The Art of Quantitative Finance Vol. 3

Risk, Optimal Portfolios, and Case Studies

verfasst von: Gerhard Larcher

Verlag: Springer International Publishing

Buchreihe : Springer Texts in Business and Economics

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Technik" , Springer Professional "Wirtschaft"

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Über dieses Buch

The textbook discusses risk management in capital markets and presents various techniques of portfolio optimization. Special attention is given to risk measurement and credit risk management. Furthermore, the author discusses optimal investment problems and presents various examples. In the last section, the book includes numerous case studies based on the author’s own work as a fund manager, court-appointed expert and consultant in the field of quantitative finance. This book is the third volume of the quantitative finance trilogy by the author and builds on the theoretical groundwork introduced in the previous books. The volume presents real-life examples of the successful application of the introduced techniques and methods in financial services and capital markets.

Inhaltsverzeichnis

Frontmatter

1. Risk Measurement and Credit Risk Management

Abstract

The central topic in this chapter is the efficient measurement of risk of portfolios of financial products. We introduce the concepts “value at risk (VaR)” and “conditional VaR (cVaR)”, and we estimate VaR and cVaR for different types of portfolio. Thereby we demonstrate the effect of reducing risk by diversification. Then we specifically will deal with credit risk management. Especially we will introduce in detail two of the most important credit risk management systems, namely, Credit Metrics (which was developed by J.P. Morgan) and Credit Risk+ (developed by Credit Suisse First Boston). For both systems we provide explicit elaborated examples.

Gerhard Larcher

2. Optimal Investment Problems

Abstract

We illustrate the classical Markowitz portfolio optimization theory in detail, and we give all essential proofs. Especially we show how to explicitly calculate the efficient border and the market portfolio in the case where short selling is possible without restrictions. In the case without short selling, we will work with Monte Carlo. We also introduce the single-index model as an alternative to estimate parameters needed for portfolio optimization.

Then we formulate the optimal investment and consumption problem. We give a heuristic and intuitive introduction to the basic techniques of stochastic optimal control, especially to the Hamilton-Jacobi-Bellman equations and to their application. With the help of these concepts, we solve the optimal investment and consumption problem and discuss the results.

Gerhard Larcher

3. Case Studies

Abstract

In this chapter we present a selection of examples of projects carried out by the author (and partly by members of his research group) in his capacity as a court-appointed expert and privately hired expert appraiser, as well as examples from his work as an analyst and consultant for various asset management, financial software, and fund management companies. A few select cases from his own research work are also included. In choosing these examples, we ensured that they align with the knowledge that readers have acquired in the course of this book.

Altogether we give 14 such case studies. Some topics handled with in these case studies, for example, are financial software based on machine learning, churning, pricing of interest swaps, callable range accrual swaps, analysis of put-write strategies, EUR CHF stop-loss order fiasco, portfolio selection based on sustainability parameters, basket derivatives, liquidity risk, ….

Gerhard Larcher

Titel: The Art of Quantitative Finance Vol. 3
verfasst von: Gerhard Larcher
Verlag: Springer International Publishing
Electronic ISBN: 978-3-031-23867-3
Print ISBN: 978-3-031-23866-6
DOI: https://doi.org/10.1007/978-3-031-23867-3