Risk Management & Analysis V 2 - New Markets &Products
Rights Contact Login For More Details
- Wiley
More About This Title Risk Management & Analysis V 2 - New Markets &Products
English
The author/editor has produced two stand-alone or companion volumes. Only one third of the original material remains.
New Markets and Products begins with two chapters on emerging markets. The book then goes on to cover markets and products of increasing complexity: standard equity and interest rate derivatives, exotic options, swap (and swaptions), volatility trading and finally credit derivatives.
The contributors are all acknowledged experts in their fields: Michael Howell, Mark Fox, Ian King, Chris Rogers, Andrew Street, Riccardo Rebonato, Edmond Levy, Bryan Thomas, Vincent Lacoste, Desmond Fitzgerald and Blythe Masters.
New Markets and Products will be an essential reference tool for risk managers, institutional investors, fund managers, bankers, corporate treasurers and financial consultants.
"In this volume Carol Alexander has gathered together ten articles that are concerned with important recent developments in financial markets. Two of the articles are concerned with emerging markets. They explore the reasons for their growth and the nature of the investment opportunities available. The remaining eight articles are concerned with derivatives. There are chapters on equity derivatives, interest rate derivatives, exotic options, volatility trading, and credit derivatives. The final chapter on credit derivatives is particularly timely. This market is in the process of transforming the way banks manage credit risk. I have seen no other discussion of the market as comprehensive and useful as that provided by Blythe Masters.
Market participants and students alike will find much useful and thought-provoking information in this volume."
- John Hull, August 1998
New Markets and Products begins with two chapters on emerging markets. The book then goes on to cover markets and products of increasing complexity: standard equity and interest rate derivatives, exotic options, swap (and swaptions), volatility trading and finally credit derivatives.
The contributors are all acknowledged experts in their fields: Michael Howell, Mark Fox, Ian King, Chris Rogers, Andrew Street, Riccardo Rebonato, Edmond Levy, Bryan Thomas, Vincent Lacoste, Desmond Fitzgerald and Blythe Masters.
New Markets and Products will be an essential reference tool for risk managers, institutional investors, fund managers, bankers, corporate treasurers and financial consultants.
"In this volume Carol Alexander has gathered together ten articles that are concerned with important recent developments in financial markets. Two of the articles are concerned with emerging markets. They explore the reasons for their growth and the nature of the investment opportunities available. The remaining eight articles are concerned with derivatives. There are chapters on equity derivatives, interest rate derivatives, exotic options, volatility trading, and credit derivatives. The final chapter on credit derivatives is particularly timely. This market is in the process of transforming the way banks manage credit risk. I have seen no other discussion of the market as comprehensive and useful as that provided by Blythe Masters.
Market participants and students alike will find much useful and thought-provoking information in this volume."
- John Hull, August 1998
English
Carol Alexander obtained her PhD in Algebraic Number Theory, then worked at the Gemente Universiteit in Amsterdam and at UBS Phillips and Drew in London before joining the Mathematics Faculty of the University of Sussex in 1985. She holds a BSc in Mathematics with Experimental Psychology and an MSc in Econometrics and Mathematical Economics from the London School of Economics. Since 1990 Dr Alexander has been consulting, training, speaking at conferences, writing books and articles, and developing software in the areas of risk management and investment analysis. In 1996 she became the academic director of Algorithmics Inc (part-time) and in 1998 she eventually left the academic world to join Nikko Global Holdings as Director and Head of Market Risk Modelling. However, she retains a visiting fellowship at the University of Sussex. She has developed a number of computer programs and software packages for Risk and Investment analysis based on time series techniques. One of these was the winner of the first International Non-Linear Financial Forecasting Competition in 1997. Another used the concept of cointegration to build long-term index tracking tools for fund management, and long-short strategies for portfolio hedging. A third software module is based on her original research, using orthogonal factors to produce large GARCH covariance matrices for factor models.
English
List of Contributors
About the Contributors
Preface
Foreword
Emerging Markets I, Michael J.Howell
Introduction
Growing Countries not Poor Countries
Cross-Border Capital Flows
Markets in Emerging Financial Economies
The Future Size of Emerging Stock Markets
The Growing Need for Financial Development
Conclusion
Appendix 1: Selected Data on Emerging Markets
Appendix 2: Valuation Methods
Endnotes
References
Emerging Markets II, Mark Fox and Ian King
Introduction
The Beginning of Emerging Markets
Defining Emerging Markets
The size of Emerging Markets
Do Emerging Markets Constitute a Separate Asset Class?
Non-Performing Loans
History
The Present Market
Brady Bonds
History
Structures of Brady Plans
The Brady Market
Analysing Brady Bonds
Evaluating Default Risk
Income Guarantees
Trading Strategies Exclusive to Brady Bonds
Eurobonds
History
A Changing Role
The Role of Credit Curves
Using Credit Curves
Analysing Credit Curves
Trading Credit Curve Shapes
Local Markets and Emerging Market Currencies
The Role of Local Markets in the Investing Cycle
The Character of Local Emerging Debt Markets
Russia -
A Case Study
Strategic Uses for Investing in Local Markets
Trading and Managing Local Currency Exposure
Trading and Managing Local Interest Rate Exposure
Equities
History
Analysing Emerging Equity Stocks
Trading and Managing Emerging Equity
Market Exposure
Strategic Uses for Investing in Emerging Equity Markets
Benchmarks
Derivatives
Options
Repurchase Agreements
Structured Notes
Credit Derivatives
Relative Value Trades
Equities
Special Considerations in Evaluating Relative Value
A Matrix Approach to Regional and Asset Allocation
Past Experience
Endnotes
The Origins of Risk-Neutral Pricing and the Black-Scholes Formula, L.C.G. Rogers
Introduction
Portfolio Choices
Some Notions and Notations from Probability
Optimal Investment
The Binomial Market and the Black-Scholes Formula
Appendix: Two Other Approaches
Endnotes
References
Equity Derivatives Andrew Street
Introduction
Aims and Scope of this Chapter
Classification of Equity Derivatives
General Features of Pricing Equity Derivatives
Historical Development
Listed Equity Derivatives
Unlisted or "Over-the-Counter" Equity Derivatives
The Utility of Equity Derivatives
The Evaluation of Risk and Return
Tax Efficiency
Regulatory Efficiency
Leverage
Implementation of Specific Investment Views
Efficiency and Cost Effectiveness
The Utility of Equity Derivatives for Borrowers
The Role of the Investment Bank in the Creation of Equity Derivatives
Capital
Credit
Risk Aggregation
Technology
Index Products
Exchange Traded Equity Derivatives
Over-the-Counter Traded Equity Derivatives
Hybrid Equity Derivatives
Single Stocks, Bespoke Index Products
Future Development for Equity Derivatives
Glossary of Terms
References
Interest Rate Option Models: A Critical Survey, Riccardo Rebonato
Introduction and Outline of the Chapter
Yield Curve Models: A Statistical Motivation
Statistical Analysis of the Evolution of Rates
A Framework for Option Pricing
The No-Arbitrage Conditions
Definition of No-arbitrage in a Complete Market
The Condition of No-arbitrage: Vasicek's Approach
The condition of No-arbitrage: The Martingale Approach
First Choice of Numeraire: The Money Market Account
Second Choice of Numeraire: A Discount Bond
The General Link Between Different Measures
The Implementation Tools
Lattice Approaches: Justification and Implementation
Monte Carlo (MC) Approaches
PDE Approaches: Finite Differences Schemes and Analytic Solutions
Analysis of Specific Models
BDT: Models Implications and Empirical Findings
Extended Vasicek (HW): Model Implications and Empirical Findings
Longstaff and Schwartz: Model Implications and Empirical Findings
The HJM Approach
Conclusions or "How to Choose the Best Model"
References
Exotic Options I, Edmond Levy
Introduction
Asian Options
Definition and Uses
Valuation Approaches
Risk Management of Asian Options
Binary and Contingent Premium Options
Examples and Uses
Valuation and Hedging
Currency Protected Options
Cross-Market Contracts
Valuation of Cross-Market Contracts
Currency Basket Options
Appendix 1
Appendix 2
Appendix 3
References
Exotic Options II, Bryan Thomas
Barrier Options
Definitions and Examples of single barrier options
An Analytical Model of Single Barrier options
Alternative Modelling Methods
Risk Management of Single Barrier options
Barrier Options Combinations
Rebates
Discontinuous Barriers
Double Barrier Options
Second Market Barriers
Compound Options
Definitions and Example
Geske's Model
Risk Management
Extensions
Even More Exotic Options
References
Captions and Swaptions Vincent Lacoste
Change of Numeraire: A General Valuation Method for Swaptions
Introductory Comments
Technical Properties
Application to Swaptions
Hedging a Swaption
Hedging Swptions Against Yield Curve Scenarios
The Hedging Space
Estimated Methods
Empirical Results
Concluding remarks on Historical Data
Marking to Market the Term structure of Volatility
Captions
Non-Parametric estimation of the Volatility Structure
Concluding remarks
Is There a "Market Model of Interest Rates"?
Appendix
Endnotes
References
Trading Volatility, M. Desmond Fitzgerald
Introduction
Basics of Volatility Trading
Analysing Volatility Patterns for Trading
Relative Volatility Trading
Summary
Credit Derivatives, Blythe Masters
Background and Overview: The Case for Credit Derivatives
What are Credit Derivatives?
What is the Significance of Credit Derivatives?
Basic Credit Derivative Structures and Applications
Credit (Default) Swaps
Total (Rate of) Swaps
Credit Options
Downgrade Options
Dynamic Credit Swaps
Other Credit Derivatives
A Portfolio Approach to Credit Risk Management
Why Credit Has Become a Risk-Management Challenge
The Need for a Portfolio Approach to Credit Risk
The Challenges of Estimating Portfolio Credit Risk
Assessing Credit Risk on a Portfolio Basis: Methodology
Practical Applications of Portfolio Methodology Using Credit Derivatives
Regulatory Treatment of Credit Derivatives
Balance Sheet Management: Synthetic Securitization
Investment Considerations
Filling Gaps in the Credit Spectrum
Transcending Asset Class Barriers
Recovery Rate
Term
Common Pricing Considerations
Predictive or Theoretical Pricing Models of Credit Swaps
Mark to Market and Valuation Methodologies for Credit Swaps
Risk Equivalence of Total Return Swaps and Credit Swaps for Valuation Purposes
Relative Value Analysis of Credit Swaps
Counterparty Considerations
Conclusion
Credit Derivatives and Portfolio Management
Other Implications
Glossary Endnotes/References
Index
About the Contributors
Preface
Foreword
Emerging Markets I, Michael J.Howell
Introduction
Growing Countries not Poor Countries
Cross-Border Capital Flows
Markets in Emerging Financial Economies
The Future Size of Emerging Stock Markets
The Growing Need for Financial Development
Conclusion
Appendix 1: Selected Data on Emerging Markets
Appendix 2: Valuation Methods
Endnotes
References
Emerging Markets II, Mark Fox and Ian King
Introduction
The Beginning of Emerging Markets
Defining Emerging Markets
The size of Emerging Markets
Do Emerging Markets Constitute a Separate Asset Class?
Non-Performing Loans
History
The Present Market
Brady Bonds
History
Structures of Brady Plans
The Brady Market
Analysing Brady Bonds
Evaluating Default Risk
Income Guarantees
Trading Strategies Exclusive to Brady Bonds
Eurobonds
History
A Changing Role
The Role of Credit Curves
Using Credit Curves
Analysing Credit Curves
Trading Credit Curve Shapes
Local Markets and Emerging Market Currencies
The Role of Local Markets in the Investing Cycle
The Character of Local Emerging Debt Markets
Russia -
A Case Study
Strategic Uses for Investing in Local Markets
Trading and Managing Local Currency Exposure
Trading and Managing Local Interest Rate Exposure
Equities
History
Analysing Emerging Equity Stocks
Trading and Managing Emerging Equity
Market Exposure
Strategic Uses for Investing in Emerging Equity Markets
Benchmarks
Derivatives
Options
Repurchase Agreements
Structured Notes
Credit Derivatives
Relative Value Trades
Equities
Special Considerations in Evaluating Relative Value
A Matrix Approach to Regional and Asset Allocation
Past Experience
Endnotes
The Origins of Risk-Neutral Pricing and the Black-Scholes Formula, L.C.G. Rogers
Introduction
Portfolio Choices
Some Notions and Notations from Probability
Optimal Investment
The Binomial Market and the Black-Scholes Formula
Appendix: Two Other Approaches
Endnotes
References
Equity Derivatives Andrew Street
Introduction
Aims and Scope of this Chapter
Classification of Equity Derivatives
General Features of Pricing Equity Derivatives
Historical Development
Listed Equity Derivatives
Unlisted or "Over-the-Counter" Equity Derivatives
The Utility of Equity Derivatives
The Evaluation of Risk and Return
Tax Efficiency
Regulatory Efficiency
Leverage
Implementation of Specific Investment Views
Efficiency and Cost Effectiveness
The Utility of Equity Derivatives for Borrowers
The Role of the Investment Bank in the Creation of Equity Derivatives
Capital
Credit
Risk Aggregation
Technology
Index Products
Exchange Traded Equity Derivatives
Over-the-Counter Traded Equity Derivatives
Hybrid Equity Derivatives
Single Stocks, Bespoke Index Products
Future Development for Equity Derivatives
Glossary of Terms
References
Interest Rate Option Models: A Critical Survey, Riccardo Rebonato
Introduction and Outline of the Chapter
Yield Curve Models: A Statistical Motivation
Statistical Analysis of the Evolution of Rates
A Framework for Option Pricing
The No-Arbitrage Conditions
Definition of No-arbitrage in a Complete Market
The Condition of No-arbitrage: Vasicek's Approach
The condition of No-arbitrage: The Martingale Approach
First Choice of Numeraire: The Money Market Account
Second Choice of Numeraire: A Discount Bond
The General Link Between Different Measures
The Implementation Tools
Lattice Approaches: Justification and Implementation
Monte Carlo (MC) Approaches
PDE Approaches: Finite Differences Schemes and Analytic Solutions
Analysis of Specific Models
BDT: Models Implications and Empirical Findings
Extended Vasicek (HW): Model Implications and Empirical Findings
Longstaff and Schwartz: Model Implications and Empirical Findings
The HJM Approach
Conclusions or "How to Choose the Best Model"
References
Exotic Options I, Edmond Levy
Introduction
Asian Options
Definition and Uses
Valuation Approaches
Risk Management of Asian Options
Binary and Contingent Premium Options
Examples and Uses
Valuation and Hedging
Currency Protected Options
Cross-Market Contracts
Valuation of Cross-Market Contracts
Currency Basket Options
Appendix 1
Appendix 2
Appendix 3
References
Exotic Options II, Bryan Thomas
Barrier Options
Definitions and Examples of single barrier options
An Analytical Model of Single Barrier options
Alternative Modelling Methods
Risk Management of Single Barrier options
Barrier Options Combinations
Rebates
Discontinuous Barriers
Double Barrier Options
Second Market Barriers
Compound Options
Definitions and Example
Geske's Model
Risk Management
Extensions
Even More Exotic Options
References
Captions and Swaptions Vincent Lacoste
Change of Numeraire: A General Valuation Method for Swaptions
Introductory Comments
Technical Properties
Application to Swaptions
Hedging a Swaption
Hedging Swptions Against Yield Curve Scenarios
The Hedging Space
Estimated Methods
Empirical Results
Concluding remarks on Historical Data
Marking to Market the Term structure of Volatility
Captions
Non-Parametric estimation of the Volatility Structure
Concluding remarks
Is There a "Market Model of Interest Rates"?
Appendix
Endnotes
References
Trading Volatility, M. Desmond Fitzgerald
Introduction
Basics of Volatility Trading
Analysing Volatility Patterns for Trading
Relative Volatility Trading
Summary
Credit Derivatives, Blythe Masters
Background and Overview: The Case for Credit Derivatives
What are Credit Derivatives?
What is the Significance of Credit Derivatives?
Basic Credit Derivative Structures and Applications
Credit (Default) Swaps
Total (Rate of) Swaps
Credit Options
Downgrade Options
Dynamic Credit Swaps
Other Credit Derivatives
A Portfolio Approach to Credit Risk Management
Why Credit Has Become a Risk-Management Challenge
The Need for a Portfolio Approach to Credit Risk
The Challenges of Estimating Portfolio Credit Risk
Assessing Credit Risk on a Portfolio Basis: Methodology
Practical Applications of Portfolio Methodology Using Credit Derivatives
Regulatory Treatment of Credit Derivatives
Balance Sheet Management: Synthetic Securitization
Investment Considerations
Filling Gaps in the Credit Spectrum
Transcending Asset Class Barriers
Recovery Rate
Term
Common Pricing Considerations
Predictive or Theoretical Pricing Models of Credit Swaps
Mark to Market and Valuation Methodologies for Credit Swaps
Risk Equivalence of Total Return Swaps and Credit Swaps for Valuation Purposes
Relative Value Analysis of Credit Swaps
Counterparty Considerations
Conclusion
Credit Derivatives and Portfolio Management
Other Implications
Glossary Endnotes/References
Index
English
"In what started as a second edition of the well received Handbook of Risk Management and Analysis, Carol Alexander has taken up the challenge of the increasing complexity of today's markets by selecting additional material to cover new aspects of risk modelling and new products, hence the present two volume edition. As before, the authors are well known not only for their expository skills. Sound theories and tried and tested methods are explained; new markets and products are clearly described. This is essential reading for the growing community of quantitatively-minded risk managers.", Dr Jacques Pezier, September 1998, , #
