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Preface | |
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Acknowledgments | |
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Background | |
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Risk Management and Financial Returns | |
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Chapter Outline | |
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Learning Objectives | |
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Risk Management and the Firm | |
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A Brief Taxonomy of Risks | |
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Asset Returns Definitions | |
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Stylized Facts of Asset Returns | |
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A Generic Model of Asset Returns | |
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From Asset Returns to Portfolio Returns | |
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Introducing the Value-at-Risk (VaR) Risk Measure | |
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Overview of the Book | |
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Appendix: Return VaR and $VaR | |
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Further Resources | |
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References | |
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Empirical Exercises | |
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Historical Simulation, Value at Risk, and Expected Shortfall | |
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Chapter Overview | |
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Historical Simulation | |
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Weighted Historical Simulation (WHS) | |
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Evidence from the 2008-2009 Crisis | |
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The True Probability of Breaching the HS VaR | |
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VaR with Extreme Coverage Rates | |
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Expected Shortfall | |
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Summary | |
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Further Resources | |
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References | |
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Empirical Exercises | |
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A Primer on Financial Time Series Analysis | |
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Chapter Overview | |
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Probability Distributions and Moments | |
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The Linear Model | |
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Univariate Time Series Models | |
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Multivariate Time Series Models | |
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Summary | |
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Further Resources | |
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References | |
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Empirical Exercises | |
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Univariate Risk Models | |
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Volatility Modeling Using Daily Data | |
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Chapter Overview | |
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Simple Variance Forecasting | |
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The GARCH Variance Model | |
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Maximum Likelihood Estimation | |
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Extensions to the GARCH Model | |
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Variance Model Evaluation | |
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Summary | |
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Component GARCH and GARCH(2,2) | |
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The HYGARCH Long-Memory Model | |
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Further Resources | |
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References | |
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Empirical Exercises | |
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Volatility Modeling Using Intraday Data | |
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Chapter Overview | |
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Realized Variance: Four Stylized Facts | |
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Forecasting Realized Variance | |
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Realized Variance Construction | |
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Data Issues | |
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Range-based Volatility Modeling | |
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GARCH Variance Forecast Evaluation Revisited | |
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Summary | |
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Further Resources | |
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References | |
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Empirical Exercises | |
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Nonnormal Distributions | |
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Chapter Overview | |
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Learning Objectives | |
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Visualizing Nonnormality Using QQ Plots | |
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The Filtered Historical Simulation Approach | |
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The Cornish-Fisher Approximation to VaR | |
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The Standardized t Distribution | |
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The Asymmetric t Distribution | |
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Extreme Value Theory (EVT) | |
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Summary | |
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ES for the Symmetric and Asymmetric t Distributions | |
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Cornish-Fisher ES | |
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Extreme Value Theory ES | |
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Further Resources | |
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References | |
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Empirical Exercises | |
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Multivariate Risk Models | |
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Covariance and Correlation Models | |
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Chapter Overview | |
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Portfolio Variance and Covariance | |
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Dynamic Conditional Correlation (DCC) | |
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Estimating Daily Covariance from Intraday Data | |
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Summary | |
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Further Resources | |
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References | |
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Empirical Exercises | |
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Simulating the Term Structure of Risk | |
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Chapter Overview | |
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The Risk Term Structure in Univariate Models | |
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The Risk Term Structure with Constant Correlations | |
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The Risk Term Structure with Dynamic Correlations | |
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Summary | |
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Further Resources | |
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References | |
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Empirical Exercises | |
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Distributions and Copulas for Integrated Risk Management | |
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Chapter Overview | |
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Threshold Correlations | |
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Multivariate Distributions | |
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The Copula Modeling Approach | |
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Risk Management Using Copula Models | |
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Summary | |
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Further Resources | |
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References | |
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Empirical Exercises | |
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Further Topics in Risk Management | |
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Option Pricing | |
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Chapter Overview | |
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Basic Definitions | |
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Option Pricing Using Binomial Trees | |
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Option Pricing under the Normal Distribution | |
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Allowing for Skewness and Kurtosis | |
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Allowing for Dynamic Volatility | |
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Implied Volatility Function (IVF) Models | |
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Summary | |
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Appendix: The CFG Option Pricing Formula | |
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Further Resources | |
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References | |
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Empirical Exercises | |
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Option Risk Management | |
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Chapter Overview | |
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The Option Delta | |
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Portfolio Risk Using Delta | |
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The Option Gamma | |
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Portfolio Risk Using Gamma | |
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Portfolio Risk Using Full Valuation | |
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A Simple Example | |
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Pitfall in the Delta and Gamma Approaches | |
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Summary | |
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Further Resources | |
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References | |
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Empirical Exercises | |
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Credit Risk Management | |
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Chapter Overview | |
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A Brief History of Corporate Defaults | |
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Modeling Corporate Default | |
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Portfolio Credit Risk | |
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Other Aspects of Credit Risk | |
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Summary | |
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Further Resources | |
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References | |
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Empirical Exercises | |
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Backtesting and Stress Testing | |
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Chapter Overview | |
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Backtesting VaRs | |
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Increasing the Information Set | |
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Backtesting Expected Shortfall | |
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Backtesting the Entire Distribution | |
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Stress Testing | |
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Summary | |
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Further Resources | |
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References | |
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Empirical Exercises | |
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Index | |