Rethinking Valuation and Pricing Models: Lessons Learned from the Crisis and Future Challenges

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Carsten Wehn, Christian Hoppe, Greg N. Gregoriou
Academic Press, Nov 22, 2012 - Business & Economics - 622 pages
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.

  • Highlights pre-crisis best classical practices, identifies post-crisis key issues, and examines emerging approaches to solving those issues
  • Singles out key factors one must consider when valuing or calculating risks in the post-crisis environment
  • Presents material in a homogenous, practical, clear, and not overly technical manner
 

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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
INDEX
611
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About the author (2012)

Head of the risk modelling team at DekaBank, Frankfurt, Germany. He is responsible for development and validation of internal portfolio models for measuring and managing credit risk.

Christian Hoppe is the Head of Credit Solutions at Commerzbank, Frankfurt, Germany, and the founder of Anleihen Finder GmbH.

A native of Montreal, Professor Greg N. Gregoriou obtained his joint Ph.D. in finance at the University of Quebec at Montreal which merges the resources of Montreal's four major universities McGill, Concordia, UQAM and HEC. Professor Gregoriou is Professor of Finance at State University of New York (Plattsburgh) and has taught a variety of finance courses such as Alternative Investments, International Finance, Money and Capital Markets, Portfolio Management, and Corporate Finance. He has also lectured at the University of Vermont, Universidad de Navarra and at the University of Quebec at Montreal.

Professor Gregoriou has published 50 books, 65 refereed publications in peer-reviewed journals and 24 book chapters since his arrival at SUNY Plattsburgh in August 2003. Professor Gregoriou's books have been published by McGraw-Hill, John Wiley & Sons, Elsevier-Butterworth/Heinemann, Taylor and Francis/CRC Press, Palgrave-MacMillan and Risk Books. Four of his books have been translated into Chinese and Russian. His academic articles have appeared in well-known peer-reviewed journals such as the Review of Asset Pricing Studies, Journal of Portfolio Management, Journal of Futures Markets, European Journal of Operational Research, Annals of Operations Research, Computers and Operations Research, etc.

Professor Gregoriou is the derivatives editor and editorial board member for the Journal of Asset Management as well as editorial board member for the Journal of Wealth Management, the Journal of Risk Management in Financial Institutions, Market Integrity, IEB International Journal of Finance, and the Brazilian Business Review. Professor Gregoriou's interests focus on hedge funds, funds of funds, commodity trading advisors, managed futures, venture capital and private equity. He has also been quoted several times in the New York Times, Barron's, the Financial Times of London, Le Temps (Geneva), Les Echos (Paris) and L'Observateur de Monaco. He has done consulting work for numerous clients and investment firms in Montreal. He is a part-time lecturer in finance at McGill University, an advisory member of the Markets and Services Research Centre at Edith Cowan University in Joondalup (Australia), a senior advisor to the Ferrell Asset Management Group in Singapore and a research associate with the University of Quebec at Montreal's CDP Capital Chair in Portfolio Management. He is on the advisory board of the Research Center for Operations and Productivity Management at the University of Science and Technology (Management School) in Hefei, Anhui, China.

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