Derivatives and Internal Models: Modern Risk Management

ISBN-13: 9783030228989 / Angielski / Twarda / 2019 / 897 str.

Hans-Peter Deutsch; Mark Beinker

Spis treści

1. Introduction

2. Fundamental Risk Factors of Financial Markets

3. Financial Instruments: A System of Derivatives and Underlyings

4. Overview of the Assumptions

5. Present Value Methods, Yields and Traditional Risk Measures

6. Arbitrage

7. The Black-Scholes Differential Equation

8. Integral Forms and Analytic Solutions in the Black-Scholes World

9. Binomial and Trinomial Trees

10. Numerical Solutions Using Finite Differences

11. Monte Carlo Simulations

12. Hedging 

13. Martingales and Numeraires

14. Interest Rates and Term Structure Models

15. Simple Interest Rate Products

16. FX Derivatives

17. Variants of Fixed Income Instruments

18. Plain Vanilla Options

19. Exotic Options

20. Credit Risk

21. Fundamentals

22. The Variance-Covariance Method

23. Simulation Methods 

24. Example of a VaR Computation

25. Backtesting: Checking the Applied Methods

26. Classical Portfolio Management

27. Attributes and their Characteristic Portfolios

28. Active Management and Benchmarking

29. Construction of the Yield Curve Universe

30. Volatility

31. Market Parameter from Historical Time Series

32. Time Series Modeling

33. Forecasting with Time Series Models

34. Principal Component Analysis

35. Pre-Treatment of Time Series and Assessment of Models

O autorze

Hans-Peter Deutsch is one of the founders of d-fine, a leading financial services consulting firm in Europe. Previously, he was a Partner at Arthur Andersen and head of Andersen’s Financial and Commodity Risk Consulting (FCRC) in Germany, which he founded in 1997. He holds a PhD in theoretical physics and is the author of roughly 20 international scientific publications in this field. He is also author of many publications in the field of mathematical finance including books on quantitative portfolio management, derivatives pricing and risk management.  For many years Dr. Deutsch has been a guest lecturer and member of the Advisory Board of the Mathematical Finance Programme at the University of Oxford, UK, and also Chairman of the Advisory Board of the MathFinance Institute at Johann Wolfgang Goethe-Universität in Frankfurt, Germany. He was also a member of the supervisory board of GET-Capital AG, a German asset management firm, which manages large asset portfolios for institutional investors using a state of the art quantitative method and software system developed by Dr. Deutsch himself.

Mark W. Beinker serves as Managing Director at d-fine GmbH. Dr. Beinker is responsible for the financial engineering business unit and manages projects in development and implementation of models for valuation and risk sensitivity calculation of structured financial products, approval of valuation methods and tools, risk analysis and re-engineering of financial transactions, integration of valuation libraries into the existing system environment, introduction of innovative financial products, development of hedging strategies and the outsourcing of product valuation services. In addition, Dr. Beinker is responsible for the valuation platform MoCo. His professional career began at Arthur Andersen where he held the position of Manager within in the Financial and Commodity Risk Consulting (FCRC) group in Germany. Though he participated in a broad range of projects throughout is business career, the valuation of financial derivatives has been his focus since 1997. Dr. Beinker earned his PhD at the universities of TU Dresden and Duke University, USA.

Blurb

Now in its fifth edition, Derivatives and Internal Models provides a comprehensive and thorough introduction to derivative pricing, risk management and portfolio optimization, covering all relevant topics with enough hands-on, depth of detail to enable readers to develop their own pricing and risk tools.  

The book provides insight into modern market risk quantification methods such as variance-covariance, historical simulation, Monte Carlo, hedge ratios, etc., including time series analysis and statistical concepts such as GARCH Models or Chi-Square-distributions. It shows how optimal trading decisions can be deduced once risk has been quantified by introducing risk-adjusted performance measures and a complete presentation of modern quantitative portfolio optimization. Furthermore, all the important modern derivatives and their pricing methods are presented; from basic discounted cash flow methods to Black-Scholes, binomial trees, differential equations, finite difference schemes, Monte Carlo methods, Martingales and Numeraires, terms structure models, etc. 

The fifth edition of this classic finance book has been comprehensively reviewed. New chapters/content cover multicurve bootstrapping, the valuation and hedging of credit default risk that is inherently incorporated in every derivative—both of which are direct and permanent consequences of the financial crises with a large impact on our understanding of modern derivative valuation.

The book will be accompanied by downloadable Excel spread sheets, which demonstrate how the theoretical concepts explained in the book can be turned into valuable algorithms and applications and will serve as an excellent starting point for the reader’s own bespoke solutions for valuation and risk management systems.