Ravindran The Mathematics of Financial Models

Solving Real-World Problems with Quantitative Methods
1. Auflage 2014
ISBN: 978-1-118-22185-3
Verlag: John Wiley & Sons
Format: PDF
Kopierschutz: Adobe DRM (»Systemvoraussetzungen)

E-Book, Englisch, 352 Seiten, E-Book

Reihe: Wiley Finance Editions

Learn how quantitative models can help fight client problemshead-on
Before financial problems can be solved, they need to be fullyunderstood. Since in-depth quantitative modeling techniques are apowerful tool to understanding the drivers associated withfinancial problems, one would need a solid grasp of thesetechniques before being able to unlock their full potential of themethods used. In The Mathematics of Financial Models, theauthor presents real world solutions to the everyday problemsfacing financial professionals. With interactive tools such asspreadsheets for valuation, pricing, and modeling, this resourcecombines highly mathematical quantitative analysis with useful,practical methodologies to create an essential guide for investmentand risk-management professionals facing modeling issues ininsurance, derivatives valuation, and pension benefits, amongothers. In addition to this, this resource also provides therelevant tools like matrices, calculus, statistics and numericalanalysis that are used to build the quantitative methods used.
Financial analysts, investment professionals, risk-managementprofessionals, and graduate students will find applicableinformation throughout the book, and gain from the self-studyexercises and the refresher course on key mathematical topics.Equipped with tips and information, The Mathematics of FinancialModels
* Provides practical methodologies based on mathematicalquantitative analysis to help analysts, investment andrisk-management professionals better navigate client issues
* Contains interactive tools that demonstrate the power ofanalysis and modeling
* Helps financial professionals become more familiar with thechallenges across a range of industries
* Includes a mathematics refresher course and plenty of exercisesto get readers up to speed
The Mathematics of Financial Models is an in-depth guidethat helps readers break through common client financial problemsand emerge with clearer strategies for solving issues in thefuture.

Autoren/Hrsg.

Ravindran, Kannoo

Inhaltsverzeichnis

Preface ix
Acknowledgments xi
CHAPTER 1 Setting the Stage 1
Why Is This Book Different? 2
Road Map of the Book 3
References 5
CHAPTER 2 Building Zero Curves 7
Market Instruments 8
Linear Interpolation 16
Cubic Splining 25
Appendix: Finding Swap Rates Using a Floating Coupon
Bond Approach 41
References 43
CHAPTER 3 Valuing Vanilla Options 45
Black-Scholes Formulae 47
Adaptations of the Black-Scholes Formulae 53
Limitations of the Black-Scholes Formulae 70
Application in Currency Risk Management 74
Appendix 78
References 80
CHAPTER 4 Simulations 81
Uniform Number Generation 82
Non-Uniform Number Generation 86
Applications of Simulations 93
Variance Reduction Techniques 100
References 104
CHAPTER 5 Valuing Exotic Options 107
Valuing Path-Independent, European-Style Options on a SingleVariable 108
Valuing Path-Dependent, European-Style Options on a SingleVariable 114
Valuing Path-Independent, European-Style Options on TwoVariables 135
Valuing Path-Dependent, European-Style Options on MultipleVariables 152
References 157
CHAPTER 6 Estimating Model Parameters 159
Calibration of Parameters in the Black-Scholes Model 161
Using Implied Black-Scholes Volatility Surface and Zero RateTerm Structure to Value Options 169
Using Volatility Surface 178
Calibration of Interest Rate Option Model Parameters 190
Statistical Estimation 196
References 203
CHAPTER 7 The Effectiveness of Hedging Strategies 205
Delta Hedging 206
Assumptions Underlying Delta Hedging 216
Beyond Delta Hedging 223
Testing Hedging Strategies 230
Analysis Associated with the Hedging of a European-Style VanillaPut Option 235
References 244
CHAPTER 8 Valuing Variable Annuity Guarantees 245
Basic GMDB 246
Death Benefit Riders 261
Other Details Associated with GMDB Products 269
Improving Modeling Assumptions 273
Living Benefit Riders 276
References 279
CHAPTER 9 Real Options 281
Surrendering a GMAB Rider 282
Adding Servers in a Queue 300
References 314
CHAPTER 10 Parting Thoughts 315
About the Author 317
About the Website 319
Index 321

Über Autor(innen)

DR. KANNOO RAVINDRAN consults withcorporations on investments, derivatives trading, modeling, andrisk management. He also lectures around the world on these topicsand runs a private equity fund. Dr. Ravindran pioneered the use ofderivatives to manage risks embedded in variable annuityproducts.