Risk
Sharpe Ratio
It is generally believed that an investment portfolio is better constructed the higher its Sharpe ratio (Sharpe Ratio – William F. Sharpe). The Sharpe ratio describes the relationship […]
EON Investment Insights
Understand stock price as a forecast
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Risk
Futures: Hedging or Speculation
In futures trading, both end-users of raw materials and traders participate.The first group aims to hedge their business margins, while the second seeks to profit from price fluctuations. […]
Valuation
Excess Real Estate in Valuation
The valuation of a business is influenced by how we treat the real estate component. This is especially relevant for capital-intensive businesses, where the Sales-to-Asset ratio tends to […]
Real Estate Investments
Hazard Function & Yield Degradation
Fixed-income assets come with default risk. For example, the default probability statistics for commercial mortgages by years since loan origination look like this: Source: Commercial Real Estate Analysis […]
Market Efficiency
Estonian Model Impact on CF
We are setting up Executive KPIs in a company, and during the process, the task arose of calculating WACC and assessing its impact on the organization’s value. Typically, […]
Real Estate Investments
Loan Prepayment Option Valuation
For a real estate investor, it’s important to understand how valuable a loan refinancing option is, which can be assessed using the Black-Scholes financial options pricing model. For […]
Derivatives
Black-Scholes-Merton Model
The Black-Scholes-Merton (BSM) formula holds the same weight in financial science as E = mc² does in physics. The formula revolutionized the development of the options market. Thanks […]
Risk
Optimal Hedge Ratio
Hedging for Sales Support Organizations often need to enter into long-term sales contracts with fixed prices, even when some of their costs depend on market fluctuations. For example, […]
Real Estate Investments
After Tax Discount Rate in RE
How Do Government Co-Financing Incentives Influence Real Estate Purchase Decisions? How Do Such Incentives Affect the Value of Real Estate for Beneficiaries? In practice, determining the correct discount […]
Risk
Logistic Regression
Every important decision boils down to a “yes” or “no” choice – should I buy, or not buy? Should I offer a payment plan, or not? Should I […]
Real Estate Investments
Depreciation Tax Shield in Real Estate
When investing in real estate, significant attention is given to the tax savings derived from depreciation (Depreciation Tax Shield – DTS), and this benefit becomes even more valuable […]
Real Estate Investments
Cash-on-Cash Leverage in Real Estate
Unlike regular corporations, the tax component is excluded here because REITs are not subject to corporate income tax. There is nothing special about this formula—it simply weights the […]
Real Estate Investments
RE Leverage and Risk: A Mathematical Perspective
When discussing the risk-return diagram, the risk component is often perceived theoretically. In this note, I will mathematically demonstrate how financial leverage and risk are essentially the same […]
Real Estate Investments
The Specifics of Real Estate Investing
Real estate investing differs from both securities market operations and corporate capital budgeting decisions—it is, in essence, a blend of the two. On one hand, investing in real […]
Real Estate Investments
Implied Inter-Lease Discount Rate
The property is leased under a long-term contract, and for discounting cash flows, the lessee’s loan rate is used (which is logical). The same rate can be used […]
Real Estate Investments
IRR Decomposition
Smart investors use IRR less frequently because it has many technical flaws, but the main issue is that IRR inherently assumes the reinvestment rate is the same as […]
Real Estate Investments
Valuation of Long-term leases
Imagine you own a commercial real estate property that is leased under a 10-year fixed-rate contract. Once the contract expires, you will need to re-lease the property for […]