Financial Theories

Asset-backed securities (ABS) are a crucial element in the world of finance. Over the years, ABS have become increasingly popular among investors due to their unique structure and potential for higher returns. I have often encountered individuals and institutions who are keen to understand the theory behind ABS but find the topic a bit overwhelming. […]

Asset pricing is a critical area of finance that focuses on determining the value of financial assets. Discrete-time models are among the simplest and most intuitive ways to approach asset pricing, offering a structured framework for understanding how assets evolve over time in specific, well-defined periods. In this article, I will walk you through the

When I first delved into the concept of Asset Liability Management (ALM), I realized just how critical it is for managing financial institutions, such as banks, insurance companies, and pension funds. ALM helps ensure that a firm can meet its obligations and manage its financial risks effectively. It might sound complex at first, but when

When I first came across the concept of asset bubbles, it struck me how relevant the topic is in the world of finance. An asset bubble is a situation where the prices of assets, such as stocks, real estate, or commodities, rise to unsustainable levels. This inflated value is often disconnected from the underlying fundamentals

The Asian Financial Crisis (AFC) of 1997-1998 stands as one of the most defining events in the global economic landscape. The crisis shook the foundations of several Southeast Asian economies, and its effects were felt worldwide. This article delves into the theory behind the crisis, analyzing its causes, impact, and recovery, offering insights on why

As a finance enthusiast, I’ve often been intrigued by the concept of arbitrage-free pricing, a foundational theory in modern financial markets. This concept holds significant importance in the pricing of assets like options, derivatives, and bonds. Over the years, I have come to appreciate how arbitrage-free pricing maintains balance within markets, preventing risks that might

The Arbitrage Theory of Capital Asset Pricing (ATCAP) is an essential concept in financial theory, offering an alternative to the traditional Capital Asset Pricing Model (CAPM). As I explore this theory in depth, it’s important to start by understanding its foundation. ATCAP presents a more realistic view of asset pricing by focusing on the opportunities

Arbitrage Pricing Theory (APT) offers a comprehensive and flexible alternative to the Capital Asset Pricing Model (CAPM). Unlike CAPM, which is heavily dependent on market risk, APT suggests that multiple factors drive asset prices. It attempts to capture the complexities of real-world financial markets, where numerous variables influence returns. In this article, I will explore