Equity Hybrid Derivatives

Equity Hybrid Derivatives

by MARCUS OVERHAUS, ANA BERMúDEZ, HANS BUEHLER, ANDREW FERRARIS, CHRISTOPHER JORDINSON, AZIZ LAMNOUAR
Released February 2007
Publisher(s): Wiley
ISBN: 9780471770589

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Book description

Take an in-depth look at equity hybrid derivatives.

Written by the quantitative research team of Deutsche Bank, the world leader in innovative equity derivative transactions, this book presents leading-edge thinking in modeling, valuing, and hedging for this market, which is increasingly used for investment by hedge funds. You'll gain a balanced, integrated presentation of theory and practice, with an emphasis on understanding new techniques for analyzing volatility and credit derivative transactions linked to equity. In every instance, theory is illustrated along with practical application.

Marcus Overhaus, PhD, is Managing Director and Global Head of Quantitative Research and Equity Structuring. Ana Bermudez, PhD, is an Associate in Global Quantitative Research. Hans Buehler, PhD, is a Vice President in Global Quantitative Research. Andrew Ferraris, DPhil, is a Managing Director in Global Quantitative Research. Christopher Jordinson, PhD, is a Vice President in Global Quantitative Research. Aziz Lamnouar, DEA, is a Vice President in Global Quantitative Research. All are associated with Deutsche Bank AG, London.

Table of contents

  1. Cover Page
  2. Title Page
  3. Copyright
  4. Contents
  5. Preface
  6. PART One: Modeling Volatility
    1. CHAPTER 1: Theory
      1. 1.1 CONCEPTS OF EQUITY MODELING
      2. 1.2 IMPLIED VOLATILITY
      3. 1.3 FITTING THE MARKET
      4. 1.4 THEORY OF REPLICATION
    2. CHAPTER 2: Applications
      1. 2.1 CLASSIC EQUITY MODELS
      2. 2.2 VARIANCE SWAPS, ENTROPY SWAPS, GAMMA SWAPS
      3. 2.3 VARIANCE SWAP MARKET MODELS
  7. PART Two: Equity Interest Rate Hybrids
    1. CHAPTER 3: Short-Rate Models
      1. 3.1 INTRODUCTION
      2. 3.2 ORNSTEIN-UHLENBECK MODELS
      3. 3.3 CALIBRATING TO THE YIELD CURVE
      4. 3.4 CALIBRATING THE VOLATILITY
      5. 3.5 PRICING HYBRIDS
      6. 3.6 APPENDIX: LEAST-SQUARES MINIMIZATION
    2. CHAPTER 4: Hybrid Products
      1. 4.1 THE EFFECTS OF ASSUMING STOCHASTIC RATES
      2. 4.2 CONDITIONAL TRIGGER SWAPS
      3. 4.3 TARGET REDEMPTION NOTES
      4. 4.4 CONVERTIBLE BONDS
      5. 4.5 EXCHANGEABLE BONDS
    3. CHAPTER 5: Constant Proportion Portfolio Insurance
      1. 5.1 INTRODUCTION TO PORTFOLIO INSURANCE
      2. 5.2 CLASSICAL CPPI
      3. 5.3 RESTRICTED CPPI
      4. 5.4 OPTIONS ON CPPI
      5. 5.5 NONSTANDARD CPPIS
      6. 5.6 CPPI AS AN UNDERLYING
      7. 5.7 OTHER ISSUES RELATED TO THE CPPI
      8. 5.8 APPENDIXES
  8. PART Three: Equity Credit Hybrids
    1. CHAPTER 6: Credit Modeling
      1. 6.1 INTRODUCTION
      2. 6.2 BACKGROUND ON CREDIT MODELING
      3. 6.3 MODELING EQUITY CREDIT HYBRIDS
      4. 6.4 PRICING
      5. 6.5 CALIBRATION
      6. 6.6 INTRODUCTION OF DISCONTINUITIES
      7. 6.7 EQUITY DEFAULT SWAPS
      8. 6.8 CONCLUSION
  9. PART Four: Advanced Pricing Techniques
    1. CHAPTER 7: Copulas Applied to Derivatives Pricing
      1. 7.1 INTRODUCTION
      2. 7.2 THEORETICAL BACKGROUND OF COPULAS
      3. 7.3 FACTOR COPULA FRAMEWORK
      4. 7.4 APPLICATIONS TO DERIVATIVES PRICING
      5. 7.5 CONCLUSION
    2. CHAPTER 8: Forward PDEs and Local Volatility Calibration
      1. 8.1 INTRODUCTION
      2. 8.2 FORWARD PDEs
      3. 8.3 PURE EQUITY CASE
      4. 8.4 LOCAL VOLATILITY WITH STOCHASTIC INTEREST RATES
      5. 8.5 CALIBRATING THE LOCAL VOLATILITY
      6. 8.6 SPECIAL CASE: VASICEK PLUS A TERM STRUCTURE OF EQUITY VOLATILITIES
    3. CHAPTER 9: Numerical Solution of Multifactor Pricing Problems Using Lagrange-Galerkin with Duality Methods
      1. 9.1 INTRODUCTION
      2. 9.2 THE MODELING FRAMEWORK: A GENERAL D-FACTOR MODEL
      3. 9.3 NUMERICAL SOLUTION OF PARTIAL DIFFERENTIAL INEQUALITIES (VARIATIONAL INEQUALITIES)
      4. 9.4 NUMERICAL SOLUTION OF PARTIAL DIFFERENTIAL EQUATIONS (VARIATIONAL EQUALITIES): CLASSICAL LAGRANGE-GALERKIN METHOD
      5. 9.5 HIGHER-ORDER LAGRANGE-GALERKIN METHODS
      6. 9.6 APPLICATION TO PRICING OF CONVERTIBLE BONDS
      7. 9.7 APPENDIX: LAGRANGE TRIANGULAR FINITE ELEMENTS
    4. CHAPTER 10: American Monte Carlo
      1. 10.1 INTRODUCTION
      2. 10.2 BROADIE AND GLASSERMAN
      3. 10.3 REGULARLY SPACED RESTARTS
      4. 10.4 THE LONGSTAFF AND SCHWARTZ ALGORITHM
      5. 10.5 ACCURACY AND BIAS
      6. 10.6 PARAMETERIZING THE EXERCISE BOUNDARY
  10. Bibliography
  11. Index

Product information

  • Title: Equity Hybrid Derivatives
  • Author(s): MARCUS OVERHAUS, ANA BERMúDEZ, HANS BUEHLER, ANDREW FERRARIS, CHRISTOPHER JORDINSON, AZIZ LAMNOUAR
  • Release date: February 2007
  • Publisher(s): Wiley
  • ISBN: 9780471770589