La vérité existe. On n'invente que le mensonge. —Braque (Truth exists. One only invents falsehood.)
A Finance professional living in Florida, Alpay Kaya’s experience in algorithmic trading R&D spans asset classes and financial instruments. The former Head of FX/Rates Research at the proprietary trading unit of Koch Industries, his strategies (long/short Equities, FX options, & Rates futures) have performed consistently well in live trading at asset values in excess of $100 million. His research currently focuses on discrepancies between abstraction and prevailing analytical techniques, which may employ unrealistic assumptions so as to achieve superficially ‘elegant’ solutions. With an educational background in Control Systems/Applied Math, his research on robust optimal control with applications to aviation has been published in professional journals and conference proceedings. Alpay Kaya, Chartered Financial Analyst, holds Engineering degrees from the University of Akron and the University of California at Berkeley. He was drawn to the investing sector because it connects math and human behavior.
His recent book VALUE IN VOLATILITY fills a heretofore ignored need in the finance publication space, that of a practitioner’s guide based on sound mathematics. For three decades since the early 1980s, two macroeconomic shifts have supported the buy & hold returns of equity investors. Interest rates have decreased, the 10-year rate from a record high of 15% to a record low of 1.5%. The fraction of US GDP transferring to corporate profits has increased from a record low of 3% to a record high of 12%. Going forward, investors will need to earn returns from strategic investing; literally, buy low and sell high. The math of leveraged ETFs represent just the right generalization of single-name stock price evolution such that understanding them engenders a fundamental understanding of market assets.
The earlier LEVERAGED ETFs is a comprehensive exposition on the mathematics of this misunderstood class of financial instruments. The price action of leveraged ETFs differs greatly from that of standard ETFs, and the generic explanation ‘compounding’ means nothing. As the first publication to mathematically define the value decay of LETFs, this text expands upon the academic research literature, which previously could only describe decay by example and evaluate it by process of elimination.