The most comprehensive educational resources for finance

Rights Issue of Shares

Rights issue is yet another way using which companies raise additional capital from the public. In a rights issue, the company offering these rights gives its existing shareholders a right to buy new shares of the company at a discount from its current market price at a specified future date. The right works just like

What is Shelf Registration?

Shelf registration, also known as shelf offering, is a type of public offering in which a company can use a single prospectus to issue seasoned securities to the public multiple times over a period of many years. The company does not have to have a separate prospectus for each offering. In such a case, the

What is a Seasoned Security?

When a new stock or a financial instrument is newly issued and starts trading in the secondary market, its price may exhibit substantial volatility in the initial period after which the short-term effects would settle down and the price will become more stable. Once the security has been trading in the secondary market for a

What is Initial Public Offering (IPO)?

When a company wants to raise money from the public, it does so by approaching investors in the primary market. The process of raising money by issuing new securities to the investors in the primary market is known as Initial Public Offering. Once the security has been issued, investors can trade these securities (buy and

Using Pricing Models for Financial Products

Pricing models can either be purchased from vendors or developed internally, and they can be mainframe- or PC-based. Internally developed models are either built from scratch or developed using existing customized models that traders modify and manipulate to incorporate the specific characteristics of a transaction. The use of pricing models introduces the potential for model

Pricing of Illiquid Instruments and Transactions

Illiquid, non-traditional, and user-specific or customized transactions pose particular pricing challenges because independent third-party prices are generally unavailable. For illiquid products that are traded on organized exchanges, but for which trades occur infrequently and available quotes are often not current, mark-to-market valuations based on the illiquid market quotes may be adjusted by a holdback reserve

Lecture 21 – Exchanges, Brokers, Dealers, Clearinghouses

As the starting point for this lecture, Professor Shiller contrasts the view of economics as the theory of the allocation of scarce resources with the view of economics as the study of exchange. After a discussion of the difference between brokers and dealers, he outlines the history of securities exchanges from ancient Rome, to the

Pricing of Liquid Instruments and Transactions

For transactions that trade on organized exchanges or in liquid over-the-counter (OTC) markets, market prices are relatively easy to determine. Trading positions are simply updated to reflect observable market prices obtained from either the exchange on which the instrument is listed or, in the case of OTC transactions, from automated pricing services or as quotes

Lecture 20 – Professional Money Managers and Their Influence

Professor Shiller argues that institutional investors are fundamentally important to our economy and our society. Following his thoughts about societal changes in a modern and capitalist world, he turns his attention to the fiduciary duties of investment managers. He emphasizes the “prudent person rule,” and critically reflects on the limitations that these rules impose on

Lecture 19 – Overview of Investment Banking

Professor Shiller characterizes investment banking by contrasting it to consulting, commercial banking, and securities trading. Then, in order to see the essence of investment banking, he reviews some of the principles that John Whitehead, the former chairman of Goldman Sachs, has formulated. These principles are the basis for a discussion of the substantial power that