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Research Papers

Our experts have published extensively in peer-reviewed journals. Pre-publication versions of these papers plus other working papers are available below.

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Displaying 21-30 out of 71 results

Robust Portfolio Optimization with VaR Adjusted Sharpe Ratio

By: Geng Deng, Tim Dulaney, Craig McCann, and Olivia Wang

We propose a robust portfolio optimization approach based on Value-at-Risk (VaR) adjusted Sharpe ratios. Traditional Sharpe ratio estimates using a limited series of historical returns are subject to estimation errors. Portfolio optimization based on traditional Sharpe ratios ignores this uncertainty and, as a result, is not robust. In this paper, we propose a robust portfolio optimization model that selects the portfolio with the largest worse-case-scenario Sharpe ratio within a given...

Large Sample Valuations of Tenancies-in-Common

By: Tim Husson, Craig McCann, Edward O'Neal, and Carmen Taveras

In this paper, we value a large sample of tenant-in-common (TIC) investments based on cash flow projections found in 194 private placement memoranda. Our sample of TIC offering documents covers approximately 20% of the TIC industry from 2004 to 2009. Based on the sponsor's projections, we find that the TICs on average were worth 83.6 cents per $1 paid by TIC equity investors. However, we have found that sponsors' cash flow projections overstate likely returns to investors by assuming...

The Priority Senior Secured Income Fund

By: Tim Dulaney, Tim Husson, and Craig McCann

Retail investors are being sold increasingly obscure non-conventional investments. With the Priority Senior Secured Income Fund (PSSI), issuers may have finally gone too far. PSSI is the first registered investment company that invests primarily in leveraged loans and CLOs. Unlike the mutual funds with which most retail investors are familiar, PSSI investors are not able to redeem shares daily at PSSI's net asset value. PSSI is not listed on an exchange and traded like a closed-end fund and...

Structured Product Based Variable Annuities

By: Geng Deng, Tim Dulaney, Tim Husson, and Craig McCann

Recently, a new type of variable annuity has been marketed to investors which is based on structured product-like investments instead of the mutual fund-like investments found in traditional variable annuities. Embedding a structured product into a variable annuity introduces substantial complexity into an investment typically considered conservative. In this paper, we describe structured product based variable annuity (spVA) crediting formulas and how they differ from traditional VAs, value...

Private Placement Real Estate Valuation

By: Tim Husson, Craig McCann, Edward O'Neal, and Carmen Taveras

As a result of the Securities and Exchange Commission's relaxation of its prohibition against the marketing of private placements, investors will soon be exposed to a broad array of syndicated commercial real estate investments. Private placement commercial real estate investments are illiquid and so cannot be easily valued by reference to frequent transactions in the same asset in active markets.

We have reviewed over 200 syndicated commercial real estate private placement memorandums and...

Structured Certificates of Deposit: Introduction and Valuation

By: Geng Deng, Tim Dulaney, Tim Husson, and Craig McCann

This paper examines the properties and valuation of market-linked certificates of deposit (structured CDs). Structured CDs are similar to structured products -- debt securities with payoffs linked to market indexes -- but while structured products have garnered significant interest in both the financial media and in the academic literature, structured CDs have received relatively little attention. We review the market for structured CDs in the United States and provide valuations for several...

Using EMMA to Assess Municipal Bond Markups

By: Geng Deng and Craig McCann

In the past, assessment of the reasonableness of municipal bond markups depended on anecdotal recollection of markups and subjective judgment about what was customary. Interested parties including regulators can now use the MSRB's EMMA service to determine the markups charged on a set of transactions and can make precise and accurate statements about how unusual such markups were, controlling for many factors thought to effect the reasonableness of markups.

We analyze over 13.7 million...

The Rise and Fall of Apple-linked Structured Products

By: Geng Deng, Tim Dulaney, Craig McCann, and Mike Yan

The rise in Apple's market capitalization in 2012 coincided with a dramatic increase in single-observation reverse convertibles, reverse convertibles and autocallable notes linked to Apple's stock price. These notes all transfer the downside risk of owning Apple to investors but cap the upside at somewhat more than corporate bond yields. Issuers use individual stocks like Apple as the reference obligations for reverse convertible structured products because investors underestimate the risk...

What is a TIC Worth?

By: Tim Husson, Craig McCann, and Carmen Taveras

Tenants-in-common interests are passive real estate investments which are sold based on two claimed benefits: stable "cash on cash" returns and deferral of capital gains tax through 1031 exchanges. The "cash on cash" returns are found in financial projections in TIC offering documents. Using a stylized TIC cash flow projection based on our review of these materials, we show that TICs use aggressive assumptions to inflate the apparent returns to investors.

Projected cash flows must be...

Dual Directional Structured Products

By: Geng Deng, Tim Dulaney, Tim Husson, and Craig McCann

We analyze and value dual directional structured products - or simply dual directionals (DDs) - which have been issued in large amounts since the beginning of 2012. DD's evolved out of another type of structured product called absolute return barrier notes (ARBNs); however, DD's lack principal protection and have different embedded options positions, which have yet to be described in the literature. We find that DDs can be broadly organized into two categories: single observation dual...

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