Rethinking Valuation and Pricing Models: Lessons Learned from the Crisis and Future ChallengesCarsten Wehn, Christian Hoppe, Greg N. Gregoriou It is widely acknowledged that many financial modelling techniques failed during the financial crisis, and in our post-crisis 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 post-crisis paradigm.
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Contents
CHAPTER 1 THE EFFECTIVENESS OF OPTION PRICING MODELS DURING FINANCIAL CRISES | 1 |
CHAPTER 2 TAKING COLLATERAL INTO ACCOUNT | 13 |
CHAPTER 3 SCENARIO ANALYSIS IN CHARGE OF MODEL SELECTION | 27 |
CHAPTER 4 AN ECONOMICAL PRICING MODEL FOR HYBRID PRODUCTS
| 43 |
CHAPTER 5 CREDIT VALUATION ADJUSTMENTS MATHEMATICAL FOUNDATIONS PRACTICAL IMPLEMENTATION AND WRONG W... | 61 |
CHAPTER 6 COUNTERPARTY CREDIT RISK AND CREDIT VALUATION ADJUSTMENTS CVAS FOR INTEREST RATE DERIVATIVES CUR... | 77 |
CHAPTER 7 DESIGNING A COUNTERPARTY RISK MANAGEMENT INFRASTRUCTURE FOR DERIVATIVES | 99 |
CHAPTER 8 A JUMP DIFFUSION NOMINAL SHORT RATE MODEL
| 119 |
CHAPTER 21 ON CORRELATIONS BETWEEN A CONTRACT AND PORTFOLIO AND INTERNAL CAPITAL ALLIOCATION | 359 |
CHAPTER 22 A MAXIMUM ENTROPY APPROACH TO THE MEASUREMENT OF EVENT RISK | 375 |
RISKS NOT IN VALUE AT RISK | 387 |
CHAPTER 24 ACTIVE PORTFOLIO CONSTRUCTION WHEN RISK AND ALPHA FACTORS ARE MISALIGNED | 399 |
CHAPTER 25 MARKET VOLATILITY OPTIMAL PORTFOLIOS AND NAIVE ASSET ALLOCATIONS | 411 |
CHAPTER 26 HEDGING STRATEGIES WITH VARIABLE PURCHASE OPTIONS | 429 |
CHAPTER 27 ASSET SELECTION USING A FACTOR MODEL AND DATA ENVELOPMENT ANALYSIS A QUANTILE REGRESSION APPRO... | 443 |
CHAPTER 28 TAIL RISK REDUCTION STRATEGIES | 457 |
NEW MARKET FORMULAS FOR SWAPS CAPS AND SWAPTIONS | 137 |
CHAPTER 10 THE FINANCIAL CRISIS AND THE CREDIT DERIVATIVES PRICING MODELS | 147 |
CHAPTER 11 INDUSTRY VALUATIONDRIVEN EARNINGS MANAGEMENT | 177 |
CHAPTER 12 VALUATION OF YOUNG GROWTH FIRMS AND FIRMS IN EMERGING ECONOMIES | 191 |
CHAPTER 13 TOWARDS A REPLICATING MARKET MODEL FOR THE US OIL AND GAS SECTOR | 207 |
A DATA MINING APPROACH | 223 |
CHAPTER 15 COMPUTING RELIABLE DEFAULT PROBABILITIES IN TURBULENT TIMES | 241 |
CHAPTER 16 DISCOUNT RATES DEFAULT RISK AND ASSET PRICING IN A REGIME CHANGE MODEL | 257 |
CHAPTER 17 A REVIEW OF MARKET RISK MEASURES AND COMPUTATION TECHNIQUES | 283 |
EVIDENCE FROM ISE30 INDEX FUTURES | 303 |
CHAPTER 19 A COPULA APPROACH TO DEPENDENCE STRUCTURE IN PETROLEUM MARKETS | 317 |
A LESSON FOR FUTURE STRESSTESTING | 331 |
CHAPTER 29 IDENTIFICATION AND VALUATION IMPLICATIONS OF FINANCIAL MARKET SPIRALS | 471 |
CHAPTER 30 A RATINGBASED APPROACH TO PRICING SOVEREIGN CREDIT RISK | 485 |
CHAPTER 31 OPTIMAL PORTFOLIO CHOICE DERIVATIVES AND EVENT RISK | 501 |
CHAPTER 32 VALUATION AND PRICING CONCEPTS IN ACCOUNTING AND BANKING REGULATION | 519 |
THE CASE OF SHORT SALE BANS | 531 |
CHAPTER 34 QUANTITATIVE EASING FINANCIAL RISK AND PORTFOLIO DIVERSIFICATION | 545 |
LESSONS AND CHALLENGES | 571 |
CHAPTER 36 INVESTMENT OPPORTUNITIES IN AUSTRALIAS HEALTHCARE STOCK MARKETS AFTER THE RECENT GLOBAL FINAN... | 585 |
CHAPTER 37 PREDICTING ASX HEALTH CARE STOCK INDEX MOVEMENTS AFTER THE RECENT FINANCIAL CRISIS USING PATTER... | 599 |
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Common terms and phrases
alpha analysis approach arithmetic mean asset pricing asset value banks Basel calculated calibration capital cash flows CBLO coefficient cointegrating collateral computed convertible bond copula correlation counterparty counterparty risk credit derivatives credit risk credit spread crises curve dataset debt default probability derivatives distribution dynamics earnings management Economics empirical Equation equity expected Figure financial crisis forecast framework Gaussian copula hedging illiquidity implied volatility increase interest rate investment investors Journal of Finance jump risk liquidity loss market risk Merton methods oil and gas optimal option pricing parameters period portfolio premia pricing models quantile regression returns risk factors risk management risk measures risk model risk premium risk-neutral sample scenarios Section sector short sale short selling simulation skew spiral spread standard statistics stochastic stock market stock price strategy swap swaption term structure trading tranches value at risk variables VECM