Mathematics of Financial Models - Solving Real-World Problems With Quantitative Methods

Informationen zum Autor DR. KANNOO RAVINDRAN consults with corporations on investments, derivatives trading, modeling, and risk management. He also lectures around the world on these topics and runs a private equity fund. Dr. Ravindran pioneered the use of derivatives to manage risks embedded in variable annuity products. Klappentext Learn how quantitative models can help fight client problems head-onBefore financial problems can be solved, they need to be fully understood. Since in-depth quantitative modeling techniques are a powerful tool to understanding the drivers associated with financial problems, one would need a solid grasp of these techniques before being able to unlock their full potential of the methods used. In The Mathematics of Financial Models, the author presents real world solutions to the everyday problems facing financial professionals. With interactive tools such as spreadsheets for valuation, pricing, and modeling, this resource combines highly mathematical quantitative analysis with useful, practical methodologies to create an essential guide for investment and risk-management professionals facing modeling issues in insurance, derivatives valuation, and pension benefits, among others. In addition to this, this resource also provides the relevant tools like matrices, calculus, statistics and numerical analysis that are used to build the quantitative methods used.Financial analysts, investment professionals, risk-management professionals, and graduate students will find applicable information throughout the book, and gain from the self-study exercises and the refresher course on key mathematical topics. Equipped with tips and information, The Mathematics of Financial Models* Provides practical methodologies based on mathematical quantitative analysis to help analysts, investment and risk-management professionals better navigate client issues* Contains interactive tools that demonstrate the power of analysis and modeling* Helps financial professionals become more familiar with the challenges across a range of industries* Includes a mathematics refresher course and plenty of exercises to get readers up to speedThe Mathematics of Financial Models is an in-depth guide that helps readers break through common client financial problems and emerge with clearer strategies for solving issues in the future. Zusammenfassung Learn how quantitative models can help fight client problems head-on Before financial problems can be solved, they need to be fully understood. 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 Single Variable 108 Valuing Path-Dependent, European-Style Options on a Single Variable 114 Valuing Path-Independent, European-Style Options on Two Variables 135 Valuing Path-Dependent, European-Style Options on Multiple Variables 152 References 157 Chapter 6 Estimating Model Parameters 159 Calibration of Parameters in the Black-Scholes M...

List of contents

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 Single Variable 108
 
Valuing Path-Dependent, European-Style Options on a Single Variable 114
 
Valuing Path-Independent, European-Style Options on Two Variables 135
 
Valuing Path-Dependent, European-Style Options on Multiple Variables 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 Rate Term 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 Vanilla Put 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

Product details

• Authors: Daniel D. Heyer, Ravindran, K Ravindran, Kannoo Ravindran, Kannoo Heyer Ravindran, Ravindran Kannoo, RAVINDRAN KANNOO HEYER DANIEL D
• Publisher: Wiley, John and Sons Ltd
• Languages: English
• Product format: Hardback
• Released: 21.10.2014
• EAN: 9781118004616
• ISBN: 978-1-118-00461-6
• No. of pages: 352
• Series: Wiley Finance; Wiley Finance Editions; The Wiley Finance Series; Wiley Finance; Wiley Finance Editions
• Subjects: Social sciences, law, business > Business > Business administration; Kapitalanlage, Finance & Investments, Finanz- u. Anlagewesen, Kapitalanlagen u. Wertpapiere, Investments & Securities