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Sharpe Ratio

How to Compare Similar Portfolios

  • Look at two funds with similar returns, with one being more volitale then the other.
  • Sharpe ratio is a measure of how much you are being rewarded for the risk you are taking.

Sharpe Ratio

  • The most “important” measure of asset preformance.
  • How well does the return of an asset compensate the investor for the risk taken.
  • The higher the Sharpe ratio the better.
  • When comparing two assets each with the same return, higher Sharpe ratio gives more return for the same risk. # Sharpe Ratio S = E[R - Rf] / d = E[R - Rf]/sqrt(var[R - Rf])
  • Reward / Risk = How much reward are you getting for your risk
  • metric = k * mean(daily-rets/stdev(daily-rets))
  • k = sqrt(250) for daily returns <- 250 = Trading days in a year.
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Common Metrics for Hedge Funds

Common Metrics

  • Annual Return.
  • Risk: Standard Deviation of return. (Key metric, volitility)
  • Risk: Drawn Down.
  • Reward/Risk: Shape Ratio. (Important in hedgefund ratio)
  • Reward/Risk: Sortino Ratio. (Only counts downward volititily)
  • Jensen’s Alpha.

Calculating Annual Return

  • Metric = (value[end]/value[start]) - 1
  • Example: 100 to 110. ** (110/100) -1 = 0.10 = 10% return

Standard Deviation of Daily Returs

  • Daily_rets[i] = (value[i]/value[i-1]) - 1 where i = day
  • std_metric = stdev(daily_rets) The standard deviation calculation.

Max Draw Down

  • Take some peak point, then the draw down is calculated by comparing lower points to that drawdown
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Computational Investing Part 1

Portfolio Manager Incentives

Expense Ratio:: Usually less then 1% Two and Twenty: 2% of total assets under managment + 20% of profits. So For a 10,000,000 fund with 10% profit. Under the two and twenty rule that is: (10,000,000 * 0.02) + (10,000,000 * 0.1 * 0.2)

How to Attract Investors

  • Individual (Least)
  • Institutions: ** Harvard Foundation
  • CalPERS
  • Funds of Funds

How to Attract Investors

  • Must have a great track record, or
  • Very compelling story and back test.
  • Fit in a “pidgeon hole?”
  • What do investors want to see?

Two Main Types of Fund Goals

  • Reference to a benchmark (pigeon hole)
  • Absolute Return (low return, low risk)
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Programming Languages Week 1

Assumed Knowledge

  • Variables, conditions, loops arrays
  • Recursion
  • Implementation vs Interface, OO
  • Basic data structures: linked lists, binary trees.
  • Dynamic-dispatch: Also known as method overriding, subclassing.

Binary Tree SumAll

Dan Grossman implemented a simple binary tree (working only on integers) that summed the integer nodes, using recursion. <div class=’bogus-wrapper’>

<div class=”highlight”><table><tr><td class=”gutter”><pre class=”line-numbers”>1 2 3 4 5 </pre></td><td class=’code’><pre>class IntBinaryTree { int i; IntBinaryTree left; IntBinaryTree right; }</pre></td></tr></table></div>
</div>

Why Learn THis?

This is the “normal” place for course motivation. Why learn this material?

But in my experience, we don’t have enough shared vocabulary. So he will explain it in two weeks.

Claim

Learning to think about software in this “PL” way will make you a better programmer even if/when you go back to old ways.

A Strange Environment

  • ML Language
  • Emacs Editor
  • Read Eval Print Loop (REPL) for evaluating programs

Enough Text

  • From now on there will be a lot more code.
  • Much better then these “introduction videos”
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Back at It

I have started studying Computer Science again after a short summer break (I find it pretty hard not to do for a while). So I am taking Introduction to Compilers and Introduction to Programming Languages. While I have started blogging again I thought it would be a good time to learn a few more of the features of octopress.

This is an image of my new desktop. I moved from Archlinux, XMonad, XMobar, UXVRT on my old system to Ubuntu with Gnome Shell, heavily customised. While I really enjoy archlinux at my new job, while I could easily maintain it. It simply too hard to stay productive with the rest of the team.

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Mandatory Fun

The concept of mandatory fun brings to mind, “Vault Boy” from the Fallout series, who is never without a smile despite his many gruesome and morose undertakings. We all know inclusive enjoyment is about as bullshit as drinking mercury for your general wellbeing, but very few people actually talk about what a load of shit it is. It is at a tipping point amongst many popular software development companies where the level of absolute garbage spewed at young undergraduates in a rutheless effort to suck up all the talent is reaching far beyond the contains of the word ludicrous. By far the most annoying factor is what I dub the Vault Boy Smile. A perk all the representatives of these institutions must choose in their pip boy at level 1 to get the job. All this falls on the fallacious belief that, your level of happiness dictates the importance of your work and contributing factor to our society as a whole and all in all to your own self importance…

Many people are happy with menial jobs or working on seemingly complicated problems that result in trivial outcomes but I am not. Some people just have to climb mountains to feel any enjoyment at all and this essentially is what we all want, to have the brain release those chemicals that give us a little high before it quickly slips out of reach again into the fog of curiosity. Enough with the metaphors and other crap that was just a writing exercise I have a small list of reasonable demands for software development companies, which they not suprisingly will not give a fuck about but I don’t give a shit so: * Smile whenever the fuck you want to smile. * Enjoy your life, but derive it from what you do, not where you work.

Again this article is littered with grammar and spelling errors, so clearly it cannot convey thought.

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Microeconomics - Unit 4 Review

Price Elasticity

  • A measure of the responsiveness of the quantity demanded of a good to a change in the price of the product.

Products on Special

  • Cola drinks are often on special, however pain relief tablets are rarely on special. The reason is noe is much more price elastic then the other.
  • When cola is reduced there will be a significant rise in the consumption of the cola.
  • Alternatively with pain relief tablets, the quantity demanded does not rise to the same extent and is far less elastic then the cola.

Determinants of Price Elasticity

  • Substitution possibilites: Products that are easy to substitute. If there is a rise in price consumers will simply switch products.
  • Non essential product (cola drink for example): Consumers can simply elect not to buy it.
  • Budget share: Big ticket items tend to have high price elasticity of demand (e.g holiday air travel).
  • Time: replacing an inefficient air conditioner with an energy-efficiency one.

Calculating Elasticity

  • The price elasticity of demand is calculated by using the formula: Percentage change in quantity demanded / percentage change in price

Price elasticity of demand

  • Suppose: Price of sushi = $2/piece, quantity demanded = 400 pieces/day
  • When price falls: New price = $1.94/piece, quantity demanded = 404 pieces/day
  • What is the price elasticity of demand for sushi?
  • % change in quantity demanded = 1%
  • % change in price = 3
  • % Change in Quantity / Change in Price = 1/3 : Inelastic

Interpreting the number (absolute value only)

  • Elastic demand: greater than 1. The % response in the quantity is greater than the % change in price.
  • Inelastic demand: less than 1, the % response in the quantity is less then the % change in price.
  • Unit elastic demand: equals 1.

A graphical interpretation of price elasticity of demand

Price elasticity of demand at any point along a demand curve is the ratio of price to quantity at that point, times the reciprical of the slope of the demand curve.

  • Formula: Price elasticity at A = (P/Q)(1/slope)

Price elasticity and steepness of the demand curve.

When price and quantity are the same, price elasticity of demand is always greater for the less steap of the two demand curves.

Elasticity and the effect of a price change on total expenditure

If demand is: * Elastic: A price increase will reduce total expenditure. A price reduction will increase total expenditure. * Inelastic: A price increase will increase total expenditure. A price reduction will reduce total expenditure.

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Microeconomics - Unit 3 Review

Market Equilibrium

  • Equilibrium: Any siutation in which a system is at rest
  • Equilibrium price and equilibrium quantity: The value of price and quantity for which quantity supplied and quantity demanded are equal

Market Equilibrium

  • As the price falls the quantity that is demanded rises. Sellers will offer more as the price rises. There is one point where the quantity demanded matches the supply provided.

Market Disequilibrium

  • Surplus (or shortage)
  • Excess supply (or surplus): The amount by which quantitiy supplied exceeds quantity demanded when the price of a good exceeds the equilibrium price.
  • Example: Excess supply in the pizza market

Excess Supply

  • If the price of pizza is 4 dollars a slice the demanders will buy 8,000 but suppliers will want to supply 16,000, so there is a surplus ot 8,000 slices.
  • The surplus causes competition between sellers, that will reduce the price of pizza, as the price falls the quantity demanded will rise.
  • This has the effect of being a disinsentive to suppliers, resulting in the market moving back towards equilibrium.

Excess Demand

  • At a price of $2 per slice, which is belowe the price of $3 per slice, there is excess demand for a shortage of 8,000 slices per day.
  • This shortage in price creates competition between buyers and increases the price.

Unregulated Market

  • In a free market the quantity being demanded and supply will always return to equilibrium. If the price is above the equilibrium the surplus will force the price down and if the price is below equilibrium the shortage will force the price up.

Regulated Market

  • When rents are prohibited from rising to the equilibrium level, the result is excess demand in the housing market of 200,000 units each month.
  • When the price is set at a very low price it becomes very attractive to the tenants but very unattractive to suppliers. So there will be a shortage.

Regulated Market

  • Price ceiling: A maximum allowable price, specified by law.
  • Results in a shortage because buying becomes more attractive but suppling becomes less attractive.
  • Queues form
  • A block market may emerge
  • Rationing may be required
  • Uninteded consequences
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Microeconomics - Unit 2 Review

Illustrating Comparative Advantage

The Production Possibility Curve * A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good. * Assume: A small island economy that produces only 2 goods coffe and nuts, with one worker, Jara, who works 6 hours per day.

Jara’s Production Possibilities

  • Attainable and efficiency points on Jara’s production possibilites curve.
  • 24 units of coffee a day or 12 units of nuts. ## When Jara produces..
  • Nuts he gives up 2 units of coffee
  • Coffee he gives up 1/2 unit of nuts

On another Island

  • Peng can also produce a combination of coffee and nuts.
  • 12 units of coffee a day or 24 units of nuts.

Peng’s production possibility curve (opportuntiy costs)

  • Nuts he gives up 1/2 units of cofee
  • Coffee he gives 2 units of nuts

Individual PPC’s compared

  • Jara has an absolute and comparative advantage in picking cofee.
  • Peng has an absolute and comparative advantage in picking nuts.

Production without specialisation

  • Peng’s output = 2hrs picking nuts = 8kg, 4 hrs picking coffee = 8kgs.
  • Jara’s output = 2hrs picking coffee = 8kg, 4hrs picking nuts = 8kg.
  • Each worker would have 16 units of production.

Production with specialisation

  • Peng’s comparative advantage in nuts so he specialise in nuts and produces 24kg.
  • Jara’s comparative advantage is in coffee so she specialises in coffee and produces 24kg.
  • Java gives Peng 12kg of coffee for 12k of nuts.

Gains from Specialisation

  • Specialising enables both Jara and Peng
  • To increase the total output by 8kg.
  • From 16 units to 24 units of total output
  • To consume at a point, such as E, outside the PPC, by exchanging goods.
  • What give rise to gains from specialisation? Opportunity cost differential
  • The gains from specialisation grows larger as the difference of opporutinty cost increases.
  • We should specialise in our area of comparative advantage and then trade for products we are not good at producing.

Production Possibilites for a many-person economy.

  • What does the outward bow shape of the PPC say about the opporutiny costs of producing nuts and coffee?
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Personal Finance Unit 7 - Superannuation

Super and Your Financial Independence

  • Financial Independence - When the case you recieve from your investments is more then your living expenses
  • Rich != Financial Independent

How to get it

Consistenly save 10% of your salary. * Never spend the “capital” of your investments * … until cash from investments > living expenses * Keep savings for a car or holiday completely seperate from these “investments”.

Role of superannution

  • “Superannuation” are saving set apart for retirement
  • You super is kept seperate from your other finances. You can’t use it on holidays and cars while you are young.
  • Builds up over 40+ year through contributions (people at work) and returns (money at work). The returns are also concessionally taxed.

Superannuation ,, the good

  • Regular savings paid for you by emploer
  • Conessional tax on money going into super.
  • Consessional tax on investment returns while inside super
  • Tax-free withdrawal of supperannuation after age 65.
  • Good investment options that sotop people gambling on stpuid investments
  • Godo investment returnss
  • You cant withdraw super until you turn 60! Helps with self control, well its mandatory.
  • Goverment can’t afford to pay you for dying and being old. So like we need it.

Supperannuation … the ugly.

Case Study

Choosing a Fund

## Consolidating your Super ## Getting more moey into Super ## Getting mooney out of super ## Strategies