Risk and Financial Management
Risk and Financial Management: Mathematical and Computational Methods. C 2004 John Wiley & Sons, Ltd ISBN: 0-470-84908-8
Risk and Financial Management
Mathematical and Computational Methods
ESSEC Business School, Paris, France
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British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 0-470-84908-8 Typeset in 10/12 pt Times by TechBooks, New Delhi, India Printed and bound in Great Britain by Biddles Ltd, Guildford, Surrey This book is printed on acid-free paper responsibly manufactured from sustainable forestry in which at least two trees are planted for each one used for paper production.
This book is dedicated to:
Daniel Dafna Oren Oscar and Bettina
Part I: Finance and Risk Management Chapter 1 Potpourri 1.1 Introduction 1.2 Theoretical ﬁnance and decision making 1.3 Insurance and actuarial science 1.4 Uncertainty and risk in ﬁnance 1.4.1 Foreign exchange risk 1.4.2 Currency risk 1.4.3 Credit risk 1.4.4 Other risks 1.5 Financial physics Selected introductory reading Making Economic Decisions under Uncertainty 2.1 Decision makers and rationality 2.1.1 The principles of rationality and bounded rationality 2.2 Bayes decision making 2.2.1 Risk management 2.3 Decision criteria 2.3.1 The expected value (or Bayes) criterion 2.3.2 Principle of (Laplace) insufﬁcient reason 2.3.3 The minimax (maximin) criterion 2.3.4 The maximax (minimin) criterion 2.3.5 The minimax regret or Savage’s regret criterion 2.4 Decision tables and scenario analysis 2.4.1 The opportunity loss table 2.5 EMV, EOL, EPPI, EVPI 2.5.1 The...
References: 2 ˆ2 σt2 = Rt−1 + θ σt−1 ˆ
Extensions were suggested by Engle (1987, 1995) (ARCH models) and Bollerslev (GARCH models)
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