This book, first published in 2000, addresses problems in financial mathematics of pricing and hedging derivative securities in an environment of uncertain and changing market volatility. These problems are important to investors from large trading institutions to pension funds. It presents mathematical and statistical tools that exploit the bursty nature of market volatility. The mathematics is introduced through examples and illustrated with simulations and the modeling approach that is described is validated and tested on market data. The material is suitable for a one semester course for graduate students who have had exposure to methods of stochastic modeling and arbitrage pricing theory in finance. It is easily accessible to derivatives practitioners in the financial engineering industry.
Building upon the ideas introduced in their previous book, Derivatives in Financial Markets with Stochastic Volatility, the authors study the pricing and hedging of financial derivatives under stochastic volatility in equity, interest-rate, and credit markets. They present and analyze multiscale stochastic volatility models and asymptotic approximations. These can be used in equity markets, for instance, to link the prices of path-dependent exotic instruments to market implied volatilities. The methods are also used for interest rate and credit derivatives. Other applications considered include variance-reduction techniques, portfolio optimization, forward-looking estimation of CAPM 'beta', and the Heston model and generalizations of it. 'Off-the-shelf' formulas and calibration tools are provided to ease the transition for practitioners who adopt this new method. The attention to detail and explicit presentation make this also an excellent text for a graduate course in financial and ap
The Handbook on Systemic Risk, written by experts in the field, provides researchers with an introduction to the multifaceted aspects of systemic risks facing the global financial markets. The Handbook explores the multidisciplinary approaches to analyzing this risk, the data requirements for further research, and the recommendations being made to avert financial crisis. The Handbook is designed to encourage new researchers to investigate a topic with immense societal implications as well as to provide, for those already actively involved within their own academic discipline, an introduction to the research being undertaken in other disciplines. Each chapter in the Handbook will provide researchers with a superior introduction to the field and with references to more advanced research articles. It is the hope of the editors that this Handbook will stimulate greater interdisciplinary academic research on the critically important topic of systemic risk in the global financial markets.
The content of this book is multidisciplinary by nature. It uses mathematical tools from the theories of probability and stochastic processes, partial differential equations, and asymptotic analysis,
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