BLOOMBERG L.P.

Bloomberg for Education Symposium

Using Bloomberg in Advanced Elective Classes

Ehud I. Ronn Professor of Finance University of Texas at Austin1

Austin, May 28, 2015

[email protected] and (512) 471-5853 OVERVIEW

• The Equity, Fixed-Income and Commodity Markets — Using Bloomberg to Convey the “Message from Markets”

• Bloomberg Capabilities in Energy Finance

• Using Bloomberg in Fixed-Income Applications

• Incorporating Bloomberg into Students’ Prob- lem Sets

2 The “Message from Markets”

• Brealey, Myers and Allen, Principles of Cor- porate Finance (page 350): “If [financial markets are] efficient, prices impound all available information. There- fore, if we can only learn to read the en- trails, security prices can tell us a lot about the future.” • Financial markets in general, and mar- kets in particular, are highly informative. The challenge is: – What is the “Message from Markets”? That is, what “Message” are the markets convey- ing? – How do we use that “message” to make better business decisions?

3 Examples of the “Message from Markets”: Equity, Fixed-Income and Commodity Markets

• Equity Markets: – SPX < INDEX > GP; SPX < INDEX > MWXDU < INDEX > SGP, and normalize – VIX < INDEX > GP; SPX < INDEX > TRMS – Example of MRA: Regress SPX returns on changes in VIX; with/without a lag • Oil and Natgas Markets – Measure /backwardation in oil markets: CL1 < CMDTY > CL13 < CMDTY > SGP – Measure difference between Cushing and Brent oil prices: CL1 < CMDTY > CO1 < CMDTY > SGP – Will the Keystone Pipeline be built: CLA < CMDTY > CCRV then add COA • Fixed-Income Markets: – Demonstrating markets’ reaction to QE3: EDA < CMDTY > CCRV with dates before and after 9/13/12 (e.g., use 8/17 and 9/14) – The so-called “TED” spread between LIBOR and T-Bills: US0003M < INDEX > GB3 < GOVT > SGY – Forward-looking break-even rate of inflation: GTII5 < GOVT > GT5 < GOVT > SGY

4 Bloomberg Capabilities in Energy Finance (esp. Oil and Natgas)

• Demonstrating the Relationship between Prices and Vols: CL1 < CMDTY > HIVG • Oil VIX: OVX < INDEX > GP • Oil Prices: CL1 < CMDTY > GP • Refining Spread: HUCL1 < CMDTY > GP • Natgas Prices: NG1 < CMDTY > GP • Impact of Hurricane Katrina on oil and natgas prices: NG1 < CMDTY > NG13 < CMDTY > SGP for 8/15/05 – 11/15/05 • Hedge-fund collapse due to crash in March – April natgas price-differential: NGH07 < CMDTY > NGJ07 < CMDTY > SGP for 3/25/05 – 9/15/06 • CIX: Generating the WTI (CL1) – Brent (CO1) differential

5 Using Bloomberg in Fixed-Income Applications

• PX1 for all Active bonds; PXS for coupon and principal STRIPS • IYC3: Real, nominal and yield curves • IND: BofA Merrill Lynch Bond Indices • MOVE: A bond-market analogue2 to VIX • BC1 bond price/yield calculator • Butterfly BFLY and barbell BBA analyses • OAS1: Valuation of bonds with embedded op- tions • CIX: Generating the 5-yr. break-even inflation rate by subtracting GTII5 from GT5

2“[Y]ield curve weighted index of the normalized implied on 1-mo. Treasury options, . . . weighted average of volatilities on the CT2, CT5, CT10 and CT30”

6 Incorporating Bloomberg into Students’ Problem Sets

• Oil Futures — Explaining the difference between a specific-monthly contract and a generic con- tract: CL1 and CLF5

• Richness/cheapness analysis of callable bonds: OAS1 using AT&T 3.9% of 3/11/24

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