial intermediatary that allows a group of people to pool their money together within a predetermined investment objective. In very simple sense a expensive stocks will be brought by people by mutually investing their money.

Mutual Fund flow chart :


Why and why not :
should go:
1. Diversification
2. Professionally managed
3. Access to expensive stocks
shouldn't :
1. Cost associated with managing money ( like brokage charges, tax etc.)
2. No tailor made portfolios
3. Better oppurtunity

<--- You can get many more reasons, but this is from my experience --->

Types of Mutual funds :
By Structure :
1. Open Ended and Closed Ended
2. Load funds and No Load funds.
By Investement Objective:
1. Growth funds
2. Income funds
3. Balanced funds
4. Index Funds
5. Sectoral Funds
6. Tax planning funds

<--soon be explained these points with example --->

Monday, April 23, 2007

General Query about Hedge funds

what is a hedge fund?

It is a vechile of investing,albeit one that happens to be less constrained than most. (Newyork magazine : 04/26/2007)
A largely unregulated (aggressive) investment fund that specializes in taking leveraged speculative positions. It uses advanced investment strategies taking care of leverage,long,short and derivative position in both domestic and international market iwth goal of generating high returns.


Hedge funds are most often setup as private investment partnerships that open to a limited number of investors and require a very large intial investment and these funds are illiquid as they often bind a constraint of minimum durability.


Note : Hedge funding is not allowed in india?Could somone aswer why so?

Tuesday, April 17, 2007

How to forecast stock volatility?

Forecast Volatility : Forecasting the fluctuation in the stock market (prices) . It is important to the option traders, a higher fluctuation in the stock price means higher option price and hence higher profit.

There are many ways to forecast a stock volatility.

1. Simple way to forecast a stock volatility is to assuming its historical volatility. Calculate the volatility as std ( standard deviation) of the stock returns. Now calculate the std of daily returns and then scale it. Now if you want it for N days then just multiply the daily volatility by square root of N. This is based on Einstein's Equation ( called the T1/2 rule ) to find the distance travelled by a a particle in Brownian motion .

Note: But this is not true as volatility not remain same.

2. GARCH model ( Generally Autoregressive Conditional Heteroskedasticity) . This model assume that future volatility will depend on past volatility. Let me explain what is heteroscedasticity?
Let a structural model can be represented by

where ut ~ N(0, ).

If the varianace of erros is constant var(ut) = -> homoscedasticity
and if the variance of error is not constant -> heteroscedasticity

So, heteroscedasticity => standard error estimates could be wrong.

and in finance we never assume that the variance is constant, so we need a model to assume such and one such example is GARCH. But going into detail of GARCH , let me tell you about ARCH and problems with ARCH.

ARCH : In simple sense we can say it is nothing but today's conditional variance is a weighted average of past squared returns.
σ2 = α01εt-1+….+αpεt-p 2 for all i αi >=0 and εt ~ N(0,σ2 ) ---(i)

The above model is called ARCH(p).
Note: ARCH model are not often used in financial market
why ?
  1. How to decide on p?
  2. The required value of p may be very large
  3. Non-negativity constraints might be violated.
GARCH(1,1) model has only three parameters in the conditional variance equation compared to p+1 for ARCH(P) model. However GARCH(1,1) ~ ARCH (infinity) . Please read any material to see its prove.
In general GARCH(p,q) model adds q autoregression term with ARCH(p) specification and the conditional variance equal to
σ2 = α01εt-1+….+αpεt-p 2 + β1σ t-12 + … +βqσt-p for all i αi ,βi>=0 --(ii)
Now the GARCH(1,1) model adds just one tagged error square & one autoregression term using the stand notation for GARCH constraint ω and error coefficient β
GARCH(1,1) Model :
σ2 = ω/1-β + α ( εt-1 + β εt-1 + β2 εt-2+ … ) ~ ARCH ( infinity)

The size of
α and β determine the short-term dyamics of resulting volatility time series.
Larger
β => stocks to conditional variance takes long time to die & so volatility is persistant,

Friday, April 13, 2007

Indian Economy

India : "The best destination "
-- Claimed by some US finance company
why ?
  1. 2nd Most populated country.
  2. Skilled manpower ( more than population of USA).
  3. GDP of approximately 30 trillion.
  4. Consistent GDP growth @5-7%
  5. Good Environment for FDI/FII
  6. Increased Economic activities.
  7. Export of more than US $70 billion.
  8. Forex reserve @135 billion
  9. Huge Untrapped rural consumers.
Recent Developments :
  1. Capacity expansion in most of the sectors.
  2. FDI/FII approvals.
  3. Remarkable Overseas Acquisition.
  4. Remarkable FDI inflows.
  5. Remarkable FII participation
  6. Increase purchasing power.
  7. Urbanization of second run cities