A SICAV is an investment company, while an FCP is a fund. Both are common legal fund structures offered in Europe. A SICAV has its own legal identity and is usually an umbrella structure, meaning it has many sub-funds under…
In derivatives trading, initial margin is collateral exchanged at the beginning of the contract to protect a party from the possibility of default of its counterparty. Variation margin is another type of collateral, paid every day throughout the life of…
To calculate the exposure of a UCITS fund, the commitment approach estimates the leverage caused by all the derivatives in the portfolio. In contrast, the VaR approach measures the maximum potential loss within a specified time period due to market…
Both credit risk and counterparty credit risk refer to the same thing—that the firm on the other side of a transaction defaults and is no longer able to repay its obligations. Credit risk usually refers to the potential loss that…
A negative sum of discounted FCFF is rare. Usually, forecasts are positive and on top of that, there’s the terminal value. A negative forecasted cash flow in some years of your projection window shouldn’t stop you from using the DCF…
The second derivative of a utility function is negative to reflect risk aversion and decreasing marginal utility. A negative second derivative implies a concave function, which illustrates that the more money you have, the less satisfaction you get from additional…
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Equity beta is the overall business risk of the company, including both operational and financial risk. Asset beta on the other hand, excludes the effects of leverage on the capital structure, thus assuming the business is funded by equity only.…
You’re calculating the unlevered beta of a company and need the debt beta, but don’t know how to find it? Then this is for you. You can extract the implied debt beta from the CAPM formula by equating the formula…
Asset-intensive industries are industries that require big investments in fixed assets such as property, plant, and equipment (PP&E) to produce the goods or services they sell. Companies will have a high assets-to-sales ratio. Depreciation has a big impact on the…
