Computational Methods in Financial Engineering (eBook)

Essays in Honour of Manfred Gilli

Erricos Kontoghiorghes, Berc Rustem, Peter Winker (Herausgeber)

eBook Download: PDF

2008 | 2008
XIV, 425 Seiten
Springer Berlin (Verlag)
978-3-540-77958-2 (ISBN)

Infos

Computational models and methods are central to the analysis of economic and financial decisions. Simulation and optimisation are widely used as tools of analysis, modelling and testing. The focus of this book is the development of computational methods and analytical models in financial engineering that rely on computation. The book contains eighteen chapters written by leading researchers in the area on portfolio optimization and option pricing; estimation and classification; banking; risk and macroeconomic modelling. It explores and brings together current research tools and will be of interest to researchers, analysts and practitioners in policy and investment decisions in economics and finance.

Inhalt

Preface 7
Contents 9
List of Contributors 11
Part I Portfolio Optimization and Option Pricing 16
Threshold Accepting Approach to Improve Bound- based Approximations for Portfolio Optimization 17
1 Introduction 17
2 Portfolio Problem 20
3 Time Discretization 22
4 Multistage Stochastic Programs 24
5 Space Discretization 26
6 Case Study 33
Acknowledgments 38
References 38
Risk Preferences and Loss Aversion in Portfolio Optimization 41
1 Assets and Asset Selection 41
2 Portfolio Optimization under Loss Aversion 44
3 Heuristic Methods for Portfolio Optimization 46
4 Empirical Study 50
5 Conclusion 57
Acknowledgements 58
References 58
Generalized Extreme Value Distribution and Extreme Economic Value at Risk ( EE- VaR) 61
1 Introduction 61
2 Model and Methodology 66
3 Data Description 69
4 Empirical Modelling and Results on Implied RNDs 70
5 Conclusions 82
Acknowledgements 83
References 83
Portfolio Optimization under VaR Constraints Based on Dynamic Estimates of the Variance- Covariance Matrix 87
1 Introduction 87
2 Model 90
3 Optimization Method 93
4 Empirical Analysis 96
5 Conclusion 105
Acknowledgements 106
References 106
Optimal Execution of Time-Constrained Portfolio Transactions 109
1 Introduction 109
2 Problem Definition 110
3 Price Dynamics 110
4 An Approximation Approach 111
5 Numerical Example 113
6 Monte Carlo Simulation 114
7 Concluding Remarks 114
Acknowledgements 116
References 116
Semidefinite Programming Approaches for Bounding Asian Option Prices 117
Preamble 117
1 Introduction 117
2 SDP Strategy for Bounding Option Prices 119
3 Conclusion 127
References 127
The Evaluation of Discrete Barrier Options in a Path Integral Framework 131
1 Introduction 131
2 The General Barrier Structure 133
3 The Barrier Option as a Functional Recurrence Relation Equation 135
4 The Fourier-Hermite Series Expansion 136
5 Results 142
6 Conclusion 145
Acknowledgements 146
References 146
Appendix 147
A The Coefficient 147
B The Coefficient 148
C The Coefficient 149
D The Coefficient 150
E The Coefficient 151
F The Coefficient 153
G The Coefficient 155
H Useful Notation 157
Part II Estimation and Classi.cation 159
Robust Prediction of Beta 161
Preamble 161
1 Introduction 161
2 Shrinkage Robust Estimators of Beta 163
3 Empirical Evidence 165
4 Monte Carlo Simulations 168
5 Conclusion 174
Acknowledgements 174
References 174
Neural Network Modelling with Applications to Euro Exchange Rates 177
1 Introduction 177
2 Feedforward Neural Network Models 180
3 Variable Selection in Neural Network Models 183
4 Numerical Examples and Monte Carlo Results 186
5 An Application to Euro Exchange Rates 190
6 Conclusions 193
Acknowledgements 194
References 194
Testing Uncovered Interest Rate Parity and Term Structure Using Multivariate Threshold Cointegration 205
Preamble 205
1 Introduction 206
2 The Economic Relations 208
3 The Econometric Framework 210
4 Empirical Analysis 216
5 Conclusion 220
Acknowledgements 220
References 220
Classification Using Optimization: Application to Credit Ratings of Bonds 225
1 Introduction 225
2 Description of Methodology 227
3 Constraints 232
4 Choosing Model Flexibility 237
5 Error Estimation 244
6 Bond Classi.cation Problem 245
7 Description of Data 246
8 Numerical Experiments 247
9 Concluding Remarks 250
References 251
Evolving Decision Rules to Discover Patterns in Financial Data Sets 253
1 Introduction 253
2 Previous Work 254
3 PerformanceMetrics 255
4 Evolving Comprehensible Rules 258
5 Results and Discussion 260
6 Conclusions 265
Acknowledgements 267
References 267
Part III Banking, Risk and Macroeconomic Modelling 271
A Banking Firm Model: The Role of Market, Liquidity and Credit Risks 273
1 Introduction 273
2 The Model 275
3 Conclusion 282
Acknowledgements 285
References 285
Identification of Critical Nodes and Links in Financial Networks with Intermediation and Electronic Transactions 287
1 Introduction 287
2 The Financial Network Model with Intermediation and Electronic Transactions 290
3 The Financial Network Performance Measure and the Importance of Financial Network Components 298
4 Numerical Examples 302
5 Summary and Conclusions 307
Acknowledgements 307
References 308
An Analysis of Settlement Risk Contagion in Alternative Securities Settlement Architectures 313
Preamble 313
1 Introduction 313
2 The Basic Framework 318
3 Numerical Analysis 320
4 Conclusions 327
Acknowledgements 328
References 328
Integrated Risk Management: Risk Aggregation and Allocation Using Intelligent Systems 331
1 Introduction 331
2 Current Silo-Based Approach to Risk Management 332
3 An Integrated Approach to Risk Management 334
4 Summary and Outlook 351
Acknowledgements 353
References 353
A Stochastic Monetary Policy Interest Rate Model 357
1 Introduction 357
2 Continuous-time Lattices 359
3 The Interest Rate Model 368
4 Conclusions 396
A Continuous-time Finite-state Markov Chains 397
B Markov Generator Discretization 400
C Option Pricing with Continuous-time Lattices 401
D Moments Method for Range Accruals 402
References 404
Duali: Software for Solving Stochastic Control Problems in Economics 407
Preamble 407
1 Introduction 408
2 The Beck and Wieland Model in Wieland’s Notation 409
3 The Beck and Wieland Model in Kendrick’s Notation 410
4 Open Loop 414
5 Optimal Feedback 415
6 Expected Optimal Feedback 417
7 OF versus EOF 422
8 Expected Optimal Feedback with Time-Varying Parameters (EOFwT) 423
9 OFwT versus EOFwT 424
10 Conclusion 425
References 425
A The Beck and Wieland Model in 427
Index 435

Produkt-Details

• Erscheint lt. Verlag: 26.2.2008
• Zusatzinfo: XIV, 425 p. 88 illus.
• Verlagsort: Berlin
• Sprache: englisch
• Themenwelt: Mathematik / Informatik ► Mathematik
• Themenwelt: Recht / Steuern ► Wirtschaftsrecht
• Themenwelt: Sozialwissenschaften ► Politik / Verwaltung ► Staat / Verwaltung
• Themenwelt: Technik
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management ► Finanzierung
• Themenwelt: Wirtschaft ► Volkswirtschaftslehre ► Wirtschaftspolitik
• Schlagworte: Calculus • Euro • Finance • Financial Engineering • Investment • Modeling • Modelling of Financial Networks • Optimization • Option pricing • portfolio optimization • Quantitative Finance • Risk Management • Simulation
• ISBN-10: 3-540-77958-2 / 3540779582
• ISBN-13: 978-3-540-77958-2 / 9783540779582