Handbook of Financial Risk Management
Simulations and Case Studies
Published on 17. June 2013
432 pages
978-1-118-57354-9 (ISBN)
Description
An authoritative handbook on risk management techniques andsimulations as applied to financial engineering topics, theories,and statistical methodologies
The Handbook of Financial Risk Management: Simulations and CaseStudies illustrates the prac-tical implementation ofsimulation techniques in the banking and financial industriesthrough the use of real-world applications.
Striking a balance between theory and practice, the Handbookof Financial Risk Management: Simulations and Case Studiesdemonstrates how simulation algorithms can be used to solvepractical problems and showcases how accuracy and efficiency inimplementing various simulation methods are indispensable tools inrisk management. The book provides the reader with an intuitiveunderstanding of financial risk management and deepens insight intothose financial products that cannot be priced traditionally. TheHandbook of Financial Risk Management also features:
* Examples in each chapter derived from consulting projects,current research, and course instruction
* Topics such as volatility, fixed-income derivatives, LIBORMarket Models, and risk measures
* Over twenty-four recognized simulation models
* Commentary, data sets, and computer subroutines available on achapter-by-chapter basis
As a complete reference for practitioners, the book is useful inthe fields of finance, business, applied statistics, econometrics,and engineering. The Handbook of Financial Risk Managementis also an excellent text or supplement for graduate and MBA-levelstudents in courses on financial risk management andsimulation.
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Other editions
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Book
08/2013
Wiley
€166.50
Shipment within 10-20 days
Software
06/2013
Wiley
€164.40
Shipment within 15-20 days
Persons
N. H. CHAN is Choh-Ming Li Chair Professor of Statisticsat The Chinese University of Hong Kong and Associate Editor of sixjournals. Dr. Chan is also the author of Time Series:Applications to Finance with R and S-Plus, Second Edition,published by Wiley.
H. Y. WONG is Associate Professor in the Risk ManagementScience Program of the Department of Statistics at The ChineseUniversity of Hong Kong. His areas of interest include dataanalysis, statistical computing, risk management, and stochasticcalculus.
Content
List of Figures x
List of Tables xiv
Preface xx
1 An Introduction to Excel VBA 1
1.1 How to start Excel VBA 1
1.2 VBA Programming Fundamentals 3
1.3 Linking VBA to C++ 14
1.5 Random Number Generation 19
1.6 List of functions defined in the book 22
2 Background 27
2.1 A brief review of Martingales and Itô's calculus28
2.2 Volatility 39
2.3 Mark to Market and Calibration 41
2.4 Variance Reduction Techniques 43
3 Structured Products 55
3.1 When is simulation unnecessary? 55
3.2 Simulation of Black-Scholes model and European Options56
3.3 American Options 61
3.4 Range Accrual Notes 69
3.5 FX accumulator: The case of Citic Pacific LTD 73
3.6 Life Insurance Contracts 80
3.7 Multi-asset Instruments 83
4 Volatility Modeling 93
4.1 Local Volatility Models: Simulation and Binomial tree 94
4.2 The Heston Stochastic Volatility Model 104
4.3 Simulation of Exotic Option Prices under Heston Model110
4.4 The GARCH Option Pricing Model 121
4.5 Jump-Diffusion Model 127
5 Fixed-Income Derivatives I: Short-Rate Models 137
5.1 Yield Curve Building 138
5.2 The Hull-White Model 150
5.3 Pricing Interest Rate Products Using The DirectionSimulation Approach 156
5.4 Pricing Interest Rate Products Using The Trinomial TreeApproach 161
6 Fixed-Income Derivatives II: LIBOR Market Models169
6.1 LIBOR Market Models 171
6.2 Calibration to Caps and Swaptions 177
6.3 Simulation Across Different Forward Measures 186
6.4 Bermudan Swaptions in a Three-Factor Model 194
6.5 Epilogue 196
7 Credit Derivatives and Counterparty Credit Risk 199
7.1 Structural Models of Credit Risk 200
7.2 The Vasicek Single-Factor Model 203
7.3 Copula Approach to Credit Derivative Pricing 212
7.4 Counterparty credit risk 223
8 Value-at-Risk and Related Risk Measures 237
8.1 Value-at-Risk 237
8.2 Parametric VaR 238
8.3 Delta-normal Approximation 245
8.4 Delta-Gamma Approximation 247
8.5 VaR Simulation Methods 249
8.6 VaR-related Risk Measures 258
8.7 VaR Back-testing 264
9 The Greeks 267
9.1 Black-Scholes Greeks 269
9.2 Greeks in A Binomial Tree 271
9.3 Finite Difference Approximation 272
9.4 Likelihood Ratio Method 276
9.5 Pathwise Derivative Estimates 279
9.6 Greek Calculation with Discontinuous Payoffs 289
10 Appendix 295
References 315
Subject Index 319
Author Index 323
