Encyclopedia of Financial Models, Volume I

Contributors xi Preface xvii Guide to the Encyclopedia of Financial Models xxxiii Index 569 Volume I Asset Allocation 1 Mean-Variance Model for Portfolio Selection 3 Principles of Optimization for Portfolio Selection 21 Asset Allocation and Portfolio Construction Techniques in Designing the Performance-Seeking Portfolio 35 Asset Pricing Models 47 General Principles of Asset Pricing 49 Capital Asset Pricing Models 65 Modeling Asset Price Dynamics 79 Arbitrage Pricing: Finite-State Models 99 Arbitrage Pricing: Continuous-State, Continuous-Time Models 121 Bayesian Analysis and Financial Modeling Applications 137 Basic Principles of Bayesian Analysis 139 Introduction to Bayesian Inference 151 Bayesian Linear Regression Model 163 Bayesian Estimation of ARCH-Type Volatility Models 175 Bayesian Techniques and the Black-Litterman Model 189 Bond Valuation 207 Basics of Bond Valuation 209 Relative Value Analysis of Fixed-Income Products 225 Yield Curves and Valuation Lattices 235 Using the Lattice Model to Value Bonds with Embedded Options, Floaters, Options, and Caps/Floors 243 Understanding the Building Blocks for OAS Models 257 Quantitative Models to Value Convertible Bonds 271 Quantitative Approaches to Inflation-Indexed Bonds 277 Credit Risk Modeling 297 An Introduction to Credit Risk Models 299 Default Correlation in Intensity Models for Credit Risk Modeling 313 Structural Models in Credit Risk Modeling 341 Modeling Portfolio Credit Risk 361 Simulating the Credit Loss Distribution 377 Managing Credit Spread Risk Using Duration Times Spread (DTS) 391 Credit Spread Decomposition 401 Credit Derivatives and Hedging Credit Risk 407 Derivatives Valuation 421 No-Arbitrage Price Relations for Forwards, Futures, and Swaps 423 No-Arbitrage Price Relations for Options 437 Introduction to Contingent Claims Analysis 457 Black-Scholes Option Pricing Model 465 Pricing of Futures/Forwards and Options 477 Pricing Options on Interest Rate Instruments 489 Basics of Currency Option Pricing Models 507 Credit Default Swap Valuation 525 Valuation of Fixed Income Total Return Swaps 541 Pricing of Variance, Volatility, Covariance, and Correlation Swaps 545 Modeling, Pricing, and Risk Management of Assets and Derivatives in Energy and Shipping 555