Introduction to PE Part 2: The Confusion Between PE and LBO
The words “private equity” get thrown around a lot. But people use them in different ways, and it gets really confusing.
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Introduction to PE Part 1: More Than Just Equations
Cyril Demaria started this book because he couldn’t find anything good to read about private equity. Most of what was out there just didn’t make sense. It didn’t match what actually happens in the real world.
The Market Model and CAPM Basics for Regular People
Chapter 2 of Burton and Shah’s book is about the math behind stock prices. Don’t run away yet. I promise to keep it simple. The chapter introduces something called CAPM and the “market model.” These are the tools that traditional finance uses to describe how stock prices should behave. And if you want to understand why behavioral finance matters, you need to know what it’s arguing against.
Yield Curve Fitting: Making Models Match Reality
In the last chapter, we saw one-factor models for interest rates. You pick a model, choose some parameters, and out comes a theoretical yield curve. But here is the problem: that theoretical yield curve almost certainly does not match the actual yield curve you see in the market. And if your model gives wrong prices for plain vanilla bonds, how can you trust it to price anything more complex?
Let's Talk About Private Equity: Starting a New Book Series
I’ve been reading a lot of books on finance lately. Most of them are either too simple or way too complicated for anyone who doesn’t have a PhD in math. But I found one that actually makes sense. It’s called “Introduction to Private Equity, Debt and Real Assets” by Cyril Demaria.
One-Factor Interest Rate Models: Vasicek, CIR, and Friends
With Chapter 30, we enter Part Three of the book: fixed-income modeling and derivatives. Up to now, interest rates have been either constant or known functions of time. That is fine for short-dated equity options. But for longer-dated contracts, and especially for bonds and interest rate derivatives, we need to treat the interest rate itself as random. This changes everything.
The Efficient Market Hypothesis Explained Simply
Chapter 1 of Burton and Shah’s book gets right to the big idea. The Efficient Market Hypothesis. EMH for short. This is the theory that traditional finance is built on, and it is the thing behavioral finance tries to tear apart.
Reading Real Term Sheets: Equity and FX Derivatives
Theory is nice, but at some point you have to look at real contracts. Chapter 29 of Wilmott’s book takes a collection of actual term sheets for equity and FX derivatives and walks through them one by one. The goal is practical: can you look at a piece of paper describing some exotic contract and figure out how to price and hedge it?
What Even Is Behavioral Finance? the Big Debate Explained
Let me tell you something that took me years to figure out. Traditional economics and finance are built on one really big assumption: that people are rational. And not just a little rational. Perfectly, mathematically, always-making-the-best-choice rational.
Exotic Options Grab Bag: Shouts, Ladders, and Parisians
By this point in the book, Wilmott has been classifying exotic options into tidy categories. Asian options got their own chapter. Lookbacks got their own chapter. Barrier options got their own chapter. But the universe of exotic derivatives is large and growing, and eventually the classification exercise breaks down. Chapter 28 is where Wilmott gives up on neat categories and just throws a bunch of interesting exotics at us. It is a grab bag, and it is fun.