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Fat-Tailed and Skewed Asset Return Distributions Implications for Risk Management, Portfolio Selection, and Option Pricing

ISBN-10: 0471718866
ISBN-13: 9780471718864
Edition: 2005
List price: $105.00 Buy it from $24.25
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Description: The authors provide readers with a non-technical description about how portfolio management and risk management should and can be undertaken when the assumption of a normal distribution for asset returns is dropped.

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Book details

List price: $105.00
Copyright year: 2005
Publisher: John Wiley & Sons, Incorporated
Publication date: 8/5/2005
Binding: Hardcover
Pages: 369
Size: 6.25" wide x 9.25" long x 1.25" tall
Weight: 1.232
Language: English

The authors provide readers with a non-technical description about how portfolio management and risk management should and can be undertaken when the assumption of a normal distribution for asset returns is dropped.

Douglas J. Lucas is Executive Director and Head of CDO Research at UBS. He is also Chairman of The Bond Market Association's CDO Research Committee and ranked top three in CDO research in the Institutional Investor's fixed income analyst survey. Lucas has been involved in the CDO market for nearly two decades, having developed Moody's rating methodology for CDOs in 1989.LAURIE S. GOODMAN, PhD, is Managing Director and co-Head of Global Fixed Income Research at UBS. She manages U.S. Securitized Products and Treasury/Agency/Derivatives Research. Goodman has worked on Wall Street for over twenty years and is well regarded by the investor community, having won more #1 slots on the Institutional Investor All-American Fixed Income Team than any other analyst.FRANK J. FABOZZI, PhD, CFA, CPA, is an Adjunct Professor of Finance and Becton Fellow at Yale University's School of Management and a Fellow of the International Center for Finance. Fabozzi is the Editor of the Journal of Portfolio Management.

SVETLOZAR T. RACHEV, PhD, DR. SCI, is currently Chair-Professor at the University of Karlsruhe in the School of Economics and Business Engineering and Professor Emeritus at the University of California. He is also the founder of Bravo Risk Management Group and Chief Scientist of FinAnalytica.CHRISTIAN MENN, DR. RER. POL., is Hochschulassistent at the Chair of Statistics, Econometrics and Mathematical Finance at the University of Karlsruhe. Currently, he is a Visiting Scientist at the School of Operations Research and Industrial Engineering at Cornell University as a postdoctoral fellow.FRANK J. FABOZZI, PhD, CFA, CPA, is the Frederick Frank Adjunct Professor of Finance at Yale University's School of Management. He is also a Fellow of the International Center for Finance at Yale University. Prior to joining the Yale faculty, Fabozzi was a visiting professor of finance in the Sloan School at MIT. Fabozzi has authored and edited many acclaimed books in finance and is also the Editor of the Journal of Portfolio Management.

Preface
About the Authors
Introduction
Organization of the Book
References
Probability and Statistics
Discrete Probability Distributions
Basic Concepts
Discrete Probability Distributions Defined
Bernoulli Distribution
Binomial Distribution
Poisson Distribution
References
Continuous Probability Distributions
Continuous Random Variables and Probability Distributions
The Normal Distribution
Other Popular Distributions
References
Describing a Probability Distribution Function: Statistical Moments and Quantiles
Location
Dispersion
Asymmetry
Concentration in Tails
Statistical Moments
Quantiles
Sample Moments
Normal Distribution Revisited
References
Joint Probability Distributions
Joint Probability Distributions Defined
Marginal Distributions
Dependence of Random Variables
Multivariate Normal Distribution
Elliptical Distributions
References
Copulas
Drawbacks of Correlation
Overcoming the Drawbacks of Correlation: Copulas
Mathematical Definition of Copulas
References
Stable Distributions
Properties of the Stable Distribution
Considerations in the Use of the Stable Distribution
Truncated Stable Distributions
References
Estimation Methodologies
Fitting Probability Distributions by Maximum Likelihood Estimation
Confidence Bounds
Hypothesis Tests and P-Value
Relationship between Hypothesis Tests and Confidence Bounds
Fitting Stable Distributions
Comparing Probability Distributions: Testing for the Goodness of Fit
References
Stochastic Processes
Stochastic Processes in Discrete Time and Time Series Analysis
Stochastic Processes in Discrete Time
ARCH and GARCH Models
ARMA-GARCH Illustration
References
Stochastic Processes in Continuous Time
The Poisson Process
Brownian Motion
Stochastic Differential Equations
Levy Processes
References
Portfolio Selection
Equity and Bond Return Distributions
Evidence from the U.S. Stock Market
Evidence from the U.S. Bond Market
References
Risk Measures and Portfolio Selection
Desirable Features of Investment Risk Measures
Alternative Risk Measures for Portfolio Selection
References
Risk Measures in Portfolio Optimization and Performance Measures
Efficient Frontiers and Return Distribution Assumption
Portfolio Optimization and Conditional Value-at-Risk versus Value-at-Risk
Performance Measures
References
Risk Management
Market Risk
Adoption of VaR for Measuring Market Risk
VaR and Bank Capital Requirements
Computation of VaR
Evaluation of VaR Methods: Strengths and Weaknesses
Stable Modeling of VaR
Alternative to VaR: Expected Tail Loss
References
Coherent Risk Measures
Credit Risk
Credit Risk
Credit Risk Framework for Banks: Basel I and Basel II
Overview of Credit Risk Modeling
Credit Risk Management Tools
An Integrated Market and Credit Risk Management Framework Based on the Structural Approach
An Integrated Market and Credit Risk Management Framework Based on the Intensity-Based Model
Building An Econometric Model for the Intensity-Based Model
References
Operational Risk
Operational Risk Defined
Capital Requirement for Operational Risk
Comparison of Market, Credit, and Operational Risk Distributions
Aggregated Stochastic Models for Operational Risk
References
Option Pricing
Introduction to Option Pricing and the Binomial Model
Options Contracts
Basic Components of the Option Price
Boundary Conditions for the Price of an Option
Discrete-Time Option Pricing: Binomial Model
Convergence of the Binomial Model
References
Black-Scholes Option Pricing Model
Motivation
Black-Scholes Formula
Computing a Call Option Price
Sensitivity of Option Price to a Change in Factors: The Greeks
Computing a Put Option Price
Assumptions Underlying the Black-Scholes Model and Basic Extensions
Black-Scholes Model Applied to the Pricing of Options on Bonds: Importance of Assumptions
References
Extension of the Black-Scholes Model and Alternative Approaches
The "Smile Effect"
Continuous-Time Models
Discrete-Time Models
References
Index

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