Market Risk Analysis, Volume II, Practical Financial Econometrics,

by Carol Alexander (ISMA, University of Reading)

• ISBN13: 9780470771037
• ISBN10: 0470771038
• Format: eBook
• Copyright: 2008-07-01
• Publisher: WILEY

Summary

Written by leading market risk academic, Professor Carol Alexander, Practical Financial Econometrics forms part two of the Market Risk Analysis four volume set. It introduces the econometric techniques that are commonly applied to finance with a critical and selective exposition, emphasising the areas of econometrics, such as GARCH, cointegration and copulas that are required for resolving problems in market risk analysis. The book covers material for a one-semester graduate course in applied financial econometrics in a very pedagogical fashion as each time a concept is introduced an empirical example is given, and whenever possible this is illustrated with an Excel spreadsheet.All together, the Market Risk Analysis four volume set illustrates virtually every concept or formula with a practical, numerical example or a longer, empirical case study. Across all four volumes there are approximately 300 numerical and empirical examples, 400 graphs and figures and 30 case studies many of which are contained in interactive Excel spreadsheets available from the the accompanying CD-ROM . Empirical examples and case studies specific to this volume include: Factor analysis with orthogonal regressions and using principal component factors; Estimation of symmetric and asymmetric, normal and Student t GARCH and E-GARCH parameters; Normal, Student t, Gumbel, Clayton, normal mixture copula densities, and simulations from these copulas with application to VaR and portfolio optimization; Principal component analysis of yield curves with applications to portfolio immunization and asset/liability management; Simulation of normal mixture and Markov switching GARCH returns; Cointegration based index tracking and pairs trading, with error correction and impulse response modelling; Markov switching regression models (Eviews code); GARCH term structure forecasting with volatility targeting; Non-linear quantile regressions with applications to hedging.

Table of Contents

List of Figures.

List of Tables.

List of Examples.

Foreword.

Preface to Volume II.

Factor Models.

Introduction

Single Factor Models

Multi-Factor Models

Case Study: Estimation of Fundamental Factor Models

Analysis of Barra Model

Tracking Error and Active Risk

Summary and Conclusions

Principal Component Analysis.

Introduction

Review of Principal Component Analysis

Case Study: PCA of UK Government Yield Curves

Term Structure Factor Models

Equity PCA Factor Models

Summary and Conclusions

Classical Models of Volatility and Correlation.

Introduction

Variance and Volatility

Covariance and Correlation

Equally Weighted Averages

Precision of Equally Weighted Estimates

Case Study: Volatility and Correlation of US Treasuries

Equally Weighted Moving Averages

Exponentially Weighted Moving Averages

Summary and Conclusions

Introduction to GARCH Models.

Introduction

The Symmetric Normal GARCH Model

Asymmetric GARCH Models

Non-Normal GARCH Models

GARCH Covariance Matrices

Orthogonal GARCH

Monte Carlo Simulation with GARCH Models

Applications of GARCH Models

Summary and Conclusions

Time Series Models and Cointegration.

Introduction

Stationary Processes

Stochastic Trends

Long Term Equilibrium

Modelling Short Term Dynamics

Summary and Conclusions

Introduction to Copulas

Introduction

Concordance Metrics

Copulas and Associated Theoretical Concepts

Examples of Copulas

Conditional Copula Distributions and Quantile Curves

Calibrating Copulas

Simulation with Copulas

Market Risk Applications

Summary and Conclusions

Advanced Econometric Models.

Introduction

Quantile Regression

Case Studies on Quantile Regression

Other Non-Linear Regression Models

Markov Switching Models

Modelling Ultra High Frequency Data

Summary and Conclusions

Forecasting and Model Evaluation.

Introduction

Returns Models

Volatility Models

Forecasting the Tails of a Distribution

Operational Evaluation

Summary and Conclusions

References.

Index.

Table of Contents provided by Publisher. All Rights Reserved.