Numerical Methods for Finance: 1st Edition (Hardback) book cover

Numerical Methods for Finance

1st Edition

Edited by John Miller, David Edelman, John Appleby

Chapman and Hall/CRC

312 pages | 59 B/W Illus.

Purchasing Options:$ = USD
Hardback: 9781584889250
pub: 2007-09-21
Currently out of stock
$140.00
x
eBook (VitalSource) : 9780429142123
pub: 2007-09-21
from $28.98


FREE Standard Shipping!

Description

Featuring international contributors from both industry and academia, Numerical Methods for Finance explores new and relevant numerical methods for the solution of practical problems in finance. It is one of the few books entirely devoted to numerical methods as applied to the financial field.

Presenting state-of-the-art methods in this area, the book first discusses the coherent risk measures theory and how it applies to practical risk management. It then proposes a new method for pricing high-dimensional American options, followed by a description of the negative inter-risk diversification effects between credit and market risk. After evaluating counterparty risk for interest rate payoffs, the text considers strategies and issues concerning defined contribution pension plans and participating life insurance contracts. It also develops a computationally efficient swaption pricing technology, extracts the underlying asset price distribution implied by option prices, and proposes a hybrid GARCH model as well as a new affine point process framework. In addition, the book examines performance-dependent options, variance reduction, Value at Risk (VaR), the differential evolution optimizer, and put-call-futures parity arbitrage opportunities.

Sponsored by DEPFA Bank, IDA Ireland, and Pioneer Investments, this concise and well-illustrated book equips practitioners with the necessary information to make important financial decisions.

Table of Contents

COHERENT MEASURES OF RISK INTO EVERYDAY MARKET PRACTICE

Motivations

Coherency Axioms and the Shortcomings of VaR

The Objectivist Paradigm

Estimability

The Diversification Principle Revisited

Spectral Measures of Risk

Estimators of Spectral Measures

Optimization of CRMs: Exploiting Convexity

Conclusions

PRICING HIGH-DIMENSIONAL AMERICAN OPTIONS USING LOCAL CONSISTENCY CONDITIONS

Introduction

Formulation

Outline of the Method

Stability Analysis

Boundary Points

Experiments

Conclusions

ADVERSE INTER-RISK DIVERSIFICATION EFFECTS FOR FX FORWARDS

Introduction

Related Research

The Model

Portfolio and Data

Results

Conclusions

COUNTERPARTY RISK UNDER CORRELATION BETWEEN DEFAULT AND INTEREST RATES

Introduction

General Valuation of Counterparty Risk

Modeling Assumptions

Numerical Methods

Results and Discussion

Results Interpretation and Conclusions

OPTIMAL DYNAMIC ASSET ALLOCATION FOR DEFINED CONTRIBUTION PENSION PLANS

Summary of Cairns, Blake, and Dowd

ON HIGH-PERFORMANCE SOFTWARE DEVELOPMENT FOR THE NUMERICAL SIMULATION OF LIFE INSURANCE POLICIES

Introduction

Computational Kernels in Participating Life Insurance Policies

Numerical Methods for the Computational Kernels

A Benchmark Mathematical Model

Numerical Experiments

Conclusions

References

AN EFFICIENT NUMERICAL METHOD FOR PRICING INTEREST RATE SWAPTIONS

Introduction

Pricing Swaptions Using Integral Transforms

Pricing Swaptions Using the FFT

Application and Computational Analysis

Model Testing Using EURIBOR Swaptions Data

Conclusions and Future Research

EMPIRICAL TESTING OF LOCAL CROSS ENTROPY AS A METHOD FOR RECOVERING ASSET'S RISK-NEUTRAL PDF FROM OPTION PRICES

Introduction

Methodology

Results

Conclusion

USING INTRADAY DATA TO FORECAST DAILY VOLATILITY: A HYBRID APPROACH

Introduction

The Hybrid Framework

Adding Intraday Data to the Framework

Conclusion

PRICING CREDIT FROM THE TOP DOWN WITH AFFINE POINT PROCESSES

Extended Abstract

VALUATION OF PERFORMANCE-DEPENDENT OPTIONS IN A BLACK-SCHOLES FRAMEWORK

Introduction

Performance-Dependent Options

Numerical Results

VARIANCE REDUCTION THROUGH MULTILEVEL MONTE CARLO PATH CALCULATIONS

Introduction

Multilevel Monte Carlo Method

Numerical Results

Concluding Remarks

VALUE AT RISK AND SELF-SIMILARITY

Introduction

The Set Up

Risk Estimation for Different Hurst Coefficients

Estimating Hurst Exponents

Used Techniques

Estimating the Scaling Law

Determining the Hurst Exponent

Interpretation

Conclusion and Outlook

Acknowledgment

PARAMETER UNCERTAINTY IN KALMAN FILTER ESTIMATION OF THE CIR TERM STRUCTURE MODEL

Introduction

Dynamic Term Structure Models

Differential Evolution

Results

Conclusion

EDDIE FOR DISCOVERING ARBITRAGE OPPORTUNITIES

INDEX

About the Series

Chapman and Hall/CRC Financial Mathematics Series

Learn more…

Subject Categories

BISAC Subject Codes/Headings:
BUS027000
BUSINESS & ECONOMICS / Finance
MAT000000
MATHEMATICS / General
MAT029000
MATHEMATICS / Probability & Statistics / General