Transcript Handbook of Quantitative Finance and Risk Management

Handbook of
Quantitative Finance
and Risk Management
Edited by
Cheng-Few Lee
Rutgers University
Alice C. Lee
San Francisco State University
This handbook expects to be published by Springer by January 2009. Please
send all comments and suggestions to C.F. Lee at [email protected]
Table of Contents for Handbook of
Quantitative Finance and Risk Management
PREFACE
List of Contributors
Part I – Introduction
Part II – Essays
Chapter 1 Theoretical Framework of Finance
1) Classical Theory
2) New classical theory
3) CAPM and APT
4) Options and Futures Theory
Table of Contents for Handbook of
Quantitative Finance and Risk Management
Part II – Essays
Chapter 2 Policy Framework of Finance
1) Investment Policy
2) Financial Policy
3) Dividend Policy
4) Production Policy
Chapter 3 Research Methods of Quantitative Finance and Risk Management
1) Statistics
2) Econometrics
3) Mathematics
4) Operation research
5) Stochastic process
6) Computer science and technology
7) Entropy
8) Fuzzy set Theory
9) Other Methods
Chapter 4 Overview of Quantitative Finance and Risk Management Research
Table of Contents for Handbook of
Quantitative Finance and Risk Management
Part III –Portfolio Analysis
Chapter 1 Basic Concepts of Portfolio Analysis
Chapter 2 Markowitz Portfolio-Selection Model
Chapter 3 Capital Asset Pricing Model and Beta Forecasting
Chapter 4 Index Model for Portfolio Selection
Chapter 5 Performance-Measure Approaches for Selecting Optimum
Portfolios
Part IV – Options and Futures
A. Basic Concepts and Strategies
Chapter 1 Introduction
Chapter 2 Options and Option Strategy
2.1 The Option Market and Related Definition
2.1 .1 What Is an Option?
2.1 .2 Types of Options and Their Characteristics
2.1 .3 Relationships Between the Option Price and the Underlying Asset
Price
2.1 .4 Additional Definitions and Distinguishing Features
2.1 .5 Types of Underlying Asset
2.1 .6 Institutional Characteristics
2.2 Index and Futures Options
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Quantitative Finance and Risk Management
2.3 Put-Call Parity
2.3.1 European Options
2.3.2 American Options
2.3.3 Futures Options
2.3.4 Market Applications
2.4 Risk-Return Characteristics of Options
2.4.1 Long Call
2.4.2 Short Call
2.4.3 Long Put
2.4.4 Short Put
2.4.5 Long Straddle
2.4.6 Short Straddle
2.4.7 Long Vertical (Butt) Spread
2.4.8 Short Vertical (Butt) Spread
2.4.9 Calender (time) Spreads
2.5 Summary
Table of Contents for Handbook of
Quantitative Finance and Risk Management
B. Statistical Analysis Approaches
Chapter 3 Binomial Option Pricing Models
3.1 Introduction
3.2 Some Properties of the Binomial Distribution
3.3 Some Properties of the Normal Distribution
3.4 The Binomial Option Pricing of Cox, Ross and Rubinstein
3.4.1 Derivation of the Option Pricing Model
3.4.2 The Black and Scholes Model as a Limiting Case
3.5 The Binomial Option Pricing of Rendleman and Barter
3.5.1 Derivation of the Option Pricing Model
3.5.2 The Black and Scholes Model as a Limiting Case
Chapter 4 Multinomial Option Pricing Model
4.1 Introduction
4.2 Multinomial Option Pricing Model
4.2.1 Derivation of the Option Pricing Model
4.2.2 The Black and Scholes Model as a Limiting Case
4.3 A Lattice Framework for Option Pricing
4.3.1 Modification of the Two State Approach for a Single State
Variable
4.3.2 A Lattice Model for Valuation of Options on Two Underlying Assets
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Quantitative Finance and Risk Management
Chapter 5 The Lognormal Option Pricing Model
5.1 Introduction
5.2 The Lognormal Distribution
5.2.1 Some Properties of the Lognormal Distribution
5.2.2 The Lognormal Distribution and Its Relationship
to the Normal Distribution
5.2.3 Derivation of the Black and Scholes Option
Pricing Model
5.3 Limitations of The Lognormal Option Pricing Model
Chapter 6
6.1
6.2
6.3
6.4
Bivariate Normal Option Pricing Models
Introduction
European Options versus American Options
The Bivariate Normal Option Pricing Models
Examples
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Quantitative Finance and Risk Management
C. Stochastic Calculus Approaches
Chapter 7 Ito Calculus and The Black and Scholes Option Pricing Model
7.1 Introduction
7.2 Review of Stochastic Processes
7.3 Review of Ito Calculus
7.4 Ito Calculus Approach to The Black and Scholes Options Pricing
Model
7.4.1 Derivation of the Black and Scholes Option Pricing Model
7.4.2 Limitations of the Black and Scholes Option Pricing Model
Chapter 8 Constant Elasticity of Variance (CEV) Option Pricing Model
8.1 Introduction
8.2 Review of Noncentral x2 Distribution
8.3 Noncentral x2 Approach to Option Pricing Models
8.3.1
Derivation of the Probability Density Function under CEV
8.3.2
The Option Pricing Model under CEV
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Quantitative Finance and Risk Management
Chapter 9
9.1
9.2
9.3
9.4
Stochastic Volatility Option Pricing Model
Introduction
Review of Characteristic Function
Nonclosed-Form type of Option Pricing Model
Closed-Form type of Option Pricing Model
Chapter 10
10.1
10.2
10.3
A General Option Pricing Model
Introduction
The Jump Diffusion Model
Option Pricing Model with Random Variance and
Interest Rate
Stochastic Volatility, Interest Rates, and Jumps
Option Pricing Model
10.4
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Quantitative Finance and Risk Management
D. Applications
Chapter 11 Option Valuation and Hedging
11.1 Introduction
11.2 The Hedge Ratio
11.3 The Sensitivities of the Black-Scholes OPM to the Inputs
11.4 Option Elasticity and Beta
11.5 Estimating the Inputs
11.6 Extensions of the Black-Scholes OPM
11.7 Pricing Other Financial Securities Using Option Pricing Theory
11.8 Evaluating the Black-Scholes Option-Pricing Model
11.9 Estimating the Implied Standard Deviation with OLS
Chapter 12 Foreign Exchange Option Pricing Models
12.1 Introduction
12.2 Derivation of Foreign Exchange Option Pricing Models
12.2.1 Option on Foreign Exchange
12.2.2 Options on Foreign Exchange Futures
12.3 Applications of Foreign Exchange Option Pricing Models
Table of Contents for Handbook of
Quantitative Finance and Risk Management
Chapter 13 Index Option Pricing Models
13.1 Introduction
13.2 Derivation of Index Option Pricing Models
13.2.1 Option on Index
13.2.2 Option on Index Futures
13.3 Applications of Index Option Pricing Models
Chapter 14 Real Options
14.1 Introduction
14.2 Traditional Approaches of Capital Budgeting Under Uncertainty
14.2.1 Statistical Distribution Approach
14.2.2 Decision Tree Approach
14.2.3 Certainty Equivalence Approach
14.3 Real Option Approach to Capital Budgeting Decisions
14.3.1 Venture Capital Investment Decision
14.3.2 New Product Investment Decision
14.4 Real Option Pricing Models
14.4.1 Univariate Normal Model
14.4.2 Bivariate Normal Model
14.4.3 Multivariate Normal Model
Chapter 15
Option Pricing Model and Risk Management
Chapter 16
Summary and Concluding Remarks
Table of Contents for Handbook of
Quantitative Finance and Risk Management
Part V – Contributed Papers
Chapter 1: The Creation and Control of Speculative Bubbles in a Laboratory Setting
James S. Ang, Florida State University, USA
Dean Diavatopoulous, Florida State University, USA
Thomas V. Schwarz, Grand Valley State University, USA
Chapter 2: Business Models: Applications to Capital Budgeting, Equity Value and Return Attribution
Thomas S. Y. Ho
Sang Bin Lee, Hanyang University, Korea
Chapter 3: Risk and Valuation Under an Intertemporal Capital Asset Pricing Models
Michael J. Brennan, Anderson School, USA
Yihong Xia, Pennsylvania University, USA
Chapter 4: Portfolio Optimization Models and Mean-Variance Spanning Tests
Wei-Peng Chen, Shih Hsin University, Taiwan
Huimin Chung, National Chiao Tung University, Taiwan
Keng-Yu Ho, National Central University, Taiwan
Tsui-Ling Hseu, National Chiao Tung University, Taiwan
Chapter 5: A Further Analysis of Convergence Rate and Pattern of the Binomial Models
San-Lin Chung, National Taiwan University, Taiwan
Pai-Ta Shih, National Dong Hwa University, Taiwan
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Quantitative Finance and Risk Management
Chapter 6: Combining Fundamental Measures for Stock Selection: Some Thoughts
Kenton K. Yee, Columbia Business School, USA
Chapter 7: Dividends vs. Reinvestments in Continuous Time: A More General Model
Ren-Raw Chen, Rutgers University, USA
Ben Logan
Oded Palmon, Rutgers University, USA
Larry Shepp, Rutgers University, USA
Chapter 8: Time Series Modeling of Asset Returns Volatilities
Tze Leung Lai, Stanford University, USA
Haipeng Xing, Columbia University, USA
Chapter 9: On Estimation Risk and Power Utility Portfolio Selection
Robert R. Grauer, Simon Fraser University, USA
Frederick C. Shen
Chapter 10: Segmenting financial services market: An Empirical Study of Statistical and Non-parametric
Methods
Kenneth Lawrence, New Jersey Institute of Technology, USA
Dinesh Pai, Rutgers University, USA
Ronald Klimberg, St. Joseph’s University, USA
Stephen Kudbya, New Jersey Institute of Technology, USA
Sheila Lawrence, Rutgers University, USA
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Quantitative Finance and Risk Management
Chapter 11: Recovering Probabilistic Information From Options Prices and the Underlying
Bruce Mizrach, Rutgers University, USA
Chapter 12: Combinatorial Methods for Reverse-Engineering and Construction of Credit Risk
Ratings
Alexander Kogan, Rutgers University, USA
Miguel A. Lejeune, Carnegie Mellon University, USA
Chapter 13: Displaced Log Normal and Lognormal American Option Pricing: A Comparison
Ren-Raw Chen, Rutgers University, USA
Cheng-Few Lee, Rutgers University, USA
Chapter 14: Are Tails Fast Enough to Explain Smile
Ren-Raw Chen, Rutgers University, USA
Oded Palmon, Rutgers University, USA
John Wald, Pennsylvania State University, USA
Chapter 15: Two Alternative Approaches to Derive Black-Schools Option Pricing Model:
Comparison and Analysis
Cheng-Few Lee, Rutgers University, USA
Carle Shu Ming Lin, Rutgers University, USA
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Quantitative Finance and Risk Management
Chapter 16: Spurious Regression and Data Mining in Conditional Asset Pricing Models
Wayne Ferson, University of Southern California, USA
Sergei Sarkissian, McGill University, USA
Timothy Simin, Pennsylvania State University, USA
Chapter 17: Structural Approach for Credit Risk Modeling
Jingzhi Huang, Pennsylvania State University, USA
Chapter 18: An Empirical Investigation of the Rationales for Integrated Risk-Management
Behavior
Michael S. Pagano, Villanova University, USA
Chapter 19: Implementing Risk Management Systems with a Benchmark: a Web-Based DSS
Approach
Larry Eisenberg, University of Southern Mississippi, USA
Chang-tseh Hsieh, University of Southern Mississippi, USA
Chapter 20: The Le Chatelier Principle in the Markowitz Quadratic Programming Investment
Model: A Case of World Equity Fund Market
Chin W. Yang, Clarion University of Pennsylvania, USA
Ken Hung, National Dong Hwa University, Taiwan
Jing Chui, Clarion University of Pennsylvania, USA
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Quantitative Finance and Risk Management
Chapter 21: Copula, Correlated Defaults and Credit VaR
Jow-Ran Chang, National Tsing Hua University, Taiwan
An-Chi Chen, KGI Securities Co. Ltd., Taiwan
Chapter 22: An Errors-in-variables Problem in Asset Pricing Tests
Dongcheol Kim, Rutgers University, USA
Chapter 23: Pricing and Hedging Interest Rate Derivatives In the Presence of
Unspanned Stochastic Volatilities
Feng Zhao, Rutgers University, USA
Chapter 24: Liquidity Risk and Arbitrage Pricing Theory
Umut Cetin, Technische University Wein, USA
Robert A. Jarrow, Cornell University, USA
Philip Protter, Cornell University, USA
Chapter 25: Stock Returns, Extreme Values, and Conditional Skewed Distribution
Thomas C. Chiang, Drexel University, USA
Jiandong Li, Drexel University, USA
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Quantitative Finance and Risk Management
Chapter 26: MCMC Estimation of Multiscale Stochastic Volatility Models
German Molina, Vega Capital Services Ltd., UK
Chuan-Hsiang Han, National Tsing Hua University, Taiwan
Jean-Pierre Fouque, University of California, USA
Chapter 27: Security Market Microstructure: The Analysis of a Non-Frictionless Market
Robert Schwartz, Zicklin School of Business, USA
Reto Francioni,
Martin Reck
Chapter 28: Robust prediction of default risk?
Chung-Hua Shen, National Taiwan University, Taiwan
Yi-Kai Chen, National University of Kaohsiung, Taiwan
Bor-Yi Huang, Shih Chien University, Taiwan
Chapter 29: Risk Management for Catastrophe Loss
Jin-Ping Lee, Feng Chia University, Taiwan
Min-Teh Yu, Providence University, Taiwan
Chapter 30: Regime Shifts and the Term Structure of Interest Rates
Chien-Chung Nieh, Tamkang University, Taiwan
Shu Wu, The University of Kansas, USA
Yong Zeng, The University of Missouri at Kansas City, USA
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Quantitative Finance and Risk Management
Chapter 31: ARM Processes and Their Modeling and Forecasting Methodology
Benjamin Melamed, Rutgers Business School, USA
Chapter 32: Alternative Econometric Methods for Information-based Equity-selling
Mechanisms
Cheng Few Lee, Rutgers University, USA
Yi Lin Wu, National Tsing Hua University, Taiwan
Chapter 33: Implementation Problems and Solutions in Stochastic Volatility Models of the
Heston Type
Jia-Hau Guo, Soochow University, Taiwan
Mao-Wei Hung, National Taiwan University, Taiwan
Chapter 34: Univariate and Bivariate GARCH Analyses for the Volume versus GARCH effects
Zhuo Qiao, National University of Singapore, Singapore
Wing-Keung Wong, National University of Singapore, Singapore
Chapter 35: Application of Fuzzy Set Theory to Finance Research: Method and Application
Shin-Yun Wang, National Dong Hwa University, Taiwan
Cheng-Few Lee, Rutgers University, USA
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Quantitative Finance and Risk Management
Chapter 36: Hedonic Regression Analysis: A Primer
Ben J. Sopranzetti, Rutgers University, USA
Chapter 37: Risk-Adverse Portfolio Optimization via Stochastic Dominance Contraints
Darinka Dentcheva, Stevens Institute of Technology, USA
Andrzej Ruszczynski, Rutgers University, USA
Chapter 38: A Real Option Approach to the Comprehensive Analysis of Bank Consolidation
Values
Chuang-Chang Chang, National Central University, Taiwan
Pei-Fang Hsieh, National Central University, Taiwan
Hung-Neng Lai, National Central University, Taiwan
Chapter 39: Numerical Methods of PDE in Computational Finance
Gang Nathan Dong, Rutgers University, USA
Chapter 40: Capital Structure in Asia and CEO Entrenchment
Kin Wai Lee, Nanyang Technological University, Singapore
Gillian Hian Heng Yeo, Nanyang Technological University, Singapore
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Quantitative Finance and Risk Management
Chapter 41: Estimating Future Hedge Ratio: A General Hyperbolic Distribution Approach
Cheng-Few Lee, National Chiao Tung University, Taiwan
Jang-Yi Lee, Tunghai University, Taiwan
Kehluh Wang, National Chiao Tung University, Taiwan
Yuan-Chung Sheu, National Chiao Tung University, Taiwan
Chapter 42: The Sensitivity of Corporate Bond Volatility to Macroeconomic Announcements
Nikolay Kosturov, University of Oklahoma, USA
Duane Stock, University of Oklahoma, USA
Chapter 43: Option Pricing and Hedging Performance under Stochastic Volatility and Stochastic Interest
Rates
Gurdip Bakshi, University of Maryland, USA
Charles Cao, Penn State University, USA
Zhiwu Chen, Yale University, USA
Chapter 44: Itô’s Calculus and the Derivation of the Black-Scholes Option-Pricing Model
George Chalamandaris, Athens University of Economics and Business, Greece
A.G. Malliaris, Loyola University Chicago, USA
Chapter 45: Portfolio Analysis
Jack Clark Francis, Baruch College, USA
Table of Contents for Handbook of
Quantitative Finance and Risk Management
Chapter 46: Equity Market Microstructure: The Analysis of a Non-Frictionless Market
Reto Francioni, Deutsche Bank, USA
Sonali Hazarika, Baruch College, USA
Martin Reck, Deutsche Bank, USA
Robert A. Schwartz, Baruch College, USA
Chapter 47: Raw Material Convenience Yields and Business Cycle
Chang-Wen Duan, Tamkang University, Taiwan
William T. Lin, Tamkang University, Taiwan
Chapter 48: Default and Prepayment Study in US Subprime Markets
C.H. Ted Hong, Beyondbond, USA
Chapter 49: The Valuation of Uncertain Income Streams and the Pricing of Options
Mark Rubinstein, University of California Berkley, USA
Chapter 50: A Primer on the Implicit Financing Assumptions of Traditional Capital Budgeting
Approaches
Ivan Brick, Rutgers University, USA
Daniel Weaver, Rutgers University, USA
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Quantitative Finance and Risk Management
Chapter 51: Portfolio Theory, CAPM, and Performance Measures
Luis Ferruz, University of Zaragoza, Spain
Chapter 52: The Effect of Default Risk on Equity Liquidity: Evidence Based on the Panel Threshold Model
Huimin Chung, National Chiao Tung University , Taiwan
Wei-Peng Chen, Shih-Hsin University , Taiwan
Yu-Dan Chen, National Chiao Tung University , Taiwan
Chapter 53: Derivation and application of Greek letters
Cheng-Few Lee, Rutgers University, USA
David Chen, Rutgers University, USA
Weikang Shih, Rutgers University, USA
Chapter 54: Put option approach to determine bank risk premium
Dar-Yeh Huang, National Taiwan University, Taiwan
Fu-Shuen Shie, National Taiwan University, Taiwan
Wei-Hsiung Wu, National Taiwan University, Taiwan
Chapter 55: Alternative Methods to Determine Optimal Capital Structure: Theory and Application
Sheng-Syan Chen, National Taiwan University, Taiwan
Cheng-Few Lee, National Chiao Tung University, Taiwan
Han-Hsing Lee, National Chiao Tung University, Taiwan
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Quantitative Finance and Risk Management
Chapter 56: Characteristic function and Finance Research
Ying-Lin Hsu, National Chung Hsing University, Taiwan
Cheng-Few Lee, Rutgers University, USA
Chapter 57: Entropy and Its Application in Finance Research
Hyley Huang, National Chiao Tung University and Wintek Corporation, Taiwan
Cheng-Few Lee, Rutgers University, USA
Chapter 58: Structure Equation Model in Finance and Accounting Research
Chingfu Chang, National Chengchi University, Taiwan
Cheng-Few Lee, Rutgers University, USA
Chapter 59: Genetic Programming for Options Pricing
Nemmara Chidambaran, Rutgers University, USA
Chapter 60: Predicting Prices with Defense Forecasting
Glenn Schafer, Rutgers University, USA
Sam Ring, Rutgers University, USA
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Quantitative Finance and Risk Management
Chapter 61: Hedging Theories and Applications
Keshab Shrestha, Nanyang Technological University, Singapore
Chapter 62: Intertemporal Equilibrium Models, Portfolio Theory and the Capital
Asset Pricing Model
Stephen J. Brown, New York University, USA
Chapter 63: Issue of Corporate Finance Research
Kose John, New York University, USA
Chapter 64: Asian Options
Itzhak Venezia, Hebrew University, USA
Chapter 65: Keiretsu Style Main Bank Relationships, R&D Investment, Leverage,
and Firm Value: Evidence from Japanese Listed Companies
Hai-Chin Yu, Chung Yuan University, Taiwan
Chih-Sean Chen, Chung Yuan University, Taiwan
Der-Tzon Hsieh, National Taiwan University, Taiwan
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Quantitative Finance and Risk Management
Chapter 66: Alternative Models for Estimating the Cost of Equity Capital for Property/Casualty Insurers
Alice Lee, San Francisco State University, USA
J.D. Cumming, Temple University, USA
Chapter 67: An ODE Approach for the Expected Discounted Penalty at Ruin
Cheng Few Lee, Rutgers University, USA
Yu-Ting Chen, National Chao Tung University, Taiwan
Yuan-Chung Sheu, National Chao Tung University, Taiwan
Chapter 68: Functional Forms, Market Segmentation and Pricing of Closed-end Country Funds
Cheng-Few Lee, Rutgers University, USA
Dilip K. Patro, Federal Deposit Insurance Company, USA
Bo Liu, Rutgers University, USA
Alice C. Lee, San Francisco State University, USA
Chapter 69: Actuarial mathematics and its applications in quantitative finance
Cho-Jieh Chen, University of Alberta, Canada
Chapter 70: Examining the Impact of US IT Stock Market on Other IT Stock Markets
Zhuo Qiao, National University of Singapore, Singapore
Venus Khim-Sen Liew, Universiti Malaysia Sabah, Malaysia
Wing-Keung Wong, Hong Kong Baptist University, Hong Kong
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Quantitative Finance and Risk Management
Chapter 71: Time-Series Econometrics and Dynamic Financial Models
Robert H. Patrick, Rutgers University, USA
Chaptere72 Framework of Structure Finance
Francis Eng, Rutgers University, USA
Chapter73 Persistence, Predictability and Portfolio Planning
Michael J. Brennan, University of California at Los Angeles, USA
Yihong Xia Wharton School, USA
Chapter 74 Application of Alternative ODE in Finance and Economics Research
Cheng Few Lee, Rutgers University, USA
Junmin Shi, Rutgers University, USA
Chapter 75 Term Structure and Risk Management
ChunChi Wu, University of Missouri, USA
Chapter 76 Issues in Operational Risk Modeling
Mo Chaudhury, State Street Corporation, USA
Satya Mohit, State Street Corporation, USA
Chapter 77 Application of Simultaneous Equation in Finance Research
Carl R. Chen, University of Dayton, USA
Cheng Few Lee, Rutgers University, USA
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Quantitative Finance and Risk Management
Chapter 78: Alternative Method for Credit Risk Management: Theory and Method
Cheng Few Lee, Rutgers University, USA
Bi-Huei Tsai, National Chiao Tung University, Taiwan
Kehluh Wang, National Chiao Tung University, Taiwan
Jessica Shin-Ying Mai, Rutgers University, USA
Chapter 79 : Future Hedge Ratios: A Review
Sheng-Syan Cheng, National Taiwan University, Taiwan
Keshab Shrestha, Nanyang Technological University, Singapore
Cheng Few Lee, Rutgers University, USA
Chapter 80 : International Portfolio Management: Theory and Method
Wan-Jiun Paul Chiou, Shippensburg University, USA
Cheng Few Lee, Rutgers University, USA
Table of Contents for Handbook of
Quantitative Finance and Risk Management
Part VI –Summary and Concluding Remarks
A. Theory
B. Methods
C. Application
a. New Products
b. Trading Strategy
c. Hedging Strategy
d. Wealth Management
e. Risk Management
f. CDO and Subprime Markets
g. Others
Table of Contents for Handbook of
Quantitative Finance and Risk Management
Part VII – Appendixes
A. Derivation of Dividend Discount Model
B. Derivation of DOL, DFL, and DCL
C. Derivation of M & M Propositions
D. Derivation of CAPM
E. Derivation of OPM
Part VIII– References
Part IX– Index
Subject Index
Author Index
Table of Contents for Handbook of
Quantitative Finance and Risk Management
I. Introduction
Quantitative finance is a combination of economics, accounting,
statistics, econometrics, mathematics, stochastic process, and computer
science and technology. This handbook will be the most comprehensive
handbook in quantitative finance, which integrates theory, methodology,
and application. Because of the importance of quantitative finance in
the finance industry, it has become one of the most popular subjects in
business school. In addition, the finance industry has many job
opportunities for people with good training in quantitative finance.
Thus, a handbook should have a broad audience and be of interest to
academics, educators, students, and practitioners.
Based upon our years of experience in teaching, research, textbook
writing, and journal editing on the subject of quantitative finance, this
handbook will review, discuss, and integrate theoretical, methodological
and practical issues of quantitative finance. This handbook will be
structured as follows:
Table of Contents for Handbook of
Quantitative Finance and Risk Management
Part
Part
Part
Part
Part
Part
Part
Part
Part
I. Introduction
II. Essay
III. Portfolio Analysis
IV. Options and Futures
V. Contributed Papers
A. Theories
B. Methodologies
C. Applications
VI –Summary and Concluding Remarks
A. Theory
B. Methods
C. Application
VII. Appendix
VIII. References
IX. Index
A. Subject Index
B. Author Index
Table of Contents for Handbook of
Quantitative Finance and Risk Management
Part II of this handbook will cover in detail the essential
financial theories, financial policies, and empirical
methodologies used in quantitative finance. Finance
theories can be classified into (1) classical theory, (2) new
classical theory, (3) CAPM and APT, and (4) theory of option
and futures. Financial policies can be classified into (1)
investment policy, (2) financing policy, (3) dividend policy,
and (4) production policy. The empirical methodologies that
will be covered in part II are statistics, econometrics,
mathematics, operation research, stochastic process, and
computer science, and technology. Therefore, part II of this
handbook will be structured as follows:
Table of Contents for Handbook of
Quantitative Finance and Risk Management
A.
B.
C.
Theory
1)
2)
3)
4)
Classical theory
New classical theory
CAPM and APT
Theory of option and futures
1)
2)
3)
4)
Investment policy
Financing policy
Dividend policy
Production policy
1)
2)
3)
4)
5)
6)
Statistics
Econometrics
Mathematics
Operation research
Stochastic process
Computer science and technology
Policy
Methodology
Table of Contents for Handbook of
Quantitative Finance and Risk Management
Most of part II will be written by Cheng Few Lee and Alice Lee. Some portion of part II
will be written by other well-known scholars. Detailed derivation of theory and
development of methodology will be presented in the appendix of this handbook. The
Appendix of this handbook will give detailed derivation of different finance theory and
model such as stock variation model M&M theory, portfolio theory, CAPM, APT, OPM, and
future valuation model.
Part III of this handbook covers portfolio analysis and Part IV of this handbook includes
options and futures. Part V of this handbook includes contributed papers which will be
written by well-know quantitative finance scholars and practitioners. The theoretical
portion of these contributed papers will cover important finance theory, such as stock
valuation theory, M&M theories, portfolio theories, CAPM, OPM, options, futures and other
relevant theories in quantitative finance. The methodology portion of the contributed
papers will cover methodologies of statistics, econometrics, mathematics, operation
research, simulation and computer programming in quantitative finance research. The
applications portion of the contributed papers will cover applications of options and
futures theories in different financial instruments and products. Portfolio analysis and
mutual fund evaluation will also be presented in this portion. In addition, market risk,
credit risk and operation risk will be discussed in this portion in detail.
Part VII will present Appendix. Part VIII will include important references in quantitative
finance. Finally, both subject and author index will be presented in Part IX.