Encyclopedia of Financial Models, 3 Volume Set.
Title:
Encyclopedia of Financial Models, 3 Volume Set.
Author:
Fabozzi, Frank J.
ISBN:
9781118539804
Personal Author:
Edition:
1st ed.
Physical Description:
1 online resource (2203 pages)
Contents:
Vol_I -- ENCYCLOPEDIA OF FINANCIAL MODELS -- About the Editor -- Contents -- Contributors -- Preface -- Guide to the Encyclopedia of Financial Models -- Asset Allocation -- Mean-Variance Model for Portfolio Selection -- SOME BASIC CONCEPTS -- Utility Function and Indifference Curves -- The Set of Efficient Portfolios and the Optimal Portfolio -- Risky Assets vs. Risk-Free Assets -- MEASURING A PORTFOLIO'S EXPECTED RETURN -- Measuring Single-Period Portfolio Return -- The Expected Return of a Portfolio of Risky Assets -- MEASURING PORTFOLIO RISK -- Variance and Standard Deviation as a Measure of Risk -- Covariance -- Measuring the Risk of a Portfolio Consisting of More than Two Assets -- PORTFOLIO DIVERSIFICATION -- The Effect of the Correlation of Asset Returns on Portfolio Risk -- CHOOSING A PORTFOLIO OF RISKY ASSETS -- Constructing Efficient Portfolios -- Feasible and Efficient Portfolios -- Choosing the Optimal Portfolio in the Efficient Set -- Example Using the MSCI World Country Indexes -- ROBUST PORTFOLIO OPTIMIZATION -- KEY POINTS -- NOTES -- REFERENCES -- Principles of Optimization for Portfolio Selection -- UNCONSTRAINED OPTIMIZATION -- Minima and Maxima of a Differentiable Function -- Convex Functions -- Quasi-Convex Functions -- CONSTRAINED OPTIMIZATION -- Lagrange Multipliers -- Convex Programming -- Linear Programming -- Quadratic Programming -- KEY POINTS -- REFERENCES -- Asset Allocation and Portfolio Construction Techniques in Designing the Performance-Seeking Portfolio -- THE TANGENCY PORTFOLIO AS THE RATIONALE BEHIND SHARPE RATIO MAXIMIZATION -- ROBUST ESTIMATORS FOR COVARIANCE PARAMETERS -- ROBUST ESTIMATORS FOR EXPECTED RETURNS -- IMPLICATIONS FOR BENCHMARK PORTFOLIO CONSTRUCTION -- ASSET ALLOCATION MODELING: PUTTING THE EFFICIENT BUILDING BLOCKS TOGETHER -- KEY POINTS -- NOTES -- REFERENCES -- Asset Pricing Models.
General Principles of Asset Pricing -- ONE-PERIOD FINITE STATE ECONOMY -- PORTFOLIOS AND MARKET COMPLETENESS -- Redundant Assets -- Complete Market -- THE LAW OF ONE PRICE AND LINEAR PRICING -- Linear Pricing -- State Price -- ARBITRAGE AND POSITIVE STATE PRICING -- THE FUNDAMENTAL THEOREM OF ASSET PRICING -- The Discount Factor -- Pricing Using Risk-Neutral Probabilities -- DISCOUNT FACTOR MODELS -- STOCHASTIC DISCOUNT FACTORS -- Application to CAPM and APT -- Hansen-Jagannathan Bound -- KEY POINTS -- REFERENCES -- Capital Asset Pricing Models -- INTRODUCTION -- SHARPE-LINTNER CAPM -- ROY CAPM -- CONFUSIONS REGARDING THE CAPM -- TWO MEANINGS OF MARKET EFFICIENCY -- A Simple Market -- Arbitrage -- Expected Returns and Betas -- Limited Borrowing -- Further Generalizations -- CAPM INVESTORS DO NOT GET PAID FOR BEARING RISK -- THE "TWO BETA" TRAP -- Beta1963 -- Beta1964 -- Propositions about Betas -- KEY POINTS -- NOTES -- REFERENCES -- Modeling Asset Price Dynamics -- FINANCIAL TIME SERIES -- BINOMIAL TREES -- ARITHMETIC RANDOM WALKS -- Simulation -- Parameter Estimation -- Arithmetic Random Walks: Some Additional Facts -- GEOMETRIC RANDOM WALKS -- Simulation -- Parameter Estimation -- Geometric Random Walk: Some Additional Facts -- MEAN REVERSION -- Simulation -- Parameter Estimation -- Geometric Mean Reversion -- ADVANCED RANDOM WALK MODELS -- Correlated Random Walks -- Incorporating Jumps -- Stochastic Volatility -- STOCHASTIC PROCESSES -- KEY POINTS -- REFERENCES -- Arbitrage Pricing: Finite-State Models -- THE ARBITRAGE PRINCIPLE -- ARBITRAGE PRICING IN A ONE-PERIOD SETTING -- State Prices -- Risk-Neutral Probabilities -- Complete Markets -- ARBITRAGE PRICING IN A MULTIPERIOD FINITE-STATE SETTING -- Propagation of Information -- Trading Strategies -- State-Price Deflator -- Equivalent Martingale Measures -- Risk-Neutral Probabilities.
THE BINOMIAL MODEL -- Risk-Neutral Probabilities for the Binomial Model -- ARBITRAGE PRICING IN A DISCRETE-TIME, CONTINUOUS-STATE SETTING -- KEY POINTS -- NOTES -- REFERENCES -- Arbitrage Pricing: Continuous-State, Continuous-Time Models -- THE ARBITRAGE PRINCIPLE IN CONTINUOUS TIME -- Trading Strategies and Trading Gains -- ARBITRAGE PRICING IN CONTINUOUS-STATE, CONTINUOUS-TIME -- OPTION PRICING -- Stock Price Processes -- Hedging -- The Black-Scholes Option Pricing Formula -- Generalizing the Pricing of European Options -- STATE-PRICE DEFLATORS -- EQUIVALENT MARTINGALE MEASURES -- EQUIVALENT MARTINGALE MEASURES AND GIRSANOV'S THEOREM -- The Diffusion Invariance Principle -- Application of Girsanov's Theorem to Black-Scholes Option Pricing Formula -- EQUIVALENT MARTINGALE MEASURES AND COMPLETE MARKETS -- EQUIVALENT MARTINGALE MEASURES AND STATE PRICES -- ARBITRAGE PRICING WITH A PAYOFF RATE -- IMPLICATIONS OF THE ABSENCE OF ARBITRAGE -- WORKING WITH EQUIVALENT MARTINGALE MEASURES -- KEY POINTS -- NOTES -- REFERENCES -- Bayesian Analysis and Financial Modeling Applications -- Basic Principles of Bayesian Analysis -- THE LIKELIHOOD FUNCTION -- The Poisson Distribution Likelihood Function -- The Normal Distribution Likelihood Function -- BAYES' THEOREM -- Bayes' Theorem and Model Selection -- Bayes' Theorem and Classification -- Bayesian Inference for the Binomial Probability -- KEY POINTS -- NOTES -- REFERENCES -- Introduction to Bayesian Inference -- PRIOR INFORMATION -- Informative Prior Elicitation -- Noninformative Prior Distributions -- Conjugate Prior Distributions -- Empirical Bayesian Analysis -- POSTERIOR INFERENCE -- Posterior Point Estimates -- Bayesian Intervals -- Bayesian Hypothesis Comparison -- BAYESIAN PREDICTIVE INFERENCE -- ILLUSTRATION: POSTERIOR TRADE-OFF AND THE NORMAL MEAN PARAMETER -- KEY POINTS -- NOTES -- REFERENCES.
Bayesian Linear Regression Model -- THE UNIVARIATE LINEAR REGRESSION MODEL -- Bayesian Estimation of the Univariate Regression Model -- Illustration: The Univariate Linear Regression Model -- THE MULTIVARIATE LINEAR REGRESSION MODEL -- Diffuse Improper Prior -- KEY POINTS -- NOTES -- REFERENCES -- Bayesian Estimation of ARCH-Type Volatility Models -- BAYESIAN ESTIMATION OF THE GARCH(1,1) MODEL -- Distributional Setup -- Posterior Distributions -- Posterior Simulations with the Metropolis-Hastings Algorithm -- MARKOV-SWITCHING GARCH MODELS -- Preliminaries -- Prior Distributional Assumptions -- Estimation of the MS GARCH Model -- APPENDIX: THE GRIDDY GIBBS SAMPLER -- Drawing from the Conditional Posterior Distribution of ν -- KEY POINTS -- NOTES -- REFERENCES -- Bayesian Techniques and the Black-Litterman Model -- PRACTICAL PROBLEMS ENCOUNTERED IN MEAN-VARIANCE OPTIMIZATION -- Example: The True, Estimated, and Actual Efficient Frontiers -- Sensitivity to Estimation Error -- Incorporating Uncertainty in the Inputs into the Portfolio Allocation Process -- Large Data Requirements -- SHRINKAGE ESTIMATION -- THE BLACK-LITTERMAN MODEL -- Derivation of the Black-Litterman Model -- KEY POINTS -- NOTES -- REFERENCES -- Bond Valuation -- Basics of Bond Valuation -- GENERAL PRINCIPLES OF BOND VALUATION -- Estimating Cash Flows -- Determining the Appropriate Interest Rate or Rates -- Discounting the Expected Cash Flows -- Determining a Bond's Value -- The Price/Discount Rate Relationship -- Time Path of Bond -- ARBITRAGE-FREE BOND VALUATION -- Theoretical Spot Rates -- Valuation Using Treasury Spot Rates -- Reason for Using Treasury Spot Rates -- Stripping and Arbitrage-Free Valuation -- Credit Spreads and the Valuation of Non-Treasury Securities -- KEY POINTS -- NOTES -- REFERENCES -- Relative Value Analysis of Fixed-Income Products.
YIELD SPREADS OVER SWAP AND TREASURY CURVES -- ASSET SWAPS -- Asset Swap Mechanics -- Par versus Market Structures -- Determining the Asset Swap Spread in the General Case -- Uses of Asset Swaps -- A Miscellany of Asset Swaps -- CREDIT DEFAULT SWAPS -- Credit Default Swap Basis -- KEY POINTS -- NOTES -- REFERENCES -- Yield Curves and Valuation Lattices -- THE INTEREST RATE LATTICE -- Determining the Value at a Node -- CALIBRATING THE LATTICE -- USING THE LATTICE FOR VALUATION -- KEY POINTS -- NOTE -- REFERENCES -- Using the Lattice Model to Value Bonds with Embedded Options, Floaters, Options, and Caps/Floors -- FIXED-COUPON BONDS WITH EMBEDDED OPTIONS -- Valuing a Callable Bond -- Valuing a Putable Bond -- FLOATING-COUPON BONDS WITH EMBEDDED OPTIONS -- Valuing Capped Floating-Rate Bonds -- Callable Capped Floating-Rate Bonds -- VALUING CAPS AND FLOORS -- VALUATION OF TWO MORE EXOTIC STRUCTURES -- Valuing a Step-Up Callable Note -- Valuing a Range Note -- VALUING AN OPTION ON A BOND -- EXTENSIONS -- Option-Adjusted Spread -- Effective Duration and Effective Convexity -- KEY POINTS -- NOTES -- REFERENCES -- Understanding the Building Blocks for OAS Models -- IS IT EQUILIBRIUM OR AN ARBITRAGE MODEL? -- WHICH IS THE RIGHT MODEL OF THE INTEREST RATE PROCESS? -- TERM STRUCTURE MODELS: WHICH IS THE RIGHT APPROACH FOR OAS? -- Lattice Method -- Monte Carlo Method -- IS THERE A RIGHT WAY TO MODEL PREPAYMENTS? -- KEY POINTS -- NOTES -- REFERENCES -- Quantitative Models to Value Convertible Bonds -- ANALYTICAL MODELS -- The Ingersoll Model -- NUMERICAL MODELS -- The Binomial Tree Model -- KEY POINTS -- REFERENCES -- Quantitative Approaches to Inflation-Indexed Bonds -- BOND STRUCTURES AND THE CONCEPT OF REAL YIELD -- Causes of Real Yield Volatility -- Existence of an Inflation Risk Premium -- INFLATION-INDEXED BONDS IN A NOMINAL PORTFOLIO.
What Is the Duration of an Inflation-Indexed Bond?.
Abstract:
An essential reference dedicated to a wide array of financial models, issues in financial modeling, and mathematical and statistical tools for financial modeling The need for serious coverage of financial modeling has never been greater, especially with the size, diversity, and efficiency of modern capital markets. With this in mind, the Encyclopedia of Financial Models, 3 Volume Set has been created to help a broad spectrum of individuals-ranging from finance professionals to academics and students-understand financial modeling and make use of the various models currently available. Incorporating timely research and in-depth analysis, the Encyclopedia of Financial Models is an informative 3-Volume Set that covers both established and cutting-edge models and discusses their real-world applications. Edited by Frank Fabozzi, this set includes contributions from global financial experts as well as academics with extensive consulting experience in this field. Organized alphabetically by category, this reliable resource consists of three separate volumes and 127 entries-touching on everything from asset pricing and bond valuation models to trading cost models and volatility-and provides readers with a balanced understanding of today's dynamic world of financial modeling. This 3-Volume Set contains coverage of the fundamentals and advances in financial modeling and provides the mathematical and statistical techniques needed to develop and test financial models Emphasizes both technical and implementation issues, providing researchers, educators, students, and practitioners with the necessary background to deal with issues related to financial modeling Each volume includes a complete table of contents and index for easy access to various parts of the encyclopedia Financial models have become increasingly commonplace, as well as complex. They are
essential in a wide range of financial endeavors, and this 3-Volume Set will help put them in perspective.
Local Note:
Electronic reproduction. Ann Arbor, Michigan : ProQuest Ebook Central, 2017. Available via World Wide Web. Access may be limited to ProQuest Ebook Central affiliated libraries.
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