Derivatives and Internal Models

Front Matter....Pages i-xvi
Front Matter....Pages 1-1
Introduction....Pages 3-5
Legal Environment....Pages 7-10
Fundamental Risk Factors of Financial Markets....Pages 11-46
Financial Instruments: A System of Derivatives and Underlyings....Pages 47-60
Front Matter....Pages 61-61
Overview of the Assumptions....Pages 63-65
Present Value Methods, Yields and Traditional Risk Measures....Pages 67-80
Arbitrage....Pages 81-88
The Black-Scholes Differential Equation....Pages 89-101
Integral Forms and Analytic Solutions in the Black-Scholes World....Pages 103-112
Numerical Solutions Using Finite Differences....Pages 113-147
Binomial and Trinomial Trees....Pages 149-168
Monte Carlo Simulations....Pages 169-181
Hedging....Pages 183-203
Martingales and Numeraires....Pages 205-229
Interest Rates and Term Structure Models....Pages 231-281
Front Matter....Pages 283-283
Spot Transactions on Interest Rates....Pages 285-309
Forward Transactions on Interest Rates....Pages 311-322
Plain Vanilla Options....Pages 323-341
Exotic Options....Pages 343-365
Structured Products and Stripping....Pages 367-374
Front Matter....Pages 375-375
Fundamentals....Pages 377-396
The Variance-Covariance Method....Pages 397-425
Simulation Methods....Pages 427-433
Interest Rate Risk and Cash Flows....Pages 435-452
Example of a VaR Computation....Pages 453-457
Backtesting: Checking the Applied Methods....Pages 459-466
Front Matter....Pages 467-467
Classical Portfolio Management....Pages 469-491
Attributes and their Characteristic Portfolios....Pages 493-507
Active Management and Benchmarking....Pages 509-525
Front Matter....Pages 527-527
Interest Rate Term Structures....Pages 529-541
Volatility....Pages 543-563
Market Parameter from Historical Time Series....Pages 565-580
Time Series Modeling....Pages 581-599
Forecasting with Time Series Models....Pages 601-613
Principle Component Analysis....Pages 615-623
Pre-Treatment of Time Series and Assessment of Models....Pages 625-639
Back Matter....Pages 641-698