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Macro Risk, Business Risk, and Financial Risk
Macro risk originates from political, economic, legal, and other institutional factors in an economy, country, or region. As such, some of the factors that catalyze macro-risk include exchange rates, political instability, and gaps in legal or financial structure. Business risks…
Tools of Geopolitics
Geopolitical tools refer to methods used by geopolitical actors to strengthen their interests to others. These tools ultimately result in geopolitical risk. Tools of geopolitics may be separated into: i. National Security Tools Tools for national security are those that…
Forward Price of an Asset With Zero, Positive, or Negative Net Cost of Carry
Cost of Carry The cost of carry is defined as the net of the costs and benefits. The term “carry” is analogous in that storage (or holding) of an asset attractcts net costs i.e, the costs to “carry” an asset….
Comparing GDP, National Income, Personal Income, and Personal Disposable Income
GDP GDP stands for Gross Domestic Product. It refers to the market value of all goods and services produced within an economy in a given period of time. Equivalently, GDP also refers to the total income earned by each household,…
Nominal GDP, Real GDP and GDP Deflator
It is economically healthy to exclude the effect of general price changes when calculating the GDP. This is because higher (lower) income caused by inflation does not indicate a higher (lower) level of economic activity. Real GDP Economists describe real GDP…
Value-of-Final-Output and Sum-of-Value-Added Methods of Calculating GDP
There are two approaches used in the calculation of the Gross Domestic Product (GDP). The first one is the income approach. This method measures GDP as a summation of all income generated in the economy in a given year. The…
Relationship between Normal Distribution and Lognormal Distribution
A variable \(X\) is said to have a lognormal distribution if \(Y = ln(X)\) is normally distributed, where “ln” denotes the natural logarithm. In other words, when the logarithms of values form a normal distribution, we say that the original…
Shortfall Risk, Safety-first Ratio, and Identification of an Optimal Portfolio Using Roy’s Safety-first Criterion
Shortfall risk refers to the probability that a portfolio will not exceed the minimum (benchmark) return that an investor has set. In other words, it is the risk that a portfolio will fall short of the level of return an…
Selecting Data Visualization Types
Guide to Selecting Visualization Types For numerical data, use a histogram, frequency polygon, or cumulative distribution chart. For category-based data, use a bar chart, tree-map, or heat map. For unstructured data, use a word cloud. For displaying relationships between two…
Alternative Mean Definitions for Different Investment Problems
Suitability of Alternative Mean Definitions for Different Investment Problems $$ \begin{array}{l|l} \textbf { Type of Data } & \textbf { Mean to Use } \\ \hline \text { Single period data } & \text { Arithmetic mean } \\ \hline…
