handbook of quantitative finance and risk management edited by cheng-few lee rutgers university...

Handbook of Handbook of Quantitative Finance Quantitative Finance

and Risk and Risk ManagementManagement

Edited byEdited by

Cheng-Few LeeCheng-Few LeeRutgers UniversityRutgers University

Alice C. LeeAlice C. LeeSan Francisco State UniversitySan Francisco State University

This handbook expects to be published by Springer by January 2009. Please send all comments and suggestions to C.F. Lee at [email protected]

Table of Contents for Handbook ofTable of Contents for Handbook of Quantitative Finance and Risk Quantitative Finance and Risk

ManagementManagementPREFACEPREFACE

List of ContributorsList of Contributors

Part I – IntroductionPart I – Introduction

Part II – EssaysPart II – EssaysChapter 1 Theoretical Framework of FinanceChapter 1 Theoretical Framework of Finance

1) Classical Theory1) Classical Theory 2) New classical theory 2) New classical theory 3) CAPM and APT3) CAPM and APT 4) Options and Futures Theory4) Options and Futures Theory


ManagementManagementPart II – EssaysPart II – Essays

Chapter 2 Policy Framework of Finance Chapter 2 Policy Framework of Finance 1) Investment Policy 1) Investment Policy 2) Financial Policy 2) Financial Policy 3) Dividend Policy3) Dividend Policy 4) Production Policy4) Production Policy

Chapter 3 Research Methods of Quantitative Finance and Risk Chapter 3 Research Methods of Quantitative Finance and Risk Management Management

1) Statistics 1) Statistics 2) Econometrics2) Econometrics 3) Mathematics 4) Operation research3) Mathematics 4) Operation research 5) Stochastic process 6) Computer science and technology5) Stochastic process 6) Computer science and technology 7) Entropy 8) Fuzzy set Theory7) Entropy 8) Fuzzy set Theory 9) Other Methods9) Other Methods

Chapter 4 Overview of Quantitative Finance and Risk Management Chapter 4 Overview of Quantitative Finance and Risk Management ResearchResearch


ManagementManagementPart III –Portfolio AnalysisPart III –Portfolio Analysis

Chapter 1 Basic Concepts of Portfolio AnalysisChapter 1 Basic Concepts of Portfolio AnalysisChapter 2 Markowitz Portfolio-Selection ModelChapter 2 Markowitz Portfolio-Selection Model

Chapter 3 Capital Asset Pricing Model and Beta ForecastingChapter 3 Capital Asset Pricing Model and Beta ForecastingChapter 4 Index Model for Portfolio SelectionChapter 4 Index Model for Portfolio SelectionChapter 5 Performance-Measure Approaches for Selecting Optimum Chapter 5 Performance-Measure Approaches for Selecting Optimum

Portfolios Portfolios

Part IV – Options and FuturesPart IV – Options and Futures

A. Basic Concepts and StrategiesA. Basic Concepts and Strategies

Chapter 1Chapter 1 IntroductionIntroduction

Chapter 2Chapter 2 Options and Option StrategyOptions and Option Strategy2.1 The Option Market and Related Definition2.1 The Option Market and Related Definition

2.1 .1 What Is an Option?2.1 .1 What Is an Option?2.1 .2 Types of Options and Their Characteristics2.1 .2 Types of Options and Their Characteristics2.1 .3 Relationships Between the Option Price and the Underlying Asset 2.1 .3 Relationships Between the Option Price and the Underlying Asset PricePrice2.1 .4 Additional Definitions and Distinguishing Features2.1 .4 Additional Definitions and Distinguishing Features2.1 .5 Types of Underlying Asset2.1 .5 Types of Underlying Asset2.1 .6 Institutional Characteristics2.1 .6 Institutional Characteristics

2.2 Index and Futures Options2.2 Index and Futures Options


ManagementManagement2.3 Put-Call Parity2.3 Put-Call Parity

2.3.1 European Options2.3.1 European Options2.3.2 American Options2.3.2 American Options2.3.3 Futures Options2.3.3 Futures Options2.3.4 Market Applications2.3.4 Market Applications

2.4 Risk-Return Characteristics of Options2.4 Risk-Return Characteristics of Options2.4.1 Long Call2.4.1 Long Call2.4.2 Short Call2.4.2 Short Call2.4.3 Long Put2.4.3 Long Put2.4.4 Short Put2.4.4 Short Put2.4.5 Long Straddle2.4.5 Long Straddle2.4.6 Short Straddle2.4.6 Short Straddle2.4.7 Long Vertical (Butt) Spread2.4.7 Long Vertical (Butt) Spread2.4.8 Short Vertical (Butt) Spread2.4.8 Short Vertical (Butt) Spread2.4.9 Calender (time) Spreads2.4.9 Calender (time) Spreads

2.5 Summary2.5 Summary


ManagementManagementB.B. Statistical Analysis ApproachesStatistical Analysis ApproachesChapter 3 Binomial Option Pricing ModelsChapter 3 Binomial Option Pricing Models

3.1 Introduction3.1 Introduction3.2 Some Properties of the Binomial Distribution3.2 Some Properties of the Binomial Distribution3.3 Some Properties of the Normal Distribution3.3 Some Properties of the Normal Distribution3.4 The Binomial Option Pricing of Cox, Ross and Rubinstein3.4 The Binomial Option Pricing of Cox, Ross and Rubinstein

3.4.1 Derivation of the Option Pricing Model3.4.1 Derivation of the Option Pricing Model3.4.2 The Black and Scholes Model as a Limiting Case3.4.2 The Black and Scholes Model as a Limiting Case

3.5 The Binomial Option Pricing of Rendleman and Barter3.5 The Binomial Option Pricing of Rendleman and Barter3.5.1 Derivation of the Option Pricing Model3.5.1 Derivation of the Option Pricing Model3.5.2 The Black and Scholes Model as a Limiting Case3.5.2 The Black and Scholes Model as a Limiting Case

Chapter 4 Multinomial Option Pricing ModelChapter 4 Multinomial Option Pricing Model4.1 Introduction4.1 Introduction4.2 Multinomial Option Pricing Model4.2 Multinomial Option Pricing Model

4.2.1 Derivation of the Option Pricing Model4.2.1 Derivation of the Option Pricing Model4.2.2 The Black and Scholes Model as a Limiting Case 4.2.2 The Black and Scholes Model as a Limiting Case

4.3 A Lattice Framework for Option Pricing4.3 A Lattice Framework for Option Pricing4.3.1 Modification of the Two State Approach for a Single State 4.3.1 Modification of the Two State Approach for a Single State VariableVariable4.3.2 A Lattice Model for Valuation of Options on Two Underlying Assets4.3.2 A Lattice Model for Valuation of Options on Two Underlying Assets


ManagementManagementChapter 5 The Lognormal Option Pricing ModelChapter 5 The Lognormal Option Pricing Model

5.1 Introduction5.1 Introduction 5.2 The Lognormal Distribution5.2 The Lognormal Distribution

5.2.15.2.1 Some Properties of the Lognormal DistributionSome Properties of the Lognormal Distribution5.2.25.2.2 The Lognormal Distribution and Its Relationship The Lognormal Distribution and Its Relationship

to the Normal Distributionto the Normal Distribution5.2.35.2.3 Derivation of the Black and Scholes Option Derivation of the Black and Scholes Option

Pricing Model Pricing Model 5.35.3 Limitations of The Lognormal Option Pricing ModelLimitations of The Lognormal Option Pricing Model

Chapter 6Chapter 6 Bivariate Normal Option Pricing ModelsBivariate Normal Option Pricing Models6.16.1 IntroductionIntroduction6.26.2 European Options versus American OptionsEuropean Options versus American Options6.36.3 The Bivariate Normal Option Pricing ModelsThe Bivariate Normal Option Pricing Models6.46.4 ExamplesExamples


ManagementManagementC.C. Stochastic Calculus ApproachesStochastic Calculus Approaches

Chapter 7 Ito Calculus and The Black and Scholes Option Pricing ModelChapter 7 Ito Calculus and The Black and Scholes Option Pricing Model7.1 Introduction7.1 Introduction7.2 Review of Stochastic Processes7.2 Review of Stochastic Processes7.3 Review of Ito Calculus 7.3 Review of Ito Calculus

7.4 Ito Calculus Approach to The Black and Scholes Options Pricing 7.4 Ito Calculus Approach to The Black and Scholes Options Pricing ModelModel 7.4.1 Derivation of the Black and Scholes Option Pricing Model7.4.1 Derivation of the Black and Scholes Option Pricing Model 7.4.2 Limitations of the Black and Scholes Option Pricing Model7.4.2 Limitations of the Black and Scholes Option Pricing Model

Chapter 8 Constant Elasticity of Variance (CEV) Option Pricing ModelChapter 8 Constant Elasticity of Variance (CEV) Option Pricing Model8.18.1 IntroductionIntroduction8.28.2 Review of Noncentral Review of Noncentral xx22 Distribution Distribution

8.38.3 Noncentral Noncentral xx22 Approach to Option Pricing Models Approach to Option Pricing Models 8.3.18.3.1 Derivation of the Probability Density Function under CEVDerivation of the Probability Density Function under CEV 8.3.28.3.2 The Option Pricing Model under CEVThe Option Pricing Model under CEV


ManagementManagement

Chapter 9Chapter 9 Stochastic Volatility Option Pricing ModelStochastic Volatility Option Pricing Model9.19.1 IntroductionIntroduction9.29.2 Review of Characteristic FunctionReview of Characteristic Function9.39.3 Nonclosed-Form type of Option Pricing ModelNonclosed-Form type of Option Pricing Model9.49.4 Closed-Form type of Option Pricing ModelClosed-Form type of Option Pricing Model

Chapter 10Chapter 10 A General Option Pricing ModelA General Option Pricing Model10.110.1 IntroductionIntroduction10.210.2 The Jump Diffusion ModelThe Jump Diffusion Model10.310.3 Option Pricing Model with Random Variance and Option Pricing Model with Random Variance and

Interest RateInterest Rate 10.410.4 Stochastic Volatility, Interest Rates, and Jumps Stochastic Volatility, Interest Rates, and Jumps Option Pricing ModelOption Pricing Model


ManagementManagementD.D. ApplicationsApplicationsChapter 11 Option Valuation and HedgingChapter 11 Option Valuation and Hedging

11.1 Introduction11.1 Introduction11.2 The Hedge Ratio11.2 The Hedge Ratio11.3 The Sensitivities of the Black-Scholes OPM to the Inputs11.3 The Sensitivities of the Black-Scholes OPM to the Inputs11.4 Option Elasticity and Beta11.4 Option Elasticity and Beta11.5 Estimating the Inputs11.5 Estimating the Inputs11.6 Extensions of the Black-Scholes OPM11.6 Extensions of the Black-Scholes OPM11.7 Pricing Other Financial Securities Using Option Pricing Theory11.7 Pricing Other Financial Securities Using Option Pricing Theory11.8 Evaluating the Black-Scholes Option-Pricing Model11.8 Evaluating the Black-Scholes Option-Pricing Model11.9 Estimating the Implied Standard Deviation with OLS11.9 Estimating the Implied Standard Deviation with OLS

Chapter 12 Foreign Exchange Option Pricing ModelsChapter 12 Foreign Exchange Option Pricing Models12.1 Introduction12.1 Introduction

12.212.2 Derivation of Foreign Exchange Option Pricing ModelsDerivation of Foreign Exchange Option Pricing Models 12.2.112.2.1 Option on Foreign ExchangeOption on Foreign Exchange 12.2.212.2.2 Options on Foreign Exchange FuturesOptions on Foreign Exchange Futures

12.312.3 Applications of Foreign Exchange Option Pricing ModelsApplications of Foreign Exchange Option Pricing Models


ManagementManagementChapter 13 Index Option Pricing ModelsChapter 13 Index Option Pricing Models 13.1 Introduction 13.1 Introduction 13.213.2 Derivation of Index Option Pricing Models Derivation of Index Option Pricing Models 13.2.113.2.1 Option on IndexOption on Index 13.2.213.2.2 Option on Index FuturesOption on Index Futures

13.3 Applications of Index Option Pricing Models13.3 Applications of Index Option Pricing ModelsChapter 14 Real OptionsChapter 14 Real Options

14.1 Introduction14.1 Introduction14.2 Traditional Approaches of Capital Budgeting Under Uncertainty14.2 Traditional Approaches of Capital Budgeting Under Uncertainty 14.2.1 Statistical Distribution Approach14.2.1 Statistical Distribution Approach 14.2.2 Decision Tree Approach14.2.2 Decision Tree Approach 14.2.3 Certainty Equivalence Approach14.2.3 Certainty Equivalence Approach14.3 Real Option Approach to Capital Budgeting Decisions14.3 Real Option Approach to Capital Budgeting Decisions 14.3.1 Venture Capital Investment Decision14.3.1 Venture Capital Investment Decision 14.3.2 New Product Investment Decision14.3.2 New Product Investment Decision14.4 Real Option Pricing Models14.4 Real Option Pricing Models 14.4.1 Univariate Normal Model14.4.1 Univariate Normal Model 14.4.2 Bivariate Normal Model14.4.2 Bivariate Normal Model 14.4.3 Multivariate Normal Model14.4.3 Multivariate Normal Model

Chapter 15 Option Pricing Model and Risk ManagementChapter 15 Option Pricing Model and Risk ManagementChapter 16 Summary and Concluding RemarksChapter 16 Summary and Concluding Remarks


ManagementManagementPart V – Contributed PapersPart V – Contributed Papers

Chapter 1: The Creation and Control of Speculative Bubbles in a Laboratory SettingChapter 1: The Creation and Control of Speculative Bubbles in a Laboratory SettingJames S. Ang, Florida State University, USAJames S. Ang, Florida State University, USADean Diavatopoulous, Florida State University, USADean Diavatopoulous, Florida State University, USAThomas V. Schwarz, Grand Valley State University, USAThomas V. Schwarz, Grand Valley State University, USA

Chapter 2: Business Models: Applications to Capital Budgeting, Equity Value and Return AttributionChapter 2: Business Models: Applications to Capital Budgeting, Equity Value and Return AttributionThomas S. Y. HoThomas S. Y. HoSang Bin Lee, Hanyang University, KoreaSang Bin Lee, Hanyang University, Korea

Chapter 3: Risk and Valuation Under an Intertemporal Capital Asset Pricing ModelsChapter 3: Risk and Valuation Under an Intertemporal Capital Asset Pricing ModelsMichael J. Brennan, Anderson School, USAMichael J. Brennan, Anderson School, USAYihong Xia, Pennsylvania University, USAYihong Xia, Pennsylvania University, USA

Chapter 4: Portfolio Optimization Models and Mean-Variance Spanning TestsChapter 4: Portfolio Optimization Models and Mean-Variance Spanning TestsWei-Peng Chen, Shih Hsin University, TaiwanWei-Peng Chen, Shih Hsin University, TaiwanHuimin Chung, National Chiao Tung University, TaiwanHuimin Chung, National Chiao Tung University, TaiwanKeng-Yu Ho, National Central University, Taiwan Keng-Yu Ho, National Central University, Taiwan Tsui-Ling Hseu, National Chiao Tung University, Taiwan Tsui-Ling Hseu, National Chiao Tung University, Taiwan

Chapter 5: A Further Analysis of Convergence Rate and Pattern of the Binomial ModelsChapter 5: A Further Analysis of Convergence Rate and Pattern of the Binomial ModelsSan-Lin Chung, National Taiwan University, TaiwanSan-Lin Chung, National Taiwan University, TaiwanPai-Ta Shih, National Dong Hwa University, TaiwanPai-Ta Shih, National Dong Hwa University, Taiwan


ManagementManagementChapter 6: Combining Fundamental Measures for Stock Selection: Some ThoughtsChapter 6: Combining Fundamental Measures for Stock Selection: Some ThoughtsKenton K. Yee, Columbia Business School, USAKenton K. Yee, Columbia Business School, USA

Chapter 7: Dividends vs. Reinvestments in Continuous Time: A More General ModelChapter 7: Dividends vs. Reinvestments in Continuous Time: A More General ModelRen-Raw Chen, Rutgers University, USARen-Raw Chen, Rutgers University, USABen LoganBen LoganOded Palmon, Rutgers University, USAOded Palmon, Rutgers University, USALarry Shepp, Rutgers University, USALarry Shepp, Rutgers University, USA

Chapter 8: Time Series Modeling of Asset Returns VolatilitiesChapter 8: Time Series Modeling of Asset Returns VolatilitiesTze Leung Lai, Stanford University, USATze Leung Lai, Stanford University, USAHaipeng Xing, Columbia University, USAHaipeng Xing, Columbia University, USA

Chapter 9: On Estimation Risk and Power Utility Portfolio SelectionChapter 9: On Estimation Risk and Power Utility Portfolio SelectionRobert R. Grauer, Simon Fraser University, USARobert R. Grauer, Simon Fraser University, USAFrederick C. ShenFrederick C. Shen

Chapter 10: Segmenting financial services market: An Empirical Study of Statistical and Non-parametrChapter 10: Segmenting financial services market: An Empirical Study of Statistical and Non-parametric Methodsic Methods

Kenneth Lawrence, New Jersey Institute of Technology, USAKenneth Lawrence, New Jersey Institute of Technology, USADinesh Pai, Rutgers University, USADinesh Pai, Rutgers University, USARonald Klimberg, St. Joseph’s University, USARonald Klimberg, St. Joseph’s University, USAStephen Kudbya, New Jersey Institute of Technology, USAStephen Kudbya, New Jersey Institute of Technology, USASheila Lawrence, Rutgers University, USASheila Lawrence, Rutgers University, USA


ManagementManagementChapter 11: Recovering Probabilistic Information From Options Prices and the UnderlyingChapter 11: Recovering Probabilistic Information From Options Prices and the UnderlyingBruce Mizrach, Rutgers University, USABruce Mizrach, Rutgers University, USA

Chapter 12: Combinatorial Methods for Reverse-Engineering and Construction of Credit RiChapter 12: Combinatorial Methods for Reverse-Engineering and Construction of Credit Risk Ratingssk Ratings

Alexander Kogan, Rutgers University, USAAlexander Kogan, Rutgers University, USAMiguel A. Lejeune, Carnegie Mellon University, USAMiguel A. Lejeune, Carnegie Mellon University, USA

Chapter 13: Displaced Log Normal and Lognormal American Option Pricing: A ComparisoChapter 13: Displaced Log Normal and Lognormal American Option Pricing: A Comparisonn

Ren-Raw Chen, Rutgers University, USARen-Raw Chen, Rutgers University, USACheng-Few Lee, Rutgers University, USACheng-Few Lee, Rutgers University, USA

Chapter 14: Are Tails Fast Enough to Explain SmileChapter 14: Are Tails Fast Enough to Explain SmileRen-Raw Chen, Rutgers University, USARen-Raw Chen, Rutgers University, USAOded Palmon, Rutgers University, USAOded Palmon, Rutgers University, USAJohn Wald, Pennsylvania State University, USAJohn Wald, Pennsylvania State University, USA

Chapter 15: Two Alternative Approaches to Derive Black-Schools Option Pricing Model: CChapter 15: Two Alternative Approaches to Derive Black-Schools Option Pricing Model: Comparison and Analysisomparison and Analysis

Cheng-Few Lee, Rutgers University, USACheng-Few Lee, Rutgers University, USACarle Shu Ming Lin, Rutgers University, USACarle Shu Ming Lin, Rutgers University, USA


ManagementManagementChapter 16: Spurious Regression and Data Mining in Conditional Asset Pricing ModelsChapter 16: Spurious Regression and Data Mining in Conditional Asset Pricing ModelsWayne Ferson, University of Southern California, USAWayne Ferson, University of Southern California, USASergei Sarkissian, McGill University, USASergei Sarkissian, McGill University, USATimothy Simin, Pennsylvania State University, USATimothy Simin, Pennsylvania State University, USA

Chapter 17: Structural Approach for Credit Risk ModelingChapter 17: Structural Approach for Credit Risk ModelingJingzhi Huang, Pennsylvania State University, USAJingzhi Huang, Pennsylvania State University, USA

Chapter 18: An Empirical Investigation of the Rationales for Integrated Risk-Management Chapter 18: An Empirical Investigation of the Rationales for Integrated Risk-Management BehaviorBehavior

Michael S. Pagano, Villanova University, USAMichael S. Pagano, Villanova University, USA

Chapter 19: Implementing Risk Management Systems with a Benchmark: a Web-Based DSChapter 19: Implementing Risk Management Systems with a Benchmark: a Web-Based DSS ApproachS Approach

Larry Eisenberg, University of Southern Mississippi, USALarry Eisenberg, University of Southern Mississippi, USAChang-tseh Hsieh, University of Southern Mississippi, USAChang-tseh Hsieh, University of Southern Mississippi, USA

Chapter 20: The Le Chatelier Principle in the Markowitz Quadratic Programming InvestmeChapter 20: The Le Chatelier Principle in the Markowitz Quadratic Programming Investment Model: A Case of World Equity Fund Marketnt Model: A Case of World Equity Fund Market

Chin W. Yang, Clarion University of Pennsylvania, USAChin W. Yang, Clarion University of Pennsylvania, USAKen Hung, National Dong Hwa University, TaiwanKen Hung, National Dong Hwa University, TaiwanJing Chui, Clarion University of Pennsylvania, USAJing Chui, Clarion University of Pennsylvania, USA


ManagementManagementChapter 21: Copula, Correlated Defaults and Credit VaRChapter 21: Copula, Correlated Defaults and Credit VaRJow-Ran Chang, National Tsing Hua University, TaiwanJow-Ran Chang, National Tsing Hua University, TaiwanAn-Chi Chen, KGI Securities Co. Ltd., TaiwanAn-Chi Chen, KGI Securities Co. Ltd., Taiwan

Chapter 22: An Errors-in-variables Problem in Asset Pricing TestsChapter 22: An Errors-in-variables Problem in Asset Pricing TestsDongcheol Kim, Rutgers University, USADongcheol Kim, Rutgers University, USA

Chapter 23: Pricing and Hedging Interest Rate Derivatives In the Presence of UnChapter 23: Pricing and Hedging Interest Rate Derivatives In the Presence of Unspanned Stochastic Volatilitiesspanned Stochastic Volatilities

Feng Zhao, Rutgers University, USAFeng Zhao, Rutgers University, USA

Chapter 24: Liquidity Risk and Arbitrage Pricing TheoryChapter 24: Liquidity Risk and Arbitrage Pricing TheoryUmut Cetin, Technische University Wein, USAUmut Cetin, Technische University Wein, USARobert A. Jarrow, Cornell University, USARobert A. Jarrow, Cornell University, USAPhilip Protter, Cornell University, USAPhilip Protter, Cornell University, USA

Chapter 25: Stock Returns, Extreme Values, and Conditional Skewed DistributioChapter 25: Stock Returns, Extreme Values, and Conditional Skewed Distributionn

Thomas C. Chiang, Drexel University, USAThomas C. Chiang, Drexel University, USAJiandong Li, Drexel University, USAJiandong Li, Drexel University, USA


ManagementManagementChapter 26: MCMC Estimation of Multiscale Stochastic Volatility ModelsChapter 26: MCMC Estimation of Multiscale Stochastic Volatility ModelsGerman Molina, Vega Capital Services Ltd., UKGerman Molina, Vega Capital Services Ltd., UKChuan-Hsiang Han, National Tsing Hua University, TaiwanChuan-Hsiang Han, National Tsing Hua University, TaiwanJean-Pierre Fouque, University of California, USAJean-Pierre Fouque, University of California, USA

Chapter 27: Security Market Microstructure: The Analysis of a Non-Frictionless MarketChapter 27: Security Market Microstructure: The Analysis of a Non-Frictionless MarketRobert Schwartz, Zicklin School of Business, USARobert Schwartz, Zicklin School of Business, USAReto Francioni,Reto Francioni,Martin ReckMartin Reck

Chapter 28: Robust prediction of default risk?Chapter 28: Robust prediction of default risk?Chung-Hua Shen, National Taiwan University, TaiwanChung-Hua Shen, National Taiwan University, TaiwanYi-Kai Chen, National University of Kaohsiung, TaiwanYi-Kai Chen, National University of Kaohsiung, TaiwanBor-Yi Huang, Shih Chien University, TaiwanBor-Yi Huang, Shih Chien University, Taiwan

Chapter 29: Risk Management for Catastrophe LossChapter 29: Risk Management for Catastrophe LossJin-Ping Lee, Feng Chia University, TaiwanJin-Ping Lee, Feng Chia University, TaiwanMin-Teh Yu, Providence University, TaiwanMin-Teh Yu, Providence University, Taiwan

Chapter 30: Regime Shifts and the Term Structure of Interest RatesChapter 30: Regime Shifts and the Term Structure of Interest RatesChien-Chung Nieh, Tamkang University, TaiwanChien-Chung Nieh, Tamkang University, TaiwanShu Wu, The University of Kansas, USAShu Wu, The University of Kansas, USAYong Zeng, The University of Missouri at Kansas City, USAYong Zeng, The University of Missouri at Kansas City, USA


ManagementManagementChapter 31: ARM Processes and Their Modeling and Forecasting MethodologyChapter 31: ARM Processes and Their Modeling and Forecasting MethodologyBenjamin Melamed, Rutgers Business School, USABenjamin Melamed, Rutgers Business School, USA

Chapter 32: Alternative Econometric Methods for Information-based Equity-selling MechaChapter 32: Alternative Econometric Methods for Information-based Equity-selling Mechanismsnisms

Cheng Few Lee, Rutgers University, USACheng Few Lee, Rutgers University, USAYi Lin Wu, National Tsing Hua University, TaiwanYi Lin Wu, National Tsing Hua University, Taiwan

Chapter 33: Implementation Problems and Solutions in Stochastic Volatility Models of the Chapter 33: Implementation Problems and Solutions in Stochastic Volatility Models of the Heston TypeHeston Type

Jia-Hau Guo, Soochow University, TaiwanJia-Hau Guo, Soochow University, TaiwanMao-Wei Hung, National Taiwan UniversityMao-Wei Hung, National Taiwan University, Taiwan, Taiwan

Chapter 34: Univariate and Bivariate GARCH Analyses for the Volume versus GARCH effectChapter 34: Univariate and Bivariate GARCH Analyses for the Volume versus GARCH effectss

Zhuo Qiao, National University of Singapore, SingaporeZhuo Qiao, National University of Singapore, SingaporeWing-Keung Wong, National University of Singapore, SingaporeWing-Keung Wong, National University of Singapore, Singapore

Chapter 35: Application of Fuzzy Set Theory to Finance Research: Method and ApplicationChapter 35: Application of Fuzzy Set Theory to Finance Research: Method and ApplicationShin-Yun Wang, National Dong Hwa University, TaiwanShin-Yun Wang, National Dong Hwa University, TaiwanCheng-Few Lee, Rutgers University, USACheng-Few Lee, Rutgers University, USA


ManagementManagementChapter 36: Hedonic Regression Analysis: A PrimerChapter 36: Hedonic Regression Analysis: A PrimerBen J. Sopranzetti, Rutgers University, USABen J. Sopranzetti, Rutgers University, USA

Chapter 37: Risk-Adverse Portfolio Optimization via Stochastic Dominance ContraintsChapter 37: Risk-Adverse Portfolio Optimization via Stochastic Dominance ContraintsDarinka Dentcheva, Stevens Institute of Technology, Darinka Dentcheva, Stevens Institute of Technology, USAUSAAndrzej RuszczynskiAndrzej Ruszczynski, Rutgers University, USA, Rutgers University, USA

Chapter 38: A Real Option Approach to the Comprehensive Analysis of Bank ConsolidatioChapter 38: A Real Option Approach to the Comprehensive Analysis of Bank Consolidation Valuesn Values

Chuang-Chang Chang, National Central University, TaiwanChuang-Chang Chang, National Central University, TaiwanPei-Fang HsiehPei-Fang Hsieh, National Central University, Taiwan, National Central University, TaiwanHung-Neng LaiHung-Neng Lai, National Central University, Taiwan, National Central University, Taiwan

Chapter 39: Numerical Methods of PDE in Computational FinanceChapter 39: Numerical Methods of PDE in Computational FinanceGang Nathan Dong, Rutgers UniversityGang Nathan Dong, Rutgers University, USA, USA Chapter 40: Capital Structure in Asia and CEO EntrenchmentChapter 40: Capital Structure in Asia and CEO EntrenchmentKin Wai Lee, Nanyang Technological University, SingaporeKin Wai Lee, Nanyang Technological University, SingaporeGillian Hian Heng Yeo, Gillian Hian Heng Yeo, Nanyang Technological University, SingaporeNanyang Technological University, Singapore


ManagementManagementChapter 41: Estimating Future Hedge Ratio: A General Hyperbolic Distribution ApproachChapter 41: Estimating Future Hedge Ratio: A General Hyperbolic Distribution ApproachCheng-Few Lee, National Chiao Tung University, TaiwanCheng-Few Lee, National Chiao Tung University, TaiwanJang-Yi Lee, Tunghai University, TaiwanJang-Yi Lee, Tunghai University, TaiwanKehluh Wang, National Chiao Tung University, TaiwanKehluh Wang, National Chiao Tung University, TaiwanYuan-Chung Sheu, National Chiao Tung University, TaiwanYuan-Chung Sheu, National Chiao Tung University, Taiwan

Chapter 42: The Sensitivity of Corporate Bond Volatility to Macroeconomic AnnouncementsChapter 42: The Sensitivity of Corporate Bond Volatility to Macroeconomic AnnouncementsNikolay Kosturov, University of Oklahoma, USANikolay Kosturov, University of Oklahoma, USADuane Stock, University of Oklahoma, USADuane Stock, University of Oklahoma, USA

Chapter 43: Option Pricing and Hedging Performance under Stochastic Volatility and Stochastic IntereChapter 43: Option Pricing and Hedging Performance under Stochastic Volatility and Stochastic Interest Ratesst Rates

Gurdip Bakshi, University of Maryland, USAGurdip Bakshi, University of Maryland, USACharles Cao, Penn State University, USACharles Cao, Penn State University, USAZhiwu Chen, Yale UniversityZhiwu Chen, Yale University, USA, USA

Chapter 44: Itô’s Calculus and the Derivation of the Black-Scholes Option-Pricing ModelChapter 44: Itô’s Calculus and the Derivation of the Black-Scholes Option-Pricing ModelGeorge Chalamandaris, Athens University of Economics and Business, GreeceGeorge Chalamandaris, Athens University of Economics and Business, GreeceA.G. Malliaris, Loyola University Chicago, USAA.G. Malliaris, Loyola University Chicago, USA

Chapter 45: Portfolio AnalysisChapter 45: Portfolio AnalysisJack Clark Francis, Baruch CollegeJack Clark Francis, Baruch College, USA, USA


ManagementManagementChapter 46: Equity Market Microstructure: The Analysis of a Non-Frictionless MarketChapter 46: Equity Market Microstructure: The Analysis of a Non-Frictionless MarketReto Francioni, Deutsche Bank, USAReto Francioni, Deutsche Bank, USASonali Hazarika, Baruch College, USASonali Hazarika, Baruch College, USAMartin Reck, Deutsche Bank, USAMartin Reck, Deutsche Bank, USARobert A. Schwartz, Baruch College, USARobert A. Schwartz, Baruch College, USA

Chapter 47: Raw Material Convenience Yields and Business CycleChapter 47: Raw Material Convenience Yields and Business CycleChang-Wen Duan, Tamkang University, TaiwanChang-Wen Duan, Tamkang University, TaiwanWilliam T. Lin,William T. Lin, Tamkang University, TaiwanTamkang University, Taiwan

Chapter 48: Default and Prepayment Study in US Subprime Markets Chapter 48: Default and Prepayment Study in US Subprime Markets C.H. Ted Hong, Beyondbond, USAC.H. Ted Hong, Beyondbond, USA

Chapter 49: The Valuation of Uncertain Income Streams and the Pricing of Options Chapter 49: The Valuation of Uncertain Income Streams and the Pricing of Options Mark Rubinstein, University of California BerkleyMark Rubinstein, University of California Berkley, USA, USA

Chapter 50: A Primer on the Implicit Financing Assumptions of Traditional Capital BudgetiChapter 50: A Primer on the Implicit Financing Assumptions of Traditional Capital Budgeting Approaches ng Approaches

Ivan Brick, Rutgers UniversityIvan Brick, Rutgers University, USA, USADaniel Weaver, Rutgers UniversityDaniel Weaver, Rutgers University, USA, USA


ManagementManagementChapter 51: Portfolio Theory, CAPM, and Performance MeasuresChapter 51: Portfolio Theory, CAPM, and Performance MeasuresLuis Ferruz, University of Zaragoza, SpainLuis Ferruz, University of Zaragoza, Spain

Chapter 52: The Effect of Default Risk on Equity Liquidity: Evidence Based on the Panel Threshold ModChapter 52: The Effect of Default Risk on Equity Liquidity: Evidence Based on the Panel Threshold Model el

Huimin Chung, National Chiao Tung University , TaiwanHuimin Chung, National Chiao Tung University , TaiwanWei-Peng Chen, Shih-Hsin University , Taiwan Wei-Peng Chen, Shih-Hsin University , Taiwan Yu-Dan Chen, National Chiao Tung University , TaiwanYu-Dan Chen, National Chiao Tung University , Taiwan

Chapter 53: Derivation and application of Greek lettersChapter 53: Derivation and application of Greek lettersCheng-Few Lee, Rutgers University, USACheng-Few Lee, Rutgers University, USADavid Chen, Rutgers UniversityDavid Chen, Rutgers University, USA, USAWeikang Shih, Rutgers UniversityWeikang Shih, Rutgers University, USA, USA

Chapter 54: Put option approach to determine bank risk premiumChapter 54: Put option approach to determine bank risk premiumDar-Yeh Huang, National Taiwan University, TaiwanDar-Yeh Huang, National Taiwan University, TaiwanFu-Shuen Shie, National Taiwan University, TaiwanFu-Shuen Shie, National Taiwan University, TaiwanWei-Hsiung Wu, National Taiwan University, TaiwanWei-Hsiung Wu, National Taiwan University, Taiwan

Chapter 55: Alternative Methods to Determine Optimal Capital Structure: Theory and ApplicationChapter 55: Alternative Methods to Determine Optimal Capital Structure: Theory and ApplicationSheng-Syan Chen, National Taiwan University, TaiwanSheng-Syan Chen, National Taiwan University, TaiwanCheng-Few Lee, National Chiao Tung University, TaiwanCheng-Few Lee, National Chiao Tung University, TaiwanHan-Hsing Lee, National Chiao Tung University, TaiwanHan-Hsing Lee, National Chiao Tung University, Taiwan


ManagementManagementChapter 56: Characteristic function and Finance Research Chapter 56: Characteristic function and Finance Research Ying-Lin Hsu, National Chung Hsing University, TaiwanYing-Lin Hsu, National Chung Hsing University, TaiwanCheng-Few Lee, Rutgers University, USACheng-Few Lee, Rutgers University, USA

Chapter 57: Entropy and Its Application in Finance ResearchChapter 57: Entropy and Its Application in Finance ResearchHyley Huang, National Chiao Tung University and Wintek Corporation, TaiwanHyley Huang, National Chiao Tung University and Wintek Corporation, TaiwanCheng-Few Lee, Rutgers University, USACheng-Few Lee, Rutgers University, USA

Chapter 58: Structure Equation Model in Finance and Accounting Research Chapter 58: Structure Equation Model in Finance and Accounting Research Chingfu Chang, National Chengchi University, TaiwanChingfu Chang, National Chengchi University, TaiwanCheng-Few Lee, Rutgers University, USACheng-Few Lee, Rutgers University, USA

Chapter 59: Genetic Programming for Options PricingChapter 59: Genetic Programming for Options PricingNemmara Chidambaran, Rutgers University, USANemmara Chidambaran, Rutgers University, USA

Chapter 60: Predicting Prices with Defense ForecastingChapter 60: Predicting Prices with Defense ForecastingGlenn Schafer, Rutgers University, USAGlenn Schafer, Rutgers University, USASam Ring, Rutgers University, USASam Ring, Rutgers University, USA


ManagementManagementChapter 61: Hedging Theories and ApplicationsChapter 61: Hedging Theories and ApplicationsKeshab Shrestha, Nanyang Technological University, SingaporeKeshab Shrestha, Nanyang Technological University, Singapore

Chapter 62: Intertemporal Equilibrium Models, Portfolio Theory and the Capital Chapter 62: Intertemporal Equilibrium Models, Portfolio Theory and the Capital Asset Pricing ModelAsset Pricing Model

Stephen J. Brown, New York University, USAStephen J. Brown, New York University, USA

Chapter 63: Issue of Corporate Finance ResearchChapter 63: Issue of Corporate Finance ResearchKose John, New York University, USAKose John, New York University, USA

Chapter 64: Asian OptionsChapter 64: Asian OptionsItzhak Venezia, Hebrew University, USAItzhak Venezia, Hebrew University, USA

Chapter 65: Keiretsu Style Main Bank Relationships, R&D Investment, Leverage, Chapter 65: Keiretsu Style Main Bank Relationships, R&D Investment, Leverage, and Firm Value: Evidence from Japanese Listed Companiesand Firm Value: Evidence from Japanese Listed Companies

Hai-Chin Yu, Chung Yuan University, TaiwanHai-Chin Yu, Chung Yuan University, TaiwanChih-Sean Chen, Chung Yuan University, TaiwanChih-Sean Chen, Chung Yuan University, TaiwanDer-Tzon Hsieh, National Taiwan University, Taiwan Der-Tzon Hsieh, National Taiwan University, Taiwan


ManagementManagementChapter 66: Alternative Models for Estimating the Cost of Equity Capital for Property/Casualty InsurersChapter 66: Alternative Models for Estimating the Cost of Equity Capital for Property/Casualty InsurersAlice Lee, San Francisco State University, USAAlice Lee, San Francisco State University, USAJ.D. Cumming, Temple University, USAJ.D. Cumming, Temple University, USA

Chapter 67: An ODE Approach for the Expected Discounted Penalty at RuinChapter 67: An ODE Approach for the Expected Discounted Penalty at RuinCheng Few Lee, Rutgers University, USACheng Few Lee, Rutgers University, USAYu-Ting Chen, National Chao Tung University, TaiwanYu-Ting Chen, National Chao Tung University, TaiwanYuan-Chung Sheu, National Chao Tung University, TaiwanYuan-Chung Sheu, National Chao Tung University, Taiwan

Chapter 68: Functional Forms, Market Segmentation and Pricing of Closed-end Country FundsChapter 68: Functional Forms, Market Segmentation and Pricing of Closed-end Country FundsCheng-Few Lee, Rutgers University, USACheng-Few Lee, Rutgers University, USADilip K. Patro, Federal Deposit Insurance Company, USADilip K. Patro, Federal Deposit Insurance Company, USABo Liu, Rutgers University, USABo Liu, Rutgers University, USAAlice C. Lee, San Francisco State University, USAAlice C. Lee, San Francisco State University, USA

Chapter 69: Actuarial mathematics and its applications in quantitative financeChapter 69: Actuarial mathematics and its applications in quantitative financeCho-Jieh Chen, University of Alberta, CanadaCho-Jieh Chen, University of Alberta, Canada

Chapter 70: Examining the Impact of US IT Stock Market on Other IT Stock MarketsChapter 70: Examining the Impact of US IT Stock Market on Other IT Stock MarketsZhuo Qiao, National University of Singapore, SingaporeZhuo Qiao, National University of Singapore, SingaporeVenus Khim-Sen Liew, Universiti Malaysia Sabah, MalaysiaVenus Khim-Sen Liew, Universiti Malaysia Sabah, MalaysiaWing-Keung Wong, Hong Kong Baptist University, Hong KongWing-Keung Wong, Hong Kong Baptist University, Hong Kong


ManagementManagementChapter 71: Time-Series Econometrics and Dynamic Financial ModelsChapter 71: Time-Series Econometrics and Dynamic Financial ModelsRobert H. Patrick, Rutgers University, USARobert H. Patrick, Rutgers University, USA

Chaptere72 Framework of Structure FinanceChaptere72 Framework of Structure FinanceFrancis Eng, Rutgers University, USAFrancis Eng, Rutgers University, USA

Chapter73 Persistence, Predictability and Portfolio Planning Chapter73 Persistence, Predictability and Portfolio Planning Michael J. Brennan, University of California at Los Angeles, USAMichael J. Brennan, University of California at Los Angeles, USAYihong Xia Wharton School, USAYihong Xia Wharton School, USA

Chapter 74 Application of Alternative ODE in Finance and Economics ResearchChapter 74 Application of Alternative ODE in Finance and Economics ResearchCheng Few Lee, Rutgers University, USA Cheng Few Lee, Rutgers University, USA Junmin Shi, Rutgers UniversityJunmin Shi, Rutgers University, USA, USA

Chapter 75 Term Structure and Risk ManagementChapter 75 Term Structure and Risk ManagementChunChi Wu, University of Missouri, USA ChunChi Wu, University of Missouri, USA

Chapter 76 Issues in Operational Risk ModelingChapter 76 Issues in Operational Risk ModelingMo Chaudhury, State Street Corporation, USAMo Chaudhury, State Street Corporation, USASatya Mohit, State Street Corporation, USASatya Mohit, State Street Corporation, USA

Chapter 77 Application of Simultaneous Equation in Finance ResearchChapter 77 Application of Simultaneous Equation in Finance ResearchCarl R. Chen, University of Dayton, USACarl R. Chen, University of Dayton, USACheng Few Lee, Rutgers University, USA Cheng Few Lee, Rutgers University, USA


ManagementManagementChapter 78: Alternative Method for Credit Risk Management: Theory and Method Chapter 78: Alternative Method for Credit Risk Management: Theory and Method Cheng Few Lee, Rutgers University, USACheng Few Lee, Rutgers University, USABi-Huei Tsai, National Chiao Tung University, TaiwanBi-Huei Tsai, National Chiao Tung University, TaiwanKehluh Wang, National Chiao Tung University, TaiwanKehluh Wang, National Chiao Tung University, TaiwanJessica Shin-Ying Mai, Rutgers University, USAJessica Shin-Ying Mai, Rutgers University, USA

Chapter 79 : Future Hedge Ratios: A Review Chapter 79 : Future Hedge Ratios: A Review Sheng-Syan Cheng, National Taiwan University, TaiwanSheng-Syan Cheng, National Taiwan University, TaiwanKeshab Shrestha, Nanyang Technological University, Singapore Keshab Shrestha, Nanyang Technological University, Singapore Cheng Few Lee, Rutgers University, USACheng Few Lee, Rutgers University, USA

Chapter 80 : International Portfolio Management: Theory and MethodChapter 80 : International Portfolio Management: Theory and MethodWan-Jiun Paul Chiou, Shippensburg University, USAWan-Jiun Paul Chiou, Shippensburg University, USACheng Few Lee, Rutgers University, USACheng Few Lee, Rutgers University, USA

Table of Contents for Handbook ofTable of Contents for Handbook of Quantitative Finance and Risk Management Quantitative Finance and Risk Management

Part VI –Summary and Concluding RemarksPart VI –Summary and Concluding RemarksA. TheoryA. TheoryB. MethodsB. MethodsC. ApplicationC. Application a. New Productsa. New Products b. Trading Strategy b. Trading Strategy c. Hedging Strategyc. Hedging Strategy d. Wealth Managementd. Wealth Management e. Risk Managemente. Risk Management f. CDO and Subprime Marketsf. CDO and Subprime Markets g. Othersg. Others


ManagementManagementPart VII – AppendixesPart VII – Appendixes A. Derivation of Dividend Discount ModelA. Derivation of Dividend Discount Model B. Derivation of DOL, DFL, and DCLB. Derivation of DOL, DFL, and DCL C. Derivation of M & M PropositionsC. Derivation of M & M Propositions D. Derivation of CAPMD. Derivation of CAPM E. Derivation of OPM E. Derivation of OPM

Part VIII– ReferencesPart VIII– References

Part IX– IndexPart IX– Index Subject Index Subject Index

Author IndexAuthor Index


ManagementManagementI. IntroductionI. Introduction

Quantitative finance is a combination of economics, Quantitative finance is a combination of economics, accounting, statistics, econometrics, mathematics, stochastic accounting, statistics, econometrics, mathematics, stochastic process, and computer science and technology. This process, and computer science and technology. This handbook will be the most comprehensive handbook in handbook will be the most comprehensive handbook in quantitative finance, which integrates theory, methodology, quantitative finance, which integrates theory, methodology, and application. Because of the importance of quantitative and application. Because of the importance of quantitative finance in the finance industry, it has become one of the most finance in the finance industry, it has become one of the most popular subjects in business school. In addition, the finance popular subjects in business school. In addition, the finance industry has many job opportunities for people with good industry has many job opportunities for people with good training in quantitative finance. Thus, a handbook should have training in quantitative finance. Thus, a handbook should have a broad audience and be of interest to academics, educators, a broad audience and be of interest to academics, educators, students, and practitioners. students, and practitioners.

Based upon our years of experience in teaching, research, Based upon our years of experience in teaching, research, textbook writing, and journal editing on the subject of textbook writing, and journal editing on the subject of quantitative finance, this handbook will review, discuss, and quantitative finance, this handbook will review, discuss, and integrate theoretical, methodological and practical issues of integrate theoretical, methodological and practical issues of quantitative finance. This handbook will be structured as quantitative finance. This handbook will be structured as follows:follows:


ManagementManagementPart I. IntroductionPart I. IntroductionPart II. Essay Part II. Essay Part III. Portfolio AnalysisPart III. Portfolio AnalysisPart IV. Options and FuturesPart IV. Options and FuturesPart V. Contributed PapersPart V. Contributed Papers A. TheoriesA. Theories B. MethodologiesB. Methodologies C. ApplicationsC. ApplicationsPart VI –Summary and Concluding RemarksPart VI –Summary and Concluding Remarks A. TheoryA. Theory B. MethodsB. Methods C. ApplicationC. ApplicationPart VII. AppendixPart VII. AppendixPart VIII. ReferencesPart VIII. ReferencesPart IX. IndexPart IX. Index A. Subject IndexA. Subject Index B. Author IndexB. Author Index


ManagementManagement

Part II of this handbook will cover in detail the Part II of this handbook will cover in detail the essential financial theories, financial policies, and essential financial theories, financial policies, and empirical methodologies used in quantitative finance. empirical methodologies used in quantitative finance. Finance theories can be classified into (1) classical Finance theories can be classified into (1) classical theory, (2) new classical theory, (3) CAPM and APT, theory, (2) new classical theory, (3) CAPM and APT, and (4) theory of option and futures. Financial and (4) theory of option and futures. Financial policies can be classified into (1) investment policy, policies can be classified into (1) investment policy, (2) financing policy, (3) dividend policy, and (4) (2) financing policy, (3) dividend policy, and (4) production policy. The empirical methodologies that production policy. The empirical methodologies that will be covered in part II are statistics, econometrics, will be covered in part II are statistics, econometrics, mathematics, operation research, stochastic process, mathematics, operation research, stochastic process, and computer science, and technology. Therefore, and computer science, and technology. Therefore, part II of this handbook will be structured as follows:part II of this handbook will be structured as follows:


ManagementManagementA.A. TheoryTheory

1)1) Classical theoryClassical theory2)2) New classical theoryNew classical theory3)3) CAPM and APT CAPM and APT 4)4) Theory of option and futuresTheory of option and futures

B.B. PolicyPolicy1)1) Investment policyInvestment policy2)2) Financing policyFinancing policy3)3) Dividend policy Dividend policy 4)4) Production policyProduction policy

C.C. MethodologyMethodology1)1) StatisticsStatistics2)2) EconometricsEconometrics3)3) MathematicsMathematics4)4) Operation researchOperation research5)5) Stochastic processStochastic process6)6) Computer science and technologyComputer science and technology


ManagementManagement Most of part II will be written by Cheng Few Lee and Alice Lee. Some portion of Most of part II will be written by Cheng Few Lee and Alice Lee. Some portion of

part II will be written by other well-known scholars. Detailed derivation of part II will be written by other well-known scholars. Detailed derivation of theory and development of methodology will be presented in the appendix of theory and development of methodology will be presented in the appendix of this handbook. The Appendix of this handbook will give detailed derivation of this handbook. The Appendix of this handbook will give detailed derivation of different finance theory and model such as stock variation model M&M theory, different finance theory and model such as stock variation model M&M theory, portfolio theory, CAPM, APT, OPM, and future valuation model. portfolio theory, CAPM, APT, OPM, and future valuation model.

Part III of this handbook covers portfolio analysis and Part IV of this handbook Part III of this handbook covers portfolio analysis and Part IV of this handbook includes options and futures. Part V of this handbook includes contributed includes options and futures. Part V of this handbook includes contributed papers which will be written by well-know quantitative finance scholars and papers which will be written by well-know quantitative finance scholars and practitioners. The theoretical portion of these contributed papers will cover practitioners. The theoretical portion of these contributed papers will cover important finance theory, such as stock valuation theory, M&M theories, important finance theory, such as stock valuation theory, M&M theories, portfolio theories, CAPM, OPM, options, futures and other relevant theories in portfolio theories, CAPM, OPM, options, futures and other relevant theories in quantitative finance. The methodology portion of the contributed papers will quantitative finance. The methodology portion of the contributed papers will cover methodologies of statistics, econometrics, mathematics, operation cover methodologies of statistics, econometrics, mathematics, operation research, simulation and computer programming in quantitative finance research, simulation and computer programming in quantitative finance research. The applications portion of the contributed papers will cover research. The applications portion of the contributed papers will cover applications of options and futures theories in different financial instruments applications of options and futures theories in different financial instruments and products. Portfolio analysis and mutual fund evaluation will also be and products. Portfolio analysis and mutual fund evaluation will also be presented in this portion. In addition, market risk, credit risk and operation risk presented in this portion. In addition, market risk, credit risk and operation risk will be discussed in this portion in detail. will be discussed in this portion in detail.

Part VII will present Appendix. Part VIII will include important references in Part VII will present Appendix. Part VIII will include important references in quantitative finance. Finally, both subject and author index will be presented in quantitative finance. Finally, both subject and author index will be presented in Part IX.Part IX.

handbook of quantitative finance and risk management edited by cheng-few lee rutgers university...

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production policy chapter

introduction chapter

methods chapter

essays chapter

strategies chapter

policy framework of

futures options slide

risk management research