Quantitative Finance : Back to Basic Principles /
A. Reghai.
- 1 online resource (247 pages)
- Applied Quantitative Finance Ser. .
- Applied Quantitative Finance Ser. .
Foreword I -- Foreword II -- Acknowledgments -- 1 FinancialModeling -- Introduction -- 2 AboutModeling -- A Philosophy ofmodeling -- B An example from physics and some applications in finance -- 3 From Black & Scholes to SmileModeling -- A Study of derivatives under theBlack&Scholesmodel -- Methodology -- The search for convexity -- Vanilla European option -- Numerical application -- Price scenarios -- Delta gamma scenarios: -- European binary option -- Price Scenario -- Delta and gamma scenarios -- American binary option -- Numerical application -- Price scenario -- Delta and gamma scenarios -- Barrier option -- Price scenario -- Delta and gamma scenarios -- Asian option -- Numerical application -- Price scenario -- Delta and gamma scenarios -- When is it possible to useBlack&Scholes -- B Study of classical Smilemodels -- Black&Scholesmodel -- Termstructure Black&Scholes -- MonteCarlo simulation -- Terminal smilemodel -- Replicationapproach (an almostmodel-free approach) -- MonteCarlo simulation (direct approach) -- MonteCarlo simulation (fastmethod) -- Classic example -- Separable local volatility -- Termstructure of parametric slices -- Dupire/Derman&Kani local volatilitymodel -- Stochastic volatilitymodel -- C Models, advanced characteristics and statistical features -- Local volatilitymodel -- Stochastic volatilitymodel -- 4 What is the Fair Value in the Presence of the Smile? -- A What is the value corresponding to the cost of hedge? -- TheDelta spot ladder for two barrier options -- The vega volatility ladder -- The vega spot ladder -- Conclusion -- 5 Mono Underlying Risk Exploration -- Dividends -- Models: discrete dividends -- Models: cash amount dividendmodel -- Models: proportional dividendmodel -- Models:mixed dividendmodel. Models: dividend toxicity index -- Statistical observations on dividends -- Interest ratemodeling -- Models:why dowe need stochastic interest rates? -- Models: simple hybridmodel -- Models: statistics and fair pricing -- Forward skewmodeling -- The local volatilitymodel is not enough -- Local volatility calibration -- Alpha stable process -- Truncated alpha stable invariants -- Local volatility truncated alpha stable process -- 6 A General Pricing Formula -- 7 Multi-Asset Case -- A Study of derivatives under the multi-dimensional Black & Scholes -- Methodology -- PCAfor PnL explanation -- Eigenvalue decomposition for symmetric operators -- Stochastic application -- Profit and loss explanation -- The source of the parameters -- Basket option -- Worst of option (wo: call) -- Best of option(Bo: put) -- Other options (Best of call andworst of put) -- Model calibrationusing fixed-point algorithm -- Model estimation using an envelope approach -- Conclusion -- 8 Discounting and General Value Adjustment Techniques -- Full and symmetric collateral agreement -- Perfect collateralization -- Applications -- Repomarket -- Optimal posting of collateral -- Partial collateralization -- Asymmetric collateralization -- 9 Investment Algorithms -- What is a good strategy? -- Asimple strategy -- Reverse the time -- Avoidthis datawhen learning -- Strategies are assets -- Multi-asset strategy construction -- Signal detection -- Predictionmodel -- Riskminimization -- 10 Building Monitoring Signals -- A Fat-tail toxicity index -- B Volatility signals -- Nature of the returns -- The dynamic of the returns -- Signal definition. -- Asset and strategies cartography -- Assetmanagement -- C Correlation signals -- Simple basketmodel -- Estimating correlation level -- Implied correlation skew -- Multi-dimensional stochastic volatility -- Local correlationmodel -- General Conclusion. Solutions -- Bibliography -- Index.
The series of recent financial crises have thrown open the world of quantitative finance and financial modeling. This book brings together proven and new methodologies from finance, physics and engineering, along with years of industry and academic experience to provide a cookbook of models for dealing with the challenges of today's markets.