Book description
It is widely acknowledged that many financial modelling techniques failed during the financial crisis, and in our postcrisis environment many techniques are being reconsidered. This single volume provides a guide to lessons learned for practitioners and a reference for academics. Including reviews of traditional approaches, real examples, and case studies, contributors consider portfolio theory; methods for valuing equities and equity derivatives, interest rate derivatives, and hybrid products; and techniques for calculating risks and implementing investment strategies. Describing new approaches without losing sight of their classical antecedents, this collection of original articles presents a timely perspective on our postcrisis paradigm. Highlights precrisis best classical practices, identifies postcrisis key issues, and examines emerging approaches to solving those issues
 Singles out key factors one must consider when valuing or calculating risks in the postcrisis environment
 Presents material in a homogenous, practical, clear, and not overly technical manner
Table of contents
 Cover image
 Title page
 Table of Contents
 Editor’s Disclaimers
 Copyright
 Foreword
 Editors
 Contributors
 1. The Effectiveness of Option Pricing Models During Financial Crises

2. Taking Collateral into Account
 2.1 Introduction
 2.2 Notations and Problem
 2.3 Black–Scholes Partial Differential Equation in the Presence of Collateral
 2.4 Collateral Discount Curve Bootstrapping
 2.5 Pricing and Bootstrapping of the IR Vanilla Swap Term Structure
 2.6 European Swaption Pricing Framework
 2.7 Collateral Effect and TermStructure Models
 2.8 Conclusion
 References
 3. Scenario Analysis in Charge of Model Selection
 4. An “Economical” Pricing Model for Hybrid Products
 5. Credit Valuation Adjustments– Mathematical Foundations, Practical Implementation and Wrong Way Risks
 6. Counterparty Credit Risk and Credit Valuation Adjustments (CVAs) for Interest Rate Derivatives–Current Challenges for CVA Desks
 7. Designing a Counterparty Risk Management Infrastructure for Derivatives
 8. A Jump–Diffusion Nominal Short Rate Model
 9. The Widening of the Basis: New Market Formulas for Swaps, Caps and Swaptions
 10. The Financial Crisis and the Credit Derivatives Pricing Models
 11. Industry ValuationDriven Earnings Management
 12. Valuation of Young Growth Firms and Firms in Emerging Economies
 13. Towards a Replicating Market Model for the US Oil and Gas Sector
 14. Measuring Systemic Risk from Country Fundamentals: A Data Mining Approach
 15. Computing Reliable Default Probabilities in Turbulent Times
 16. Discount Rates, Default Risk and Asset Pricing in a Regime Change Model
 17. A Review of Market Risk Measures and Computation Techniques
 18. HighFrequency Performance of Value at Risk and Expected Shortfall: Evidence from ISE30 Index Futures
 19. A Copula Approach to Dependence Structure in Petroleum Markets
 20. Mistakes in the Market Approach to Correlation: A Lesson For Future StressTesting

21. On Correlations between a Contract and Portfolio and Internal Capital Alliocation
 21.1 Introduction
 21.2 Adding a Deal to a Company Portfolio
 21.3 Example: Correlated PowerLaw Distributions
 21.4 Formula for the Quantile Shift
 21.5 Quantile Shift Under Secondary Uncertainty
 21.6 Capital Allocation by Average Shortfall
 21.7 Evolution of Quantiles in Portfolio Aggregation
 21.8 Static and Dynamic Capital Allocation
 21.9 Conclusion
 References
 22. A Maximum Entropy Approach to the Measurement of Event Risk
 23. Quantifying the Unquantifiable: Risks Not in Value at Risk
 24. Active Portfolio Construction When Risk and Alpha Factors are Misaligned
 25. Market Volatility, Optimal Portfolios and Naive Asset Allocations
 26. Hedging Strategies with Variable Purchase Options
 27. Asset Selection Using a Factor Model and Data Envelopment Analysis– A Quantile Regression Approach
 28. Tail Risk Reduction Strategies
 29. Identification and Valuation Implications of Financial Market Spirals
 30. A RatingBased Approach to Pricing Sovereign Credit Risk
 31. Optimal Portfolio Choice, Derivatives and Event Risk
 32. Valuation and Pricing Concepts in Accounting and Banking Regulation
 33. Regulation, Regulatory Uncertainty and the Stock Market: The Case of Short Sale Bans
 34. Quantitative Easing, Financial Risk and Portfolio Diversification
 35. Revisiting Interest Rate Pricing Models from an Indian Perspective: Lessons and Challenges
 36. Investment Opportunities in Australia’s Healthcare Stock Markets After the Recent Global Financial Crisis
 37. Predicting ASX Health Care Stock Index Movements After the Recent Financial Crisis Using Patterned Neural Networks
 Index
Product information
 Title: Rethinking Valuation and Pricing Models
 Author(s):
 Release date: December 2012
 Publisher(s): Academic Press
 ISBN: 9780124158887
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