regresssn analysis

correlation
non-linear reltns r not captured by correl
covariance
BETA : captures the degree of magnitude (dirctn co-movement is captured by corre
latn i.e + or - diectn)
correl gives the probs of directn of x&y
regression says u can estimate relatn b/w A&b
OLS- ordinary least square..
predictory line
deviation of each point from pedictory line-- error term
y= a+bx+e e-error
estimators n parameters
estimators-- sample
parameters-- whole data
market regimes -- financial data is divided basd on that
structral bricks
dummy variables
business statistics KEN BLACK book
3rd unit 3, 8,9 chaptrs
4th unit 12, 13 chapters
hypothesis testing
confidence level
degrees of freedom
z n t testing in probability
SSR n SSE SST
Sum of squares of regression
std error is the magnitude of 1 std deviation
y= a+bx+c
b = estimator
need to find confid level of b i.e range of 95%
t= x-mean/stderro

x = mean+- 2 std errorv

p < 1- conf level
p < 0.05
relation types
strong : t- v signi r2- v high
weak
: t- signi r2 - low
no relat : t -insigni r2- v low
econometrics -- damodar gujarati latr read

9th aug-2015
investment banking
1 advisory
2 global markets
advisory : a) M&A b) IPO
global markets : a)market making b) prop trading
market making : wrk on bidders spread
prop trading : have view of trading on future
asset classes : equities , fixed income
equities : stocks equities bonds swaps
fixed income : large institutional players
hedging : play on volatility,
volatility index is used
india viks futures intro last yr
option grids
option underlying variables --- which sets the value
delta- option sensitivity
for unit change in stock price , the value change in option vol
call option -- strike at a future date at predetermined price
commercial banks call global markets as treasury..
treasury : a) trading b) sales c) structuring d)quant e) risk
sales : a) corporate b) institutional
sells structures , flows

interest rates swaps

client pay fixed for floating input.
structuring : structurer makes structures to determine prices .. these prices r
given to sales guy .. to sell to client..
structuring is lucrative.. few structures r available
structured products hav a disadvatage of capped profit..
quant : make the models, which are the librabries like api(pricing functions) in
s/w .. structurers use these models to arrive at pricing..
risk mgmt : is required to bring in accountability n capping the amt of risk tak
n
huge demand risk mgmt professionals in nxt 3-4 yrs bcoz of basel 3.5 intro..
market risk,
credit risk : smallr firms ... wrk on trading books
operastional risk : day 2 day risks in running business
regualtory risk : deals with regulatory capital.. cap placed at regulators..buff
ers..
quant risk : test the assumptions of the models created by quant.. stress test..
models shud b robust across samples.. model test quants
iimjobs.com -- chk the roles..
risk consulting: huge oppurtunities
strategy research : each asset class requires research
hav internal & ext clients
internal cli - portfolio mgrs : deal with funds
equity strategiest
sales skill sets : ability to speak n think on feet.. trading.. derivatives.. ma
rket knowledge
trader : charts.. outright intuition of market..
structuring : finan engg.. derivative pricing is plus
engineer derivatives engineer structures.. complex structs
quant : derivatives .. if outspoken take front offc..
option traders : inside out of option greeks
:derivative.. risk .. heavy domain knowledge
research : xcel.. valuation.. sectoral analysis.. dig deeper in a sector

gud in equity research for 15 + yrs can becpme portfolio manager...

m&a / consultation : financial modelling .. valuations.. xcel .. PPT.. ability
to speak well n write..
3 major categs of consltng
a) who tells cli wat to do n wat to implement.. creates strategies
b) how to do.. by xcel VBA
c) who bring in efficiency by executing.. program managers
derivative trading then algo trading
financial modelling
xcel/VBA..
quantitative finance..