INVESTMENTS AND INVESTMENT DECISIONS: METHODS AND APPLICATIONS
Authors
Keywords
investments, portfolio theory, investment risk, contingent instruments.
Introduction 9
Chapter one. The investment science and methods 13
1. Investments as an economic, social and political phenomenon 14
2. Investment nature of risk and regulation 15
3. Historical overview of investment ideas and risk 18
4. The principles of investing 24
Chapter two. Dimensions of risk and return in the portfolio theory 27
1. Approaches to measuring expected return and risk of investing 28
2. Studying the hypothesis of normal distribution of financial
asset returns 34
3. Studying the hypothesis of excess and asymmetry in the return on financial assets 39
Chapter three. Evolution of portfolio theory 44
1. The importance of Markowitz model in the theory of investment 45
2. Evolutionary contribution of the theorem for transformation
of investment decisions into financial decisions 54
3. The Capital Asset Pricing Model 58
4. The Arbitrage Pricing Theory 64
5. Portfolio optimization under epistemic and aleatory uncertainty 65
Chapter four. The theoretical basis of investment management 67
1. The nature of investment management 68
2. Formation and management of portfolios 71
3. Evaluation tools for a portfolio’s performance 78
3.1. Characteristics of the Jensen Index 79
3.2. Characteristics of the Treynor Index 80
3.3. Characteristics of the Sharpe Index 81
3.4. Defining asymmetric risk by using the Sortino Ratio 83
Chapter five. Options as instruments for investing in securities 84
1. Essential features of options 84
2. Options markets and investment motives 89
Chapter six. Methodological challenges in evaluating options 94
1. Factors affecting the valuation of options 95
2. Explaing the Put-Call Parity in options 104
3. The binomial valuation of contingent instruments 109
4. Applying the Black-Scholes model in valuation of options 114
5. Real options - a new paradigm in investment decision making 118
6. The essence of real options 119
6.1. Classification of real options 123
6.2. Valuation of real options 124
6.3.Approbation of methodology in valuation of options 124
6.4. Comparing the analysis of real options to the traditional
approaches for evaluation of investment projects 127
Chapter seven. Socially responsible investing in response to today's global challenges 132
1. Ethical investing - non-financial criteria in making investment choices 133
2. Islamic investment - ethical principles, investment characteristics and opportunities 143
3. Incorporating the environmental, social and sound management investment principles into the fundamental investment analysis 150
Conclusion 155
References 157
Investments play a key role in the formation of gross domestic product and the functioning of product and factor markets, without which the circulation of cash flows in national and international economies would be impossible. Ever since the dawn of world civilization investing has been related to the ability to accurately calculate what and how much to invest in order to achieve a specific result. The uncertainty of the result introduces the concept of investment risk; its relation to the return makes the structure of society increasingly dynamic. Industrialization, world wars, changes in the monetary systems and the digitalization of economy are all natural sources of investment opportunities increasing at an exponential rate, thus creating the requirement for a professional process management in the form of investment management and proper allocation of investment vehicles in the form of investment portfolio. Coupled with hedging against risk by using contingent instruments, investments have become updated and highly developed.
Pages: 166
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