Frontiers in Quantitative Finance: Volatility and Credit Risk Modeling / Edition 1

Frontiers in Quantitative Finance: Volatility and Credit Risk Modeling / Edition 1

by Rama Cont
     
 

ISBN-10: 047029292X

ISBN-13: 9780470292921

Pub. Date: 11/10/2008

Publisher: Wiley

The Petit Déjeuner de la Finance—which Rama Cont has been co-organizing in Paris since 1998—is a well-known quantitative finance seminar that has progressively become a platform for the exchange of ideas between the academic and practitioner communities in quantitative finance. This seminar has included a prestigious list of international speakers

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Overview

The Petit Déjeuner de la Finance—which Rama Cont has been co-organizing in Paris since 1998—is a well-known quantitative finance seminar that has progressively become a platform for the exchange of ideas between the academic and practitioner communities in quantitative finance. This seminar has included a prestigious list of international speakers who are considered major contributors to recent developments in quantitative finance.

Frontiers in Quantitative Finance is a selection of recent presentations in the Petit Déjeuner de la Finance. Leading quants and academic researchers cover the most important emerging issues in quantitative finance and focus on portfolio credit risk and volatility modeling.

This comprehensive volume is divided into two parts. The first part (Chapters 1–5) deals with advances in option pricing and volatility modeling in the context of equity and index derivatives. Topics include tests for static arbitrage, asymptotics of implied volatility, jump-diffusion models, variance swaps, and cliquet options. The second part (Chapters 6–11) covers recent advances in pricing models for credit derivatives. Topics here include structural vs. hazard rate models, factor models and top-down models for portfolio credit derivatives, and forward equations for CDO pricing.

Contributors to this volume include Areski Cousin, Alexandre d'Aspremont, Shalom Benaim, Lorenzo Bergomi, Peter Friz, Kay Giesecke, Pierre Henry-Labordère, Jean-Paul Laurent, Roger Lee, Chris Rogers, Ioana Savescu, Erik Schlögl, Lutz Schlögl, Peter Tankov, Julien Turc, Philippe Very, and Ekaterina Voltchkova.

For quants, risk managers, consultants, graduate students in quantitative finance, hedge fund managers, and academics, Frontiers in Quantitative Finance is an invaluable guide to the state-of-the-art knowledge in credit risk and volatility modeling.

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Product Details

ISBN-13:
9780470292921
Publisher:
Wiley
Publication date:
11/10/2008
Series:
Wiley Finance Series, #463
Edition description:
New
Pages:
300
Product dimensions:
6.20(w) x 9.10(h) x 1.20(d)

Table of Contents

Preface.

About the Editor.

About the Contributors.

PART ONE: Option Pricing and Volatility Modeling.

CHAPTER 1: A Moment Approach to Static Arbitrage (Alexandre d’Aspremont).

1.1 Introduction.

1.2 No-Arbitrage Conditions.

1.3 Example.

1.4 Conclusion.

CHAPTER 2: On Black-Scholes Implied Volatility at Extreme Strikes (Shalom Benaim, Peter Friz, and Roger Lee).

2.1 Introduction.

2.2 The Moment Formula.

2.3 Regular Variation and the Tail-Wing Formula.

2.4 Related Results.

2.5 Applications.

2.6 CEV and SABR.

CHAPTER 3: Dynamic Properties of Smile Models (Lorenzo Bergomi).

3.1 Introduction.

3.2 Some Standard Smile Models.

3.3 A New Class of Models for Smile Dynamics.

3.4 Pricing Examples.

3.5 Conclusion.

CHAPTER 4: A Geometric Approach to the Asymptotics of Implied Volatility (Pierre Henry-Labor&dgrave;ere).

4.1 Volatility Asymptotics in Stochastic Volatility Models.

4.2 Heat Kernel Expansion.

4.3 Geometry of Complex Curves and Asymptotic Volatility.

4.4 λ-SABR Model and Hyperbolic Geometry.

4.5 SABR Model with β = 0, 1.

4.6 Conclusions and Future Work.

4.7 Appendix A: Notions in Differential Geometry.

4.8 Appendix B: Laplace Integrals in Many Dimensions.

CHAPTER 5: Pricing, Hedging, and Calibration in Jump-Diffusion Models (Peter Tankov and Ekaterina Voltchkova).

5.1 Overview of Jump-Diffusion Models.

5.2 Pricing European Options via Fourier Transform.

5.3 Integro-differential Equations for Barrier and American Options.

5.4 Hedging Jump Risk.

5.5 Model Calibration.

PART TWO: Credit Risk.

CHAPTER 6: Modeling Credit Risk (L. C. G. Rogers).

6.1 What Is the Problem?

6.2 Hazard Rate Models.

6.3 Structural Models.

6.4 Some Nice Ideas.

6.5 Conclusion.

CHAPTER 7: An Overview of Factor Modeling for CDO Pricing (Jean-Paul Laurent and Areski Cousin).

7.1 Pricing of Portfolio Credit Derivatives.

7.2 Factor Models for the Pricing of CDO Tranches.

7.3 A Review of Factor Approaches to the Pricing of CDOs.

7.4 Conclusion.

CHAPTER 8: Factor Distributions Implied by Quoted CDO Spreads (Erik Schlögl and Lutz Schlögl).

8.1 Introduction.

8.2 Modeling.

8.3 Examples.

8.4 Conclusion.

8.5 Appendix: Some Useful Results on Hermite Polynomials under Linear Coordinate Transforms.

CHAPTER 9: Pricing CDOs with a Smile: The Local Correlation Model (Julien Turc and Philippe Very).

9.1 The Local Correlation Model.

9.2 Simplification under the Large Pool Assumption.

9.3 Building the Local Correlation Function without the Large Pool Assumption.

9.4 Pricing and Hedging with Local Correlation.

CHAPTER 10: Portfolio Credit Risk: Top-Down versus Bottom-Up Approaches (Kay Giesecke).

10.1 Introduction.

10.2 Portfolio Credit Models.

10.3 Information and Specification.

10.4 Default Distribution.

10.5 Calibration.

10.6 Conclusion.

CHAPTER 11: Forward Equations for Portfolio Credit Derivatives (Rama Cont and Ioana Savescu).

11.1 Portfolio Credit Derivatives.

11.2 Top-Down Models for CDO Pricing.

11.3 Effective Default Intensity.

11.4 A Forward Equation for CDO Pricing.

11.5 Recovering Forward Default Intensities from Tranche Spreads.

11.6 Conclusion.

Index.

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