Statistics of Financial Markets, 2nd Edition

Statistics of Financial Markets: Exercises and Solutions (Universitext)

Practice makes perfect. Therefore the best method of mastering models is working with them.

This book contains a large collection of exercises and solutions which will help explain the statistics of financial markets. These practical examples are carefully presented and provide computational solutions to specific problems, all of which are calculated using R and Matlab. This study additionally looks at the concept of corresponding Quantlets, the name given to these program codes and which follow the name scheme SFSxyz123.

The book is divided into three main parts, in which option pricing, time series analysis and advanced quantitative statistical techniques in finance is thoroughly discussed. The authors have overall successfully created the ideal balance between theoretical presentation and practical challenges.

Table of Contents

Part I Option Pricing 31
Chapter 1 Derivatives 32
Chapter 2 Introduction to Option Management 42
Chapter 3 Basic Concepts of Probability Theory 54
Chapter 4 Stochastic Processes in Discrete Time 64
Chapter 5 Stochastic Integrals and Differential Equations 71
Chapter 6 Black-Scholes Option Pricing Model 87
Chapter 7 Binomial Model for European Options 107
Chapter 8 American Options 118
Chapter 9 Exotic Options 128
Chapter 10 Models for the Interest Rate and Interest Rate Derivatives 146

Part II Statistical Model of Financial Time Series 156
Chapter 11 Financial Time Series Models 157
Chapter 12 ARIMA Time Series Models 168
Chapter 13 Time Series with Stochastic Volatility 187

Part III Selected Financial Applications 199
Chapter 14 Value at Risk and Backtesting 200
Chapter 15 Copulae and Value at Risk 212
Chapter 16 Statistics of Extreme Risks 219
Chapter 17 Volatility Risk of Option Portfolios 244
Chapter 18 Portfolio Credit Risk 252