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| Introduction | |
| Who This Book is For | |
| How This Book is Structured | |
| What's on the Companion Website | |
| Risk, Finance, Corporate Management and Society | |
| Overview | |
| Risks Everywhere-A Consequence of Uncertainty | |
| Risks and Finance: Basic Concepts | |
| Example: An IBM day-trades record | |
| Example: Constructing a portfolio | |
| Option Contracts | |
| Options and their Price | |
| Example: Options and the Price of Equity | |
| Example: Management Stock Options | |
| Options and Trading in Specialized Markets | |
| Real Life Crises and Finance | |
| The 2008 Meltdown and Financial Theory | |
| Finance and Ethics | |
| Summary | |
| Test Yourself | |
| References | |
| Applied Finance | |
| Overview | |
| Finance and Practice | |
| Financial Risk Pricing: A Historical Perspective | |
| Essential of Financial Risk Management | |
| Technology and Complexity | |
| Market Making and Pricing Practice | |
| Summary | |
| Test Yourself | |
| References | |
| Risk Measurement and Volatility | |
| Overview | |
| Risk, Volatility and Measurement | |
| Moments and Measures of Volatility | |
| Example: IBM Returns Statistics | |
| Example: Moments and the CAPM | |
| Calculating the Beta of a Security | |
| Statistical Estimations | |
| Example: The AR(1) ARCH(1) Model | |
| Example: A Garch (1,1) Model | |
| High-Low Estimators of Volatility | |
| Extreme Measures, Volume, and Intraday Prices | |
| The Probability of the Range | |
| Data Transformation | |
| Example: Taylor Series | |
| Value at Risk and Risk Exposure | |
| Example: VaR and Shortfall | |
| Example*: VaR, Normal ROR and Portfolio Design | |
| Summary | |
| Test Yourself | |
| References | |
| Risk Finance Modeling and Dependence | |
| Overview | |
| Introduction | |
| Statistical Dependence | |
| Example: Risk Factors Aggregation | |
| Example: Principal Components Analysis (PCA) | |
| Example: A Bi-Variate Data Matrix and PCA | |
| Example: A Market Index and PCA | |
| Dependence and Copulas | |
| Example: The Gumbel Copula, the Highs and the Lows | |
| Example: Copulas and Conditional Dependence | |
| Example: Copula and the Conditional Distribution | |
| Financial Modeling and Inter-Temporal Models | |
| The R/S Index | |
| Summary | |
| Test Yourself | |
| References | |
| Risk, Value, and Financial Prices | |
| Overview | |
| Value and Price | |
| Utility, Risk and Money | |
| Lotteries and Utility Functions | |
| Example: The utility of a lottery | |
| Example: The power utility function | |
| Example: Valuation and the Pricing of Cash Flows | |
| Example: Risk and the Financial Meltdown | |
| Utility Rational Foundations | |
| Examples: Specific Utility Functions | |
| The Price and the Utility of Consumption | |
| Example: Kernel Pricing and the exponential utility function | |
| Example: The Pricing Kernel and the CAPM | |
| Example: Kernel Pricing and the HARA utility function | |
| Summary | |
| Test Yourself | |
| References | |
| Applied Utility Finance | |
| Overview | |
| Risk and the Utility of Time | |
| Assets Allocation and Investments | |
| Example: A Two securities problem | |
| Example: A 2 stocks portfolio | |
| The Efficiency Frontier | |
| A Two Securities Portfolio | |
| Conditional Kernel Pricing and the Price of Infrastructure Investments | |
| Conditional Kernel Pricing and the Pricing of Inventories | |
| Agency and Utility | |
| Example: A linear risk sharing rule | |
| Information Asymmetry: Moral Hazard and Adverse Selection | |
| Adverse Selection | |
| The Moral Hazard Problem | |
| Signaling and Screening | |
| Summary | |
| Test Yourself | |
| References | |
| Derivative Finance and Complete Markets | |
| Discrete States | |
| Overview | |
| The Arrow-Debreu Fundamental Approach to Asset Pricing | |
| Example: Generalization to n states | |
| Example: Binomial Option Pricing | |
| The Implied Risk Neutral Probability | |
| Example: The Price of a Call option | |
| Example: A generalization to multiple periods | |
| Options and their Prices | |
| Put Call Parity | |
| Proving the Put-Call Parity | |
| Example: Put Call Parity and Dividend Payments | |
| Options PUT-CALL Parity | |
| The Price deflator and the Pricing Martingale | |
| Pricing and Complete Markets | |
| Options Galore | |
| Example: Look-Back Options | |
| Example: Asiatic Options | |
| Example: Exchange options | |
| Example: Chooser Options | |
| Example: Barrier and Other Options | |
| Example: Passport Options | |
| Options and Their "Real Uses" | |
| Example: Pricing a Forward | |
| Example: Pricing a floating rate bond | |
| Example: Pricing fixed rate bond | |
| Example: The Term Structure of Interest Rate | |
| Annuities and Obligations | |
| Pricing and Franchises with a Binomial Process | |
| Pricing a Pricing Policy | |
| Options Trading, Speculation, and Risk Management | |
| Example: Options and Trading Practice | |
| Example: Insuring and derivative hedges | |
| Portfolio Strategies | |
| Summary | |
| Martingales | |
| Example: Change of Measure in a Binomial Model | |
| Example: A Two Stages Random Walk and the Radon Nikodym Derivative | |
| Formal Notations, Key terms and Definitions | |
| Test Yourself | |
| References | |
| Options Applied | |
| Overview | |
| Introduction | |
| Optional Applications | |
| Pricing a Multi Period Forward | |
| Example: Options Implied insurance pricing | |
| Random volatility and options pricing | |
| Real Assets and Real Options | |
| The Black Scholes Vanilla Option and the Greeks | |
| The Greeks and Their Applications | |
| Summary | |
| Test Yourself | |
| References | |
| Credit Scoring and the Price of Credit Risk | |
| Overview | |
| Credit and Money | |
| Credit and Credit Risk | |
| Pricing Credit Risk: Principles | |
| Credit Scoring and Granting | |
| Credit Scoring: Real- Approaches | |
| Example: A Separatrix | |
| Example: The Separatrix and Bayesian Probabilities | |
| Probability Default Models | |
| Example: A Bivariate Dependent Default Distribution | |
| Example: A Portfolio of default loans | |
| Example: A Portfolio of dependent default loans | |
| The joint Bernoulli default distribution | |
| Credit Granting | |
| Example: Credit Granting and Creditor's Risks | |
| Example: A Bayesian default model | |
| Example: A Financial Approach | |
| Example: An Approximate Solution | |
| The rate of return of loans | |
| The Reduced Form (Financial) Model | |
| Example: Calculating the spread of a default bond | |
| Example: The Loan Model Again | |
| Example: Pricing default bonds | |
| Example: Pricing default bonds and the hazard rate | |
| Examples | |
| Example: The bank interest rate on a house loan | |
| Example: Buy insurance to protect the portfolio from loan defaults | |
| Example: Use the portfolio as an underlying and buy or sell derivatives on this underlying | |
| Problem: Lending rates of returns (T.S. Ho and E.O. Vieira) | |
| Credit Risk and Collaterals Pricing | |
| Example: Hedge funds rates of returns | |
| Example: Equity Linked Life Insurance | |
| Example: Default and the price of homes | |
| Example: A banks profit from a loan | |
| Risk Management and Leverage | |
| Summary | |
| Test Yourself | |
| References | |
| Multi-Names and Credit Risk Portfolios | |
| Overview | |
| Introduction | |
| Credit Default Swaps | |
| Example: Total Returns Swaps | |
| Example: Pricing a project launch | |
| Credit Derivatives: A Historical Perspectives1. | |
| CDOs: Examples and Models | |
| Example: Collateralized Mortgage Obligations (CMOs) | |
| Example: Insurance and Risk Layering | |
| Example: A CDO with numbers | |
| Example: The CDO and SPV (BNP Paribas, France) | |
| Example: A Synthetics CDO | |
| Example: A Portfolio of Loans, VaR and the Normal Approximation | |
| Example: Insurance and Reinsurance and Stop/Excess Loss Valuation | |
| Constructing a Credit Risk Portfolio and CDOs | |
| Example: A Simple Portfolio of Loans | |
| Example: Random and Dependent Default | |
| Example: The KMV Loss Model | |
| Summary | |
| Test Yourself | |
| References | |
| Engineered Implied Volatility and Implied Risk Neutral Distributions | |
| Overview | |
| Introduction | |
| The Implied Risk Neutral Distribution | |
| Example: An Implied Binomial Distribution | |
| Example: Calculating the implied risk neutral probability | |
| The Implied Volatility | |
| Example: The implied volatility in a lognormal process | |
| Implied Distributions: Parametric Models | |
| Example: The Generalized Beta of the second kind | |
| A-parametric Approach and the Black-Scholes Model | |
| Example: The Shimko technique | |
| The Implied Risk Neutral Distribution and Information Discrimination | |
| Example: Entropy in discrete states | |
| Example: Discrimination Information and the Binomial Distribution | |
| The Lognormal model and discrimination information | |
| The Implied Risk Neutral Distribution and its Implied Utility | |
| Example: Discrimination Information as a utility objective | |
| Summary | |
| The Implied Volatility-The Dupire Model | |
| Test Yourself | |
| References | |
| Acknowledgments | |
| About the Author | |
| Index | |
| Table of Contents provided by Publisher. All Rights Reserved. |
