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Handbooks in Operations Research and Management Science : Financial Engineering: Financial Engineering - John R. Birge

Handbooks in Operations Research and Management Science

Financial Engineering: Financial Engineering

By: John R. Birge (Editor), Vadim Linetsky (Editor)

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Published: 16th November 2007
Format: PDF
$301.75
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The remarkable growth of financial markets over the past decades has been accompanied by an equally remarkable explosion in financial engineering, the interdisciplinary field focusing on applications of mathematical and statistical modeling and computational technology to problems in the financial services industry. The goals of financial engineering research are to develop empirically realistic stochastic models describing dynamics of financial risk variables, such as asset prices, foreign exchange rates, and interest rates, and to develop analytical, computational and statistical methods and tools to implement the models and employ them to design and evaluate financial products and processes to manage risk and to meet financial goals. This handbook describes the latest developments in this rapidly evolving field in the areas of modeling and pricing financial derivatives, building models of interest rates and credit risk, pricing and hedging in incomplete markets, risk management, and portfolio optimization. Leading researchers in each of these areas provide their perspective on the state of the art in terms of analysis, computation, and practical relevance. The authors describe essential results to date, fundamental methods and tools, as well as new views of the existing literature, opportunities, and challenges for future research.

Cover -- TOC$Contents -- Part I: Introduction -- Introduction to the Handbook of FinancialEngineering -- References -- CH$Chapter 1. An Introduction to Financial Asset Pricing -- 1. Introduction -- 2. Introduction to derivatives and arbitrage -- 3. The core of the theory -- 4. American type derivatives -- Acknowledgements -- References -- Part II: Derivative Securities: Models and Methods -- CH$Chapter 2. Jump-Diffusion Models for Asset Pricing in Financial Engineering -- 1. Introduction -- 2. Empirical stylized facts -- 3. Motivation for jump-diffusion models -- 4. Equilibrium for general jump-diffusion models -- 5. Basic setting for option pricing -- 6. Pricing call and put option via Laplace transforms -- 7. First passage times -- 8. Barrier and lookback options -- 9. Analytical approximations for American options -- 10. Extension of the jump-diffusion models to multivariate cases -- References -- CH$Chapter 3. Modeling Financial Security Returns Using Lévy Processes -- 1. Introduction -- 2. Modeling return innovation distribution using Lévy processes -- 3. Generating stochastic volatility by applying stochastic time changes -- 4. Modeling financial security returns with time-changed Lévy processes -- 5. Option pricing under time-changed Lévy processes -- 6. Estimating Lévy processes with and without time changes -- 7. Concluding remarks -- Acknowledgements -- References -- CH$Chapter 4. Pricing with Wishart Risk Factors -- 1. Introduction -- 2. Wishart process -- 3. Pricing -- 4. Examples -- 5. Concluding remarks -- References -- CH$Chapter 5. Volatility -- 1. Introduction -- 2. A model of price formation with microstructure effects -- 3. The variance of the equilibrium price -- 4. Solutions to the inconsistency problem -- 5. Equilibrium price variance estimation: directions for future work -- 6. The variance of microstructure noise: a consistency result -- 7. The benefit of consistency: measuring market quality -- 8. Volatility and asset pricing -- Acknowledgements -- References -- CH$Chapter 6. Spectral Methods in Derivatives Pricing -- 1. Introduction -- 2. Self-adjoint semigroups in Hilbert spaces -- 3. One-dimensional diffusions: general results -- 4. One-dimensional diffusions: a catalog of analytically tractable models -- 5. Symmetric multi-dimensional diffusions -- 6. Introducing jumps and stochastic volatility via time changes -- 7. Conclusion -- References -- CH$Chapter 7. Variational Methods in Derivatives Pricing -- 1. Introduction -- 2. European and barrier options in the Black-Scholes-Merton model -- 3. American options in the Black-Scholes-Merton model -- 4. General multi-dimensional jump-diffusion models -- 5. Examples and applications -- 6. Summary -- References -- CH$Chapter 8. Discrete Barrier and Lookback Options -- 1. Introduction -- 2. A representation of barrier options via the change of numeraire argument -- 3. Convolution, Broadie-Yamamoto method via the fast Gaussian transform, and Feng-Linetsky method via Hilbert t.

ISBN: 9780080553252
ISBN-10: 0080553257
Format: PDF
Language: English
Published: 16th November 2007