Market Risk Analysis, Volume I, Quantitative Methods in FinanceISBN: 978-0-470-99800-7
Hardcover
320 pages
May 2008
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Written by leading market risk academic, Professor Carol Alexander,
Quantitative Methods in Finance forms part one of the
Market Risk Analysis four volume set. Starting from the
basics, this book helps readers to take the first step towards
becoming a properly qualified financial risk manager and asset
manager, roles that are currently in huge demand. Accessible to
intelligent readers with a moderate understanding of mathematics at
high school level or to anyone with a university degree in
mathematics, physics or engineering, no prior knowledge of finance
is necessary. Instead the emphasis is on understanding ideas rather
than on mathematical rigour, meaning that this book offers a
fast-track introduction to financial analysis for readers with some
quantitative background, highlighting those areas of mathematics
that are particularly relevant to solving problems in financial
risk management and asset management. Unique to this book is a
focus on both continuous and discrete time finance so that
Quantitative Methods in Finance is not only about the application
of mathematics to finance; it also explains, in very pedagogical
terms, how the continuous time and discrete time finance
disciplines meet, providing a comprehensive, highly accessible
guide which will provide readers with the tools to start applying
their knowledge immediately.
All together, the Market Risk Analysis four volume set
illustrates virtually every concept or formula with a practical,
numerical example or a longer, empirical case study. Across all
four volumes there are approximately 300 numerical and empirical
examples, 400 graphs and figures and 30 case studies many of which
are contained in interactive Excel spreadsheets available from the
accompanying CD-ROM . Empirical examples and case studies specific
to this volume include:
Principal component analysis of European equity indices;
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Calibration of Student t distribution by maximum likelihood;
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Orthogonal regression and estimation of equity factor models;
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Simulations of geometric Brownian motion, and of correlated Student t variables;
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Pricing European and American options with binomial trees, and European options with the Black-Scholes-Merton formula;
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Cubic spline fitting of yields curves and implied volatilities;
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Solution of Markowitz problem with no short sales and other constraints;
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Calculation of risk adjusted performance metrics including generalised Sharpe ratio, omega and kappa indices.