Handbook of Financial Risk Management -- Contents -- Preface -- 1 An Introduction to Excel VBA -- 1.1 How to Start Excel VBA -- 1.1.1 Introduction -- 1.1.2 Visual Basic Editor -- 1.1.3 The Macro Recorder -- 1.1.4 Insert a Command Button -- 1.2 VBA Programming Fundamentals -- 1.2.1 Declaration of Variables -- 1.2.2 Types of Variables -- 1.2.3 Multivariable Declaration -- 1.2.4 Declaration of Constants -- 1.2.5 Operators -- 1.2.6 User-Defined Data Types -- 1.2.7 Arrays and Matrices -- 1.2.8 Data Input and Output -- 1.2.9 Conditional Statements -- 1.2.10 Loops -- 1.3 Linking VBA to C++ -- 1.4 Sub Procedures and Function Procedures -- 1.4.1 VBA Built-In Functions -- 1.4.2 Multiple Linear Regression -- 1.5 Random Number Generation -- 1.5.1 Inverse Transform -- 1.5.2 Acceptance-Rejection Method -- 1.6 List of Functions Defined in the Book -- 1.6.1 Constants -- 1.6.2 Types -- 1.6.3 General Functions -- 1.6.4 Asset Path Simulation Functions -- 1.6.5 Other Functions -- 1.6.6 Remarks -- 2 Background -- 2.1 A Brief Review of Martingales and Itöo's Calculus -- 2.1.1 Martingales -- 2.1.2 Brownian Motion -- 2.1.3 Itöo's Process and Itöo's Lemma -- 2.1.4 Discretization Methods -- 2.1.5 The Black-Scholes Equation and Risk-Neutral Valuation -- 2.1.6 Change of Measures -- 2.2 Volatility -- 2.3 Mark to Market and Calibration -- 2.3.1 Marking to Market -- 2.3.2 Calculation of MTM Values -- 2.3.3 Calibration -- 2.4 Variance Reduction Techniques -- 2.4.1 A Brief Review of Variance Reduction Techniques -- 2.4.2 Pricing a Call Option -- 3 Structured Products -- 3.1 When Is Simulation Unnecessary? -- 3.1.1 Portfolio Replication Pricing -- 3.1.2 Equity-Linked Notes -- 3.2 Simulation of Black-Scholes Model and European Options -- 3.3 American Options -- 3.3.1 Empirical Martingale Correction -- 3.4 Range Accrual Notes -- 3.4.1 Possible Design and Sample Term Sheet.

3.4.2 Closed-Form Solution for European RAN Under Black-Scholes Model -- 3.4.3 Callable and American Features -- 3.5 FX Accumulator: The Case of Citic Pacific LTD -- 3.5.1 Event Playback -- 3.5.2 Structure of an Accumulator -- 3.5.3 Accumulator Valuation -- 3.5.4 Sensitivity Analysis -- 3.6 Life Insurance Contracts -- 3.6.1 Introduction -- 3.6.2 Typical Contract Structures -- 3.6.3 Simulation Algorithms -- 3.7 Multi-Asset Instruments -- 3.7.1 Multi-Asset Range Accrual Equity-Linked Notes -- 3.7.2 Currency-Translated Products -- 4 Volatility Modeling -- 4.1 Local Volatility Models: Simulation and Binomial Tree -- 4.1.1 Calibration of Local Volatility Function and Dupire Equation -- 4.1.2 Implied Binomial Tree -- 4.2 The Heston Stochastic Volatility Model -- 4.2.1 The Heston Model and Option Pricing -- 4.2.2 Model Calibration and Implementation -- 4.2.3 Calibration to European Options: Differential Evolution -- 4.3 Simulation of Exotic Option Prices under Heston Model -- 4.3.1 Heston Stochastic Volatility Model Simulation Methods: Quadratic-Exponential Discretization Scheme -- 4.3.2 QE Discretization Scheme for V(t) -- 4.3.3 QE Discretization Scheme for S(t) -- 4.3.4 Performance Analysis of the QE Scheme -- 4.3.5 CITIC Case Study Revisited -- 4.4 The GARCH Option Pricing Model -- 4.4.1 Estimation of Model Parameters -- 4.4.2 Identification of the Risk-Neutral Process -- 4.4.3 Pricing Exotics -- 4.5 Jump-Diffusion Model -- 4.5.1 Simulation of Asset Price Paths and Product Valuation -- 4.5.2 Estimation of Jump-Diffusion -- 5 Fixed-Income Derivatives I: Short-Rate Models -- 5.1 Yield Curve Building -- 5.1.1 Building the Forward Rate Curve -- 5.2 The Hull-White Model -- 5.2.1 Calibration of the Hull-White Model -- 5.3 Pricing Interest Rate Products Using the Direction Simulation Approach -- 5.3.1 Target Redemption Notes.

5.3.2 Interest Rate Range Accrual Notes -- 5.4 Pricing Interest Rate Products Using the Trinomial Tree Approach -- 5.4.1 Bond Price -- 5.4.2 Generalized Hull-White Model: The Tree Approach -- 5.4.3 Simulation Using the Trinomial Tree -- 5.4.4 Pricing Target Redemption Notes -- 5.4.5 Pricing Interest Rate Range Accrual Notes -- 6 Fixed-Income Derivatives II: LIBOR Market Models -- 6.1 LIBOR Market Models -- 6.1.1 Pricing Formula for Caplets/Caps -- 6.1.2 Swaption Formula -- 6.2 Calibration to Caps and Swaptions -- 6.3 Simulation Across Different Forward Measures -- 6.4 Bermudan Swaptions in a Three-Factor Model -- 6.5 Epilogue -- 7 Credit Derivatives and Counterparty Credit Risk -- 7.1 Structural Models of Credit Risk -- 7.1.1 The Merton Model -- 7.1.2 First Passage Time Model -- 7.2 The Vasicek Single-Factor Model -- 7.2.1 Credit Portfolio Management -- 7.2.2 Pricing Collateralized Debt Obligations -- 7.3 Copula Approach to Credit Derivative Pricing -- 7.3.1 Basic Concepts of Copulas -- 7.3.2 The Gaussian Copula and t-Copula -- 7.3.3 Modeling Joint Default Times with Copulas -- 7.3.4 Pricing Basket Default Swaps -- 7.4 Counterparty Credit Risk -- 7.4.1 Exposure in Trading Derivatives with a Counterparty -- 7.4.2 Counterparty-Level Exposure -- 7.4.3 Collateral Modeling for Margined Portfolios -- 7.4.4 Credit Value Adjustment -- 7.4.5 Independence of Probability of Default and Exposure -- 7.4.6 Modeling Right-Way and Wrong-Way Risks -- 8 Value-at-Risk and Related Risk Measures -- 8.1 Value-at-Risk -- 8.2 Parametric VaR -- 8.2.1 Two-Asset Case -- 8.2.2 Heavy-Tailed Distribution -- 8.2.3 Holding Period Adjustment -- 8.2.4 Portfolio VaR -- 8.3 Delta-Normal Approximation -- 8.3.1 Option VaR -- 8.3.2 Fixed-Income VaR -- 8.4 Delta-Gamma Approximation -- 8.4.1 Option VaR -- 8.4.2 Fixed-Income VaR -- 8.5 VaR Simulation Methods -- 8.5.1 Historical Simulation.

8.5.2 Advantages and Disadvantages -- 8.5.3 Monte Carlo Simulation -- 8.5.4 Gibbs Sampling and Multivariate Normal Distribution -- 8.5.5 Advantages and Disadvantages -- 8.6 VaR-Related Risk Measures -- 8.6.1 Conditional Value-at-Risk -- 8.6.2 CVaR Distribution -- 8.6.3 Marginal, Incremental, and Component VaRs -- 8.6.4 VaR and CVaR in Local Volatility Models -- 8.7 VaR Back-Testing -- 8.7.1 Back-Testing of VaR Models -- 9 The Greeks -- 9.1 Black-Scholes Greeks -- 9.2 Greeks in a Binomial Tree -- 9.3 Finite Difference Approximation -- 9.4 Likelihood Ratio Method -- 9.5 Pathwise Derivative Estimates -- 9.5.1 Application to European Options -- 9.5.2 Application to Multi-Asset Derivatives -- 9.5.3 Application to Interest Rate Derivatives in LIBOR Market Model -- 9.5.4 Problem with the Adjoint Method -- 9.6 Greek Calculation with Discontinuous Payoffs -- 9.6.1 Functional Approximation for Digital Options -- 9.6.2 Vibrato Method for Digital Options -- 9.6.3 Multivariate Generalization -- Appendix -- References -- Author Index -- Subject Index -- Wiley Handbooks in FINANCIAL ENGINEERING AND ECONOMETRICS.