Kelly Criterion in Finance: All You Need to Know
The Whispering Void What is Kelly Criterion? The Kelly criterion optimises asset growth by allocating a fixed fraction of wealth across multiple investments. The concept is often employed in the gambling industry. A…
Cointegration in Finance: All You Need To Know
What is Cointegration? Cointegration of two time series refers to a linear combination with a constant mean and standard deviation. The two series remain consistent. Cointegration is an effective tool…
Maximum Likelihood Estimation in Finance: All You Need to Know
What is Maximum Likelihood Estimation? Maximum Likelihood Estimation (MLE) is a statistical method for estimating parameters in probability distributions. We select settings that maximise the a priori chance of the…
Arbitrage Pricing Theory: All You Need to Know
What is Arbitrage Pricing Theory? According to Stephen Ross’s Arbitrage Pricing Theory (APT), individual asset returns are a linear mixture of random elements. These random factors can be fundamental or…
Capital Asset Pricing Model: All You Need To Know
What is Capital Asset Pricing Model? The Capital Asset Pricing Model (CAPM) compares the returns on individual assets or portfolios to the market as a whole. It introduces the ideas…
Modern Portfolio Theory in Finance: All You Need To Know
What is Modern Portfolio Theory? Harry Markowitz’s Modern Portfolio Theory (MPT) analyses investment portfolios based on individual asset returns and risk, as well as their relationships. Previously, investors would focus…
What is a Coherent Risk Measure: All You Need To Know
Introduction to Coherent Risk Measure A risk measure is called a coherent risk measure if it meets simple mathematical requirements. Some prominent metrics lack sub-additivity, which means that combining two…
CrashMetrics In Finance: The Ultimate Tutorial You Should Know
What is CrashMetrics? CrashMetrics is a stress-testing methodology that evaluates portfolio performance during significant market swings. Similar to Capital Asset Pricing Model (CAPM), it only applies to significant changes in…
Value At Risk in Finance: All You Need To Know
What is Value At Risk Value at Risk (VaR) measures the potential loss from a position, portfolio, desk, or bank. VaR refers to the greatest loss an investment can incur…
What is Risk in Finance? All You Need To Know
Simple Definition of Risk Simply put, risk is the potential for injury or loss. In the context of finance, risk alludes to the potential for financial loss on investments. A…