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The Mathematics of Financial Models: Solving Real-World Problems with Quantitative Methods

Book Description

Learn how quantitative models can help fight client problems head-on

Before financial problems can be solved, they need to be fully understood. Since in-depth quantitative modeling techniques are a powerful tool to understanding the drivers associated with financial problems, one would need a solid grasp of these techniques before being able to unlock their full potential of the methods used. In The Mathematics of Financial Models, the author presents real world solutions to the everyday problems facing financial professionals. With interactive tools such as spreadsheets for valuation, pricing, and modeling, this resource combines highly mathematical quantitative analysis with useful, practical methodologies to create an essential guide for investment and risk-management professionals facing modeling issues in insurance, derivatives valuation, and pension benefits, among others. In addition to this, this resource also provides the relevant tools like matrices, calculus, statistics and numerical analysis that are used to build the quantitative methods used.

Financial analysts, investment professionals, risk-management professionals, and graduate students will find applicable information throughout the book, and gain from the self-study exercises and the refresher course on key mathematical topics. Equipped with tips and information, The Mathematics of Financial Models

  • Provides practical methodologies based on mathematical quantitative analysis to help analysts, investment and risk-management professionals better navigate client issues

  • Contains interactive tools that demonstrate the power of analysis and modeling

  • Helps financial professionals become more familiar with the challenges across a range of industries

  • Includes a mathematics refresher course and plenty of exercises to get readers up to speed

  • The Mathematics of Financial Models is an in-depth guide that helps readers break through common client financial problems and emerge with clearer strategies for solving issues in the future.

    Table of Contents

    1. Preface
    2. Acknowledgments
    3. CHAPTER 1 Setting the Stage
      1. Why Is This Book Different?
      2. Road Map of the Book
      3. Notes
      4. References
    4. CHAPTER 2 Building Zero Curves
      1. Market Instruments
      2. Linear Interpolation
      3. Cubic Splining
      4. Appendix: Finding Swap Rates Using A Floating Coupon Bond Approach
      5. Notes
      6. References
    5. CHAPTER 3 Valuing Vanilla Options
      1. Black-Scholes Formulae
      2. Adaptations of the Black-Scholes Formulae
      3. Limitations of the Black-Scholes Formulae
      4. Application in Currency Risk Management
      5. Appendix
      6. Notes
      7. References
    6. CHAPTER 4 Simulations
      1. Uniform Number Generation
      2. Non-Uniform Number Generation
      3. Applications of Simulations
      4. Variance Reduction Techniques
      5. Notes
      6. References
    7. CHAPTER 5 Valuing Exotic Options
      1. Valuing Path-Independent, European-Style Options on a Single Variable
      2. Valuing Path-Dependent, European-Style Options on a Single Variable
      3. Valuing path-Independent, European-Style Options on Two Variables
      4. Valuing Path-Dependent, European-Style Options on Multiple Variables
      5. Notes
      6. References
    8. CHAPTER 6 Estimating Model Parameters
      1. Calibration of Parameters in the Black-Scholes Model
      2. Using Implied Black-Scholes Volatility Surface and Zero Rate Term Structure to Value Options
      3. Using Volatility Surface
      4. Calibration of Interest Rate Option Model Parameters
      5. Statistical Estimation
      6. Notes
      7. References
    9. CHAPTER 7 The Effectiveness of Hedging Strategies
      1. Delta Hedging
      2. Assumptions Underlying Delta Hedging
      3. Beyond Delta Hedging
      4. Testing Hedging Strategies
      5. Analysis Associated with the Hedging of a European-Style Vanilla Put Option
      6. Notes
      7. References
    10. CHAPTER 8 Valuing Variable Annuity Guarantees
      1. Basic GMDB
      2. Death Benefit Riders
      3. Other Details Associated with GMDB Products
      4. Improving Modeling Assumptions
      5. Living Benefit Riders
      6. Notes
      7. References
    11. CHAPTER 9 Real Options
      1. Surrendering a GMAB Rider
      2. Adding Servers in a Queue
      3. Notes
      4. References
    12. CHAPTER 10 Parting Thoughts
    13. About the Author
    14. About the Website
    15. Index
    16. End User License Agreement