VOLUME III
The need for serious coverage of financial modeling has never been greater, especially with the size, diversity, and efficiency of modern capital markets. With this in mind, the Encyclopedia of Financial Models, 3 Volume Set has been created to help a broad spectrum of individuals ranging from finance professionals to academics and students understand the various models currently available and apply them in real–world situations.
Edited by Frank Fabozzi, this set includes contributions from global financial experts as well as academics with extensive consulting experience in this field. Incorporating timely research and in–depth analysis, Volume III of the Encyclopedia of Financial Models covers:
- Mortgage–Backed Securities Analysis and Valuation
- Operational Risk
- Optimization Tools
- Probability Theory
- Risk Measures
- Software for Financial Modeling
- Stochastic Processes and Tools
- Term Structure Modeling
- Trading Cost Models
- Volatility
Table of Contents
Volume IIIMortgage–Backed Securities Analysis and Valuation 1
Valuing Mortgage–Backed and Asset–Backed Securities 3
The Active–Passive Decomposition Model for MBS 17
Analysis of Nonagency Mortgage–Backed Securities 29
Measurements of Prepayments for Residential Mortgage–Backed Securities 47
Prepayments and Factors Influencing the Return of Principal for Residential Mortgage–Backed Securities 65
Operational Risk 79
Operational Risk 81
Operational Risk Models 91
Modeling Operational Loss Distributions 103
Optimization Tools 121
Introduction to Stochastic Programming and Its Applications to Finance 123
Robust Portfolio Optimization 137
Probability Theory 149
Concepts of Probability Theory 151
Discrete Probability Distributions 165
Continuous Probability Distributions 195
Continuous Probability Distributions with Appealing Statistical Properties 207
Continuous Probability Distributions Dealing with Extreme Events 227
Stable and Tempered Stable Distributions 241
Fat Tails, Scaling, and Stable Laws 259
Copulas 283
Applications of Order Statistics to Risk Management Problems 289
Risk Measures 297
Measuring Interest Rate Risk: Effective Duration and Convexity 299
Yield Curve Risk Measures 307
Value–at–Risk 319
Average Value–at–Risk 331
Risk Measures and Portfolio Selection 349
Back–Testing Market Risk Models 361
Estimating Liquidity Risks 371
Estimate of Downside Risk with Fat–Tailed and Skewed Models 381
Moving Average Models for Volatility and Correlation, and Covariance Matrices 395
Software for FinancialModeling 415
Introduction to Financial Model Building with MATLAB 417
Introduction to Visual Basic for Applications 449
Stochastic Processes and Tools 469
Stochastic Integrals 471
Stochastic Differential Equations 485
Stochastic Processes in Continuous Time 495
Conditional Expectation and Change of Measure 507
Change of Time Methods 519
Term StructureModeling 531
The Concept and Measures of Interest Rate Volatility 533
Short–Rate Term Structure Models 543
Static Term Structure Modeling in Discrete and Continuous Time 559
The Dynamic Term Structure Model 575
Essential Classes of Interest Rate Models and Their Use 593
A Review of No Arbitrage Interest Rate Models 603
Trading CostModels 621
Modeling Market Impact Costs 623
Volatility 635
Monte Carlo Simulation in Finance 637
Stochastic Volatility 653
