Risk
Gaussian Copula Simulation
In the previous article, we discussed the core idea behind the Gaussian Copula model. The model does not correlate defaults directly. Instead, it creates a Hidden Credit Score […]
EON Investment Insights
Understand stock price as a forecast
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Risk
Gaussian Copula: Modeling Default Correlation
In previous articles, I discussed the reduced-form approach to default correlation, which explains correlation through hazard rates but does not fully capture the relationships between individual companies. As […]
Derivatives
Reduced-form Models
Here is the English version, slightly polished while keeping your original logic and tone: Credit risk is not easy to diversify, because default risks across different organizations are […]
Risk
Credit Risk of Derivatives
Derivatives also have credit risk, and incorporating that risk into their price is relatively more difficult than in the case of stocks or bonds. When options or futures […]
Risk
What Equity Prices Tell Us About Default Risk
🎯 One weakness of credit ratings is that they are updated relatively infrequently, while credit risk itself can change significantly over short periods of time. As it turns […]
Interest Rates
Market-Implied Credit Risk
A higher yield on corporate bonds indicates the presence of default risk. If we assume that the spread represents the product of default probability and loss given default: […]
Interest Rates
From Ratings to Historical Default Probabilities
A credit rating — AAA, BBB, and so on — is a compact measure of relative credit risk. It shows how risky one debtor is compared with another. […]
Derivatives
The Dynamics of Diversification
Standard diversification models have a fundamental weakness: during periods of large market fluctuations and crises, historical relationships stop working. This happens because correlations between assets tend to increase, […]
DCF Valuation
Tao of Corporate Finance
The value formula from Valuation: Measuring and Managing the Value of Companies by McKinsey & Company (also referred to as the Tao of Corporate Finance) is: Value=NOPAT×(1−g/ROIC)WACC−gValue = […]
Derivatives
Using GARCH to Forecast Volatility
🎯 GARCH is not just a descriptive model — its purpose is to forecast the volatility of future returns on invested capital. In previous posts, we: Now we […]
Investor Psychology
The 20 ideas from The Most Important Thing
1. Second-Level Thinking Successful investing begins where obvious thinking ends. It is not enough to say that an asset, company, or market is good. The real question is […]
Derivatives
Validation of Volatility Clustering
Models of return volatility such as EWMA and GARCH aim to explain volatility clustering. In real markets, calm periods tend to be followed by calm periods, while turbulent […]
Derivatives
Maximum Likelihood Method
The maximum likelihood method is used in modeling to estimate the parameters that make historical events most probable. Suppose an event has occurred. If we assume that this […]
Derivatives
GARCH Model
GARCH (1,1) and Volatility Clustering Financial markets exhibit an important property: volatility clustering and reversion toward a long-run average. In other words, large movements tend to be followed […]
Derivatives
EWMA vs Moving Average Volatility
Volatility is such an overused term that we may forget how important the assumptions are that lead to the final number. Let us start with the basics. When […]
Investor Psychology
Zero to One
📘 რატომ არის საინტერესო საკითხავი: 📖 ავტორი: პიტერ თილი💳 PayPal-ის თანადამფუძნებელი📱 Facebook-ის ერთ-ერთი პირველი ინვესტორი💼 სილიკონ ველის ერთ-ერთი ყველაზე გავლენიანი ვენჩურული კაპიტალისტი ეს არ არის სამოტივაციო ლიტერატურა, უფრო […]
Derivatives
VaR – Advanced Issues
In previous posts, I covered the calculation of portfolio Value at Risk (VaR) and Expected Shortfall using the historical simulation and linear modeling methods. Now, in order to […]
Derivatives
VaR – Linear Model
In the previous note about VaR, I discussed and showed how it is calculated using simulation of historical data. Now I will demonstrate how it is calculated using […]