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Capital Markets Calculations


Calculations and Ratios presents the essential mathematical tools the finance professional needs for finding solutions to daily numerical problems. This section includes how to calculate return on investment, return on shareholders' equity, working capital productivity, EVA, risk-adjusted rate of return, CAPM, and many more.

  • Option Pricing
    There are two sorts of options in stock market trading: call and put. Option pricing uses mathematical models to calculate the value of a stock option and how it changes in response to changing conditions.There are two key components to option pricing: the intrinsic value, which measures the amount by which an option is “in the money;” and the time value, which measures the amount paid for the time the option has before it expires.
  • Quantitative Methods
    Quantitative methods are a number of statistical and mathematical tools that can be used to capture and analyze information on quantitative data—anything that can be measured or counted.What differentiates quantitative from qualitative methods is that quantitative methods usually rely on a variation of the scientific method to generate measurable results. Quantitative methods are therefore formulae and models used to generate hypotheses, capture...
  • Reserve Ratio
    In the United Kingdom and in certain European countries there is no compulsory ratio, although banks will have their own internal measures and targets to be able to repay customer deposits as they forecast they will be required. In the United States the policy is more prescriptive, and specified percentages of deposits—specified by the Federal Reserve Board—must be kept by banks in a noninterest-bearing account at one of the 12 Federal Reserve...
  • Stochastic Modeling
    Stochastic modeling uses thousands of simulations to produce probability distributions for various outcomes. It is widely used to predict how stock markets, bonds, and gilts will perform in the future.
  • Tick Value
    There are in fact two different uses of the term “tick value.”Tick value can refer to the value of the minimum price movement of a traded stock allowed by an exchange. For example, many US stock markets have a tick size of 0.01, which translates into a tick value of one cent for the NYSE. In contrast, the EUR futures market has a tick value of 0.0001. Tick value can also refer to the number of buyers and sellers of a stock who are bidding above...
  • Value at Risk
    Value at risk (VAR) is a useful tool for anyone looking to quantify the risk of a particular project or investment opportunity by measuring the potential loss that might be incurred over a certain period of time. VAR measures what is the most that an investor might lose, based on a specific level of confidence, over a specific period of time. For example, “What’s the most I can—with a 95% level of confidence—expect to lose over the next 12...

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