Measuring idiosyncratic risks in leveraged buyout transactions

The authors use a contingent claims analysis model to calculate the idiosyncratic risks in Leveraged Buyout transactions.Idiosyncratic Risk; LBO; Private Equity; Benchmarking; CCA

Measuring idiosyncratic risks in leveraged buyout transactions

We use a CCA model to calculate implied idiosyncratic risks of LBO transactions. A decisive model feature is the consideration of amortization. From the model, the asset value volatility and the equity value volatility can be derived via a numerical procedure. For a sample of 40 LBO transactions we determine the necessary model parameters and calculate the transactions' implied idiosyncratic risks. We discuss the expected model sensitivities and verify them by variation of the input parameters. With the knowledge of the returns to the equity investors of the LBOs we are able to calculate Sharpe Ratios on individual transaction levels for the first time, thereby fully incorporating the superimposed leverage risks.Idiosyncratic Risk; Private Equity; Benchmarking;

Statistical Basics of a Reliable World Wide Web Peer to Peer Storage System

Peer-to-peer networks are highly distributed and unreliable networks. Peers log in and off the network at their own needs without any overall plan. In the real peer-to-peer case there are no central nodes planning the resources of the network or having an overview about the state of the network. The paper on hand describes and mathematically analyzes a storage algorithm allowing information to be stored within the network without the originator of the information needs to stay online. Information is optimally “blurred” within the network meaning that the information is reconstructable with a high probability and a long time interval, but stored as least redundant as possible. The main focus is to analyze the mathematical and statistical properties of the presented peer-to-peer storage algorithm. Technical procedures are described at a high level and need further improvement. Thus, the paper on hand is primarily purely statistically peer-to-peer theory at this stage of research

Existence and Exploitability of Financial Analysts' Informational Leadership

This paper bridges two recent studies on the role of analysts to provide new and relevant information to investors. On the one hand, the contribution of analysts to long-term price discovery on the US market is rather low. Considering earnings per share forecasts as the main output of analysts’ reports, their information share amounts to only 4.6% on average. On the other hand, trading strategies set up on these EPS forecasts are quite profitable. Self-financing portfolios yield excess returns of more than 5% over the S&P 100 index for a time period of 36 years, which is persistent after controlling for the well-known risk factors. In this paper, we discuss the link between the low information shares and the high abnormal returns. We argue that information shares of analysts cannot be higher, because otherwise their forecasts would lead to excessively profitable trading strategies which are very unlikely to persist over such a long period of time

The Demand Function for Bank-Issued Warrants

Bank-issued warrants are securitized options which are particularly designed to give smaller individual investors the opportunity to participate in the derivative markets. As banks incorporate potentially different margins on top of the theoretical fair values of the products, investors face the problem of choosing an optimal product. While previous literature has characterized individual investors as “noise traders”, this paper finds that they do act pricesensitively. In particular, we provide evidence that demand decreases with increasing margins, but also show that larger investors still realize lower margins than smaller investors

Risk governance in organizations

Dieses Buch dokumentiert 10 Jahre Risk-Governance-Forschung an der Universität Siegen. In 50 Beiträgen reflektieren Forscher und Praktiker Risk Governance vor dem Hintergrund ihrer eigenen Forschungen und/oder Erfahrungen und geben jeweils einen Entwicklungsimpuls für die Zukunft der Risk Governance. Das Buch zeigt die große Bandbreite und Tiefe des Forschungsgebietes auf und diskutiert Grundannahmen, Implementierungsfragen, die Rolle der Risk Governance als Transformationsmotor, ihre Wirkung in den verschiedenen betrieblichen Funktionen, Entwicklungsperspektiven und den Beitrag der Risk Governance zu einer nachhaltigen Ausrichtung von Unternehmen.This book documents 10 years of risk governance research at the University of Siegen. In 50 contributions, researchers and practitioners reflect on risk governance against the background of their own research and/or experience and provide a development impetus for the future of risk governance. The book shows the wide range and depth of the research field and discusses basic assumptions, implementation issues, the role of risk governance as transformation engine, its impact in the various operational functions, development perspectives, and the contribution of risk governance to a sustainable orientation of companies

Optimal portfolio selection for the small investor considering risk and transaction costs.

Abstract A direct application of classical portfolio selection theory is problematic for the small investor, since transaction costs in the form of bank and broker fees exist. Particularly minimum fees force the investor to choose a rather small selection of assets. This leads to an optimization problem which juxtaposes the transaction costs against the risk costs arising with portfolios consisting of only a few assets. Despite the non-convex and thus complex optimization, an algorithmic solution turns out to be very fast and precise. An empirical study shows that for smaller investment volumes, transaction costs dominate risk costs, so that optimal portfolios contain only a very small number of assets