Downside Risk Adjusted Performance Measures

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Practical Risk-Adjusted Performance Measurement

Author : Carl R. Bacon
Publisher : John Wiley & Sons
ISBN 13 : 1119838878
Total Pages : 320 pages
Book Rating : 4.1/5 (198 download)

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Book Synopsis Practical Risk-Adjusted Performance Measurement by : Carl R. Bacon

Download or read book Practical Risk-Adjusted Performance Measurement written by Carl R. Bacon and published by John Wiley & Sons. This book was released on 2021-10-22 with total page 320 pages. Available in PDF, EPUB and Kindle. Book excerpt: Explore different measures of ex-post risk-adjusted performance measurement and learn to choose the correct one In the newly revised Second Edition of Practical Risk-Adjusted Performance Measurement, accomplished risk and investment expert Carl R. Bacon delivers an insightful, accessible, and real-world guide to ex-post risk measurement. The author bridges the gap between theory and practice, showing you how to apply the former to the latter without introducing unnecessary mathematical complexity. The book describes the fundamentals of risk in the asset management context and the descriptive statistics used to describe it. It builds on that foundation with detailed examinations of concepts like regression, drawdown, and partial moments, before moving on to topics like fixed income risk and Prospect Theory. With helpful additions that include recently developed measures of risk, supplementary explanatory sections, and six brand-new chapters, this book also offers: A practical classification of all ex-post risk measures and how they connect to one another An explanation of how risk-adjusted performance measures impact performance fees A discussion of risk measure dashboard designs Instructions on how appraisal measures should be used for manager selection Perfect for portfolio managers, asset owners, risk controllers, and investment performance analysts, Practical Risk-Adjusted Performance Measurement is an indispensable resource for anyone looking for a hands-on exploration of the buy-side, asset management perspective.

Does the Use of Downside Risk-Adjusted Measures Lead to Better Future Performance?

Author : Florinda Silva
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis Does the Use of Downside Risk-Adjusted Measures Lead to Better Future Performance? by : Florinda Silva

Download or read book Does the Use of Downside Risk-Adjusted Measures Lead to Better Future Performance? written by Florinda Silva and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates how past performance, as measured by alternative risk-adjusted measures is informative of future performance. Performance results based on the Sharpe Ratio and several downside risk-adjusted performance measures (the Sortino ratio, excess return on Cornish-Fisher VaR, excess return on VaR, and excess return on Expected Shortfall) are compared. VaR and Expected Shortfall are computed using Filtered Historical Simulation (FHS), a hybrid methodology that combines the use of volatility models with bootstrapping techniques and is robust to the stylized facts of time series data on financial asset returns. Recent empirical evidence is somewhat controversial. Some studies suggest that the use of different risk-adjusted performance measures (traditional vs downside risk-adjusted) does not seem to matter for investment fund decisions (Eling & Schuhmacher, 2007; Eling, 2008) while others suggest that it matters at least for some of the measures (Ornelas et al. 2010; Zakamouline, 2010). In most of the cases, the observed level of statistical association between the Sharpe Ratio and the downside risk-adjusted measures of performance is not as low as would be expected. However, even if in empirical research statistical tests are not able to capture significant differences between rankings based on different measures, the economic significance of these differences may be relevant for investors and fund managers. In fact, it is of interest to assess to what extent the ex ante use of each of these measures can lead to better ex post performance results, regardless of the correlation between performance rankings and measures. Our sample includes portfolios of Large Cap US funds over the period 1999 to 2010. In each month, portfolios of funds are created based on the rankings of the funds resulting from the different risk-adjusted performance measures. A estimation window of five years is used. The cumulative return of the top performing funds is then compared with the bottom performing funds.

Downside Risk-adjusted Performance Measures

Author : Xiao Fang He
Publisher :
ISBN 13 :
Total Pages : 78 pages
Book Rating : 4.:/5 (112 download)

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Book Synopsis Downside Risk-adjusted Performance Measures by : Xiao Fang He

Download or read book Downside Risk-adjusted Performance Measures written by Xiao Fang He and published by . This book was released on 2007 with total page 78 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent work by Dr. Robert R. Grauer has shown that traditional performance measures, such as Jensen's Alpha and the Sharpe Ratio, are unable to distinguish between perfect-foresight and bankrupt investments. In this paper, we test the ability of various downside risk-adjusted performance measures to identify bankrupt performance. Using zero percent as a minimal acceptable level of return, the Sortino ratio, the upside potential ratio and the portfolio performance index can distinguish bankrupt strategies from non-bankrupt ones. However, the ranking based on these measures over non-bankrupt strategies are inconsistent with the ranking of accumulated wealth over the 1934-1999 period.

Practical Risk-Adjusted Performance Measurement

Author : Carl R. Bacon
Publisher : John Wiley & Sons
ISBN 13 : 1118391527
Total Pages : 192 pages
Book Rating : 4.1/5 (183 download)

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Book Synopsis Practical Risk-Adjusted Performance Measurement by : Carl R. Bacon

Download or read book Practical Risk-Adjusted Performance Measurement written by Carl R. Bacon and published by John Wiley & Sons. This book was released on 2012-10-05 with total page 192 pages. Available in PDF, EPUB and Kindle. Book excerpt: A practitioner's guide to ex-post performance measurement techniques Risk within asset management firms has an undeserved reputation for being an overly complex, mathematical subject. This book simplifies the subject and demonstrates with practical examples that risk is perfectly straightforward and not as complicated as it might seem. Unlike most books written on portfolio risk, which generally focus on ex-ante risk from an academic perspective using complicated language and no worked examples, this book focuses on ex-post risk from a buy side, asset management, risk practitioners perspective, including a number of practical worked examples for risk measures and their interpretation.

The Impact of Downside Risk on Risk-Adjusted Performance of Mutual Funds in the Euronext Markets

Author : Robert van der Meer
Publisher :
ISBN 13 :
Total Pages : 14 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis The Impact of Downside Risk on Risk-Adjusted Performance of Mutual Funds in the Euronext Markets by : Robert van der Meer

Download or read book The Impact of Downside Risk on Risk-Adjusted Performance of Mutual Funds in the Euronext Markets written by Robert van der Meer and published by . This book was released on 2001 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many performance measures, such as the classic Sharpe ratio have difficulty in evaluating the performance of mutual funds with skewed return distributions. Common causes for skewness are the use of options in the portfolio or superior market timing skills of the portfolio manager. In this article we examine to what extent downside risk and the upside potential ratio can be used to evaluate skewed return distributions. In order to accomplish this goal, we first show the relation between the risk preferences of the investor and the risk-adjusted performance measure. We conclude that it is difficult to interpret differences in the outcomes of risk-adjusted performance measures exclusively as differences in forecasting skills of portfolio managers. We illustrate this with an example of a simulation study of a protective put strategy. We show that the Sharpe ratio leads to incorrect conclusions in the case of protective put strategies. On the other hand, the upside potential ratio leads to correct conclusions. Finally, we apply downside risk and the upside potential ratio in the process of selecting a mutual fund from a sample of mutual funds in the Euronext stock markets. The rankings appear similar, which can be attributed to the absence of significant skewness in the sample. However, find that the remaining differences can be quite significant for individual fund managers, and that these differences can be attributed to skewness. Therefore, we prefer to use the UPR as an alternative to the Sharpe ratio, as it accounts better for the use of options and forecasting skills.

Portfolio Performance Meaurement and Benchmarking: Fixed-Income Risk

Author : Jon A. Christopherson
Publisher : McGraw Hill Professional
ISBN 13 : 0071733167
Total Pages : 16 pages
Book Rating : 4.0/5 (717 download)

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Book Synopsis Portfolio Performance Meaurement and Benchmarking: Fixed-Income Risk by : Jon A. Christopherson

Download or read book Portfolio Performance Meaurement and Benchmarking: Fixed-Income Risk written by Jon A. Christopherson and published by McGraw Hill Professional. This book was released on 2009-05-15 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: Here is a chapter from Portfolio Performance Measurement and Benchmarking, which will help you create a system you can use to accurately measure your performance. The authors highlight common mechanical problems involved in building benchmarks and clearly illustrate the resulting fallouts. The failure to choose the right investing performance benchmarks often leads to bad decisions or inaction and, inevitably, lost profits. In this book you will discover a foundation for benchmark construction and discuss methods for all different asset classes and investment styles.

Risk-Adjusted Performance Measures - State of the Art

Author : Philipp Schmid
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (731 download)

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Book Synopsis Risk-Adjusted Performance Measures - State of the Art by : Philipp Schmid

Download or read book Risk-Adjusted Performance Measures - State of the Art written by Philipp Schmid and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Diese Arbeit bietet eine umfassende Übersicht zu den vielfältigen Anwendungsbereichen von risikoadjustierten Performance-Massen (RAPMs) im Finanzbereich. RAPMs werden eingesetzt für effiziente Vermögensallokation, Performance Bewertungen sowie für Entscheidungen über Kapitalverteilungen innerhalb von Kreditinstituten. Kreditinstitute sehen sich im Wesentlichen mit zwei Allokationsproblemen konfrontiert: Erstens müssen Einlagen so investiert werden, dass sie den erwarteten Nutzen des Investors maximieren. Zweitens muss das Risikokapital des Unternehmens auf eine optimale Weise den verschiedenen Geschäftsbereichen zugeteilt werden. In der bestehenden Finanzliteratur werden diese beiden Bereiche grundsätzlich getrennt voneinander behandelt, obgleich beide auf einem ähnlichen mathematischen Konzept beruhen. Die vorliegende Arbeit schliesst diese Lücke zwischen diesen zwei beiden Konzepten und testet die am weitverbreitesten RAPMs mit empirischen Daten. Bei den vorgestellten RAPMs handelt es sich um die Mean-Variance Performance Masse, CAPM Performance Masse, Downside Risk Performance Masse und Preference-Based Performance Masse. Die Untersuchung zeigt, dass im Investitionsentscheidungsprozess die Sharpe Ratio (SR) das führende RAPM bleibt, ungeachtet des Nachteils des fehlenden Einbezugs von höheren Momenten der Renditeverteilung. Risiko-adjustierter Kapitalertrag (risk-adjusted return on capital, RAROC) ist das bevorzugte RAPM, mithilfe dessen Kreditinstitute ihr Risikokapital den einzelnen risikobehafteten Unternehmensaktivitäten zuweisen.

Pitfalls of Downside Performance Measures with Arbitrary Targets

Author : Benedikt Hoechner
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Pitfalls of Downside Performance Measures with Arbitrary Targets by : Benedikt Hoechner

Download or read book Pitfalls of Downside Performance Measures with Arbitrary Targets written by Benedikt Hoechner and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The Sharpe ratio has been criticized with regard to the assumptions of mean-volatility portfolio selection. Downside performance measures were developed to resolve this critique; they are consistent with expected utility theory under less restrictive assumptions. The most prominent family of downside performance measures is known as Kappa ratios and puts above target returns into relation to lower partial moments. While the Sharpe ratio of a mutual fund evaluates whether portfolios of mutual fund and risk-free asset dominate risk-adjusted passive portfolios of benchmark and risk-free asset, this characteristic cannot be transferred to downside performance measures with arbitrary targets. We show that Kappa ratios assign different values to passive strategies with varying fractions of benchmark and risk-free asset if the target differs from the risk-free rate. This effect can lead to reverse rankings of inferior and superior performing mutual funds. In addition, even the ratio of excess return and excess downside risk of passive portfolios is not constant in general. Therefore, downside performance measures turn out to be only applicable in asset management if the target is set equal to the risk-free rate.

Managing Downside Risk in Financial Markets

Author : Frank A. Sortino
Publisher : Butterworth-Heinemann
ISBN 13 : 9780750648639
Total Pages : 302 pages
Book Rating : 4.6/5 (486 download)

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Book Synopsis Managing Downside Risk in Financial Markets by : Frank A. Sortino

Download or read book Managing Downside Risk in Financial Markets written by Frank A. Sortino and published by Butterworth-Heinemann. This book was released on 2001-10-02 with total page 302 pages. Available in PDF, EPUB and Kindle. Book excerpt: Quantitative methods have revolutionized the area of trading, regulation, risk management, portfolio construction, asset pricing and treasury activities, and governmental activity such as central banking to name but some of the applications. Downside-risk, as a quantitative method, is an accurate measurement of investment risk, because it captures the risk of not accomplishing the investor's goal. 'Downside Risk in Financial Markets' demonstrates how downside-risk can produce better results in performance measurement and asset allocation than variance modelling. Theory, as well as the practical issues involved in its implementation, is covered and the arguments put forward emphatically show the superiority of downside risk models to variance models in terms of risk measurement and decision making. Variance considers all uncertainty to be risky. Downside-risk only considers returns below that needed to accomplish the investor's goal, to be risky. Risk is one of the biggest issues facing the financial markets today. 'Downside Risk in Financial Markets' outlines the major issues for Investment Managers and focuses on "downside-risk" as a key activity in managing risk in investment/portfolio management. Managing risk is now THE paramount topic within the financial sector and recurring losses through the 1990s has shocked financial institutions into placing much greater emphasis on risk management and control. Free Software Enclosed To help you implement the knowledge you will gain from reading this book, a CD is enclosed that contains free software programs that were previously only available to institutional investors under special licensing agreement to The pension Research Institute. This is our contribution to the advancement of professionalism in portfolio management. The Forsey-Sortino model is an executable program that: 1. Runs on any PC without the need of any additional software. 2. Uses the bootstrap procedure developed by Dr. Bradley Effron at Stanford University to uncover what could have happened, instead of relying only on what did happen in the past. This is the best procedure we know of for describing the nature of uncertainty in financial markets. 3. Fits a three parameter lognormal distribution to the bootstrapped data to allow downside risk to be calculated from a continuous distribution. This improves the efficacy of the downside risk estimates. 4. Calculates upside potential and downside risk from monthly returns on any portfolio manager. 5. Calculates upside potential and downside risk from any user defined distribution. Forsey-Sortino Source Code: 1. The source code, written in Visual Basic 5.0, is provided for institutional investors who want to add these calculations to their existing financial services. 2. No royalties are required for this source code, providing institutions inform clients of the source of these calculations. A growing number of services are now calculating downside risk in a manner that we are not comfortable with. Therefore, we want investors to know when downside risk and upside potential are calculated in accordance with the methodology described in this book. Riddles Spreadsheet: 1. Neil Riddles, former Senior Vice President and Director of Performance Analysis at Templeton Global Advisors, now COO at Hansberger Global Advisors Inc., offers a free spreadsheet in excel format. 2. The spreadsheet calculates downside risk and upside potential relative to the returns on an index Brings together a range of relevant material, not currently available in a single volume source. Provides practical information on how financial organisations can use downside risk techniques and technological developments to effectively manage risk in their portfolio management. Provides a rigorous theoretical underpinning for the use of downside risk techniques. This is important for the long-run acceptance of the methodology, since such arguments justify consultant's recommendations to pension funds and other plan sponsors.

Does the Use of Downside Risk-Adjusted Measures Impact the Performance of UK Investment Trusts?

Author : Christopher J. Adcock
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Does the Use of Downside Risk-Adjusted Measures Impact the Performance of UK Investment Trusts? by : Christopher J. Adcock

Download or read book Does the Use of Downside Risk-Adjusted Measures Impact the Performance of UK Investment Trusts? written by Christopher J. Adcock and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the impact of using different risk-adjusted measures of performance on the evaluation of UK investment trusts. Significant negative skewness is probably the most important empirical property of the time series of returns under analysis. Performance results based on the Sharpe Ratio and several downside risk-adjusted performance measures (the Sortino ratio, excess return on Cornish-Fisher VaR, excess return on VaR, and excess return on Expected Shortfall) are compared. VaR and Expected Shortfall are computed using Filtered Historical Simulation (FHS), a hybrid methodology that combines the use of volatility models with bootstrapping techniques and is robust to the empirical characteristics of our data. Four alternative measures, both parametric and non-parametric, are applied in order to assess the level of association between different performance measures. The Pearson correlation coefficient is applied in the context of the parametric approach. Additionally, two alternative non-parametric measures of rank correlation are used: Spearman ́s coefficient and Kendall ́s Tau. As an alternative to these rank correlation analysis, Cohen ́s Kappa, a non-parametric measure based on contingency table statistics is also computed. The observed level of association between Sharpe Ratio and the downside risk-adjusted measures of performance is not as low as would be expected considering the empirical properties of our data. However, an additional analysis based on a simulated sample of returns, with a higher variability in the skewness and the kurtosis of the time series, demonstrates that the choice of the performance measure does indeed have an impact on the performance assessment of investment portfolios. With respect to the simulated time series of returns considerable lower levels of association are reported especially with the application of Cohen ́s Kappa statistic.

Different Risk Adjusted Performance Measures for Equity Mutual Funds

Author : Anurag Pahuja
Publisher :
ISBN 13 :
Total Pages : 29 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Different Risk Adjusted Performance Measures for Equity Mutual Funds by : Anurag Pahuja

Download or read book Different Risk Adjusted Performance Measures for Equity Mutual Funds written by Anurag Pahuja and published by . This book was released on 2016 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditional measures of performance evaluation are in vogue since long, however, Value at Risk (VaR) approaches are making their place in portfolio management industry from the last ten years. Value at Risk (VaR) approach focuses on the downside volatility of portfolio, thus making the investor clear about the maximum possible loss on his portfolio. In today's highly volatile environment, an investor is concerned more about the downside risk rather upward swing in the portfolio. He would hesitate to invest in a portfolio having more downward risk. Present paper makes an attempt to compare both the traditional and VaR performance measures and explore whether differences exist in ranking of funds using both the approaches. Results indicated that Sharpe ratio and Normal VaR results are same when used independently, while there is difference in results using Treynor and Jensen's Alpha.

Investment Performance Measurement

Author : Bruce J. Feibel
Publisher : John Wiley & Sons
ISBN 13 : 0471445630
Total Pages : 369 pages
Book Rating : 4.4/5 (714 download)

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Book Synopsis Investment Performance Measurement by : Bruce J. Feibel

Download or read book Investment Performance Measurement written by Bruce J. Feibel and published by John Wiley & Sons. This book was released on 2003-04-21 with total page 369 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many investment books include a chapter or two on investment performance measurement or focus on a single aspect, but only one book addresses the breadth of the field. Investment Performance Measurement is a comprehensive guide that covers the subjects of performance and risk calculation, attribution, presentation, and interpretation. This information-packed book covers a wide range of related topics, including calculation of the returns earned by portfolios; measurement of the risks taken to earn these returns; measurement of the risk and return efficiency of the portfolio and other indicators of manager skill; and much more. By reviewing both the concepts of performance measurement and examples of how they are used, readers will gain the insight necessary to understand and evaluate the management of investment funds. Investment Performance Measurement makes extensive use of fully worked examples that supplement formulas and is a perfect companion to professional courses and seminars for analysts. Bruce J. Feibel, CFA, is Product Manager at Eagle Investment Systems, an investment management software provider located in Newton, Massachusetts. He is responsible for overseeing the development of Eagle's investment performance measurement, attribution, and AIMR/GIPS compliance software. Prior to joining Eagle, Mr. Feibel was a principal at State Street Global Advisors. He earned his BS in accounting from the University of Florida.

Asset Allocation, Performance Measurement and Downside Risk

Author : Alexandra Elisabeth Janovsky
Publisher : diplom.de
ISBN 13 : 3832432213
Total Pages : 121 pages
Book Rating : 4.8/5 (324 download)

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Book Synopsis Asset Allocation, Performance Measurement and Downside Risk by : Alexandra Elisabeth Janovsky

Download or read book Asset Allocation, Performance Measurement and Downside Risk written by Alexandra Elisabeth Janovsky and published by diplom.de. This book was released on 2001-03-26 with total page 121 pages. Available in PDF, EPUB and Kindle. Book excerpt: Inhaltsangabe:Abstract: Investors should not and in fact do not hold a single asset, they hold groups or portfolios of assets. An important aspect in portfolio theory is that the risk of a portfolio is more complex than the risk of its components. It depends on how much the assets represented in the portfolio move together, that is, on the correlation between the single assets. In portfolio theory, there are several definitions of risk: First of all, the Capital Asset Pricing Model (CAPM) relies on the beta factor of an asset relative to the market as a measure for the asset s risk. On the other hand, also downside risk can be used in order to determine a portfolio s risk. The kind of risk in question is market risk, which is the risk of losses arising from adverse movements in market prices or rates. Market risk can be subdivided into interest rate risk, equity price risk, exchange rate risk and commodity price risk. For many investment decisions, there is a minimum return that has to be reached in order to meet different criteria. Returns above this minimum acceptable return ensure that these goals are reached and thus are not considered risky. Standard deviation captures the risk associated with achieving the mean, while downside risk assumes that only those returns that fall below the minimal acceptable return incur risk. One has to distinguish between good and bad volatility. Good volatility is dispersion above the minimal acceptable return, the farther above the minimal acceptable return, the better it is. One way of measuring downside risk is to consider the shortfall probability or chances of falling below the minimal acceptable return. Another possibility is measuring downside variance, i.e. variance of the returns falling below the minimal acceptable return. As a consequence, downside variance is very sensitive to the estimate of the mean of the return function, while standard deviation does not suffer from this problem. Thus the calculation of downside deviation is more difficult than the calculation of standard deviation. The quality of the calculation also depends on the choice of differencing interval of the time series. The calculation of downside risk assumes that financial time series follow either a normal or lognormal distribution. Finally, there is no universal risk measure for the many broad categories of risk. For example, standard deviation captures the risk of not achieving the mean, beta captures the risk of investing [...]

Risk-Adjusted Performance Measures and Implied Risk-Attitudes

Author : Sebastiaan de Groot
Publisher :
ISBN 13 :
Total Pages : 23 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Risk-Adjusted Performance Measures and Implied Risk-Attitudes by : Sebastiaan de Groot

Download or read book Risk-Adjusted Performance Measures and Implied Risk-Attitudes written by Sebastiaan de Groot and published by . This book was released on 2009 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this article we study the relation between performance measures and preferences functions. In particular, we examine to what extent performance measures can be used as alternatives for preference functions. We study the Sharpe ratio, Sharpe's alpha, the expected return measure, the Sortino ratio, the Fouse index, and the upside potential ratio. We find that the first three measures correspond to the preferences of investors with a low degree of risk aversion, whereas the latter three measures correspond to the preferences of investors with intermediate and high degrees of risk aversion.

Risk-Adjusted Performance Measurement

Author : Alexandra Wiesinger
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (732 download)

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Book Synopsis Risk-Adjusted Performance Measurement by : Alexandra Wiesinger

Download or read book Risk-Adjusted Performance Measurement written by Alexandra Wiesinger and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Market Risk Analysis, Boxset

Author : Carol Alexander
Publisher : John Wiley & Sons
ISBN 13 : 0470997990
Total Pages : 1691 pages
Book Rating : 4.4/5 (79 download)

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Book Synopsis Market Risk Analysis, Boxset by : Carol Alexander

Download or read book Market Risk Analysis, Boxset written by Carol Alexander and published by John Wiley & Sons. This book was released on 2009-02-24 with total page 1691 pages. Available in PDF, EPUB and Kindle. Book excerpt: Market Risk Analysis is the most comprehensive, rigorous and detailed resource available on market risk analysis. Written as a series of four interlinked volumes each title is self-contained, although numerous cross-references to other volumes enable readers to obtain further background knowledge and information about financial applications. Volume I: Quantitative Methods in Finance covers the essential mathematical and financial background for subsequent volumes. Although many readers will already be familiar with this material, few competing texts contain such a complete and pedagogical exposition of all the basic quantitative concepts required for market risk analysis. There are six comprehensive chapters covering all the calculus, linear algebra, probability and statistics, numerical methods and portfolio mathematics that are necessary for market risk analysis. This is an ideal background text for a Masters course in finance. Volume II: Practical Financial Econometrics provides a detailed understanding of financial econometrics, with applications to asset pricing and fund management as well as to market risk analysis. It covers equity factor models, including a detailed analysis of the Barra model and tracking error, principal component analysis, volatility and correlation, GARCH, cointegration, copulas, Markov switching, quantile regression, discrete choice models, non-linear regression, forecasting and model evaluation. Volume III: Pricing, Hedging and Trading Financial Instruments has five very long chapters on the pricing, hedging and trading of bonds and swaps, futures and forwards, options and volatility as well detailed descriptions of mapping portfolios of these financial instruments to their risk factors. There are numerous examples, all coded in interactive Excel spreadsheets, including many pricing formulae for exotic options but excluding the calibration of stochastic volatility models, for which Matlab code is provided. The chapters on options and volatility together constitute 50% of the book, the slightly longer chapter on volatility concentrating on the dynamic properties the two volatility surfaces the implied and the local volatility surfaces that accompany an option pricing model, with particular reference to hedging. Volume IV: Value at Risk Models builds on the three previous volumes to provide by far the most comprehensive and detailed treatment of market VaR models that is currently available in any textbook. The exposition starts at an elementary level but, as in all the other volumes, the pedagogical approach accompanied by numerous interactive Excel spreadsheets allows readers to experience the application of parametric linear, historical simulation and Monte Carlo VaR models to increasingly complex portfolios. Starting with simple positions, after a few chapters we apply value-at-risk models to interest rate sensitive portfolios, large international securities portfolios, commodity futures, path dependent options and much else. This rigorous treatment includes many new results and applications to regulatory and economic capital allocation, measurement of VaR model risk and stress testing.

Market Risk Analysis, Quantitative Methods in Finance

Author : Carol Alexander
Publisher : John Wiley & Sons
ISBN 13 : 047077102X
Total Pages : 318 pages
Book Rating : 4.4/5 (77 download)

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Book Synopsis Market Risk Analysis, Quantitative Methods in Finance by : Carol Alexander

Download or read book Market Risk Analysis, Quantitative Methods in Finance written by Carol Alexander and published by John Wiley & Sons. This book was released on 2008-04-30 with total page 318 pages. Available in PDF, EPUB and Kindle. Book excerpt: Written by leading market risk academic, Professor Carol Alexander, Quantitative Methods in Finance forms part one of the Market Risk Analysis four volume set. Starting from the basics, this book helps readers to take the first step towards becoming a properly qualified financial risk manager and asset manager, roles that are currently in huge demand. Accessible to intelligent readers with a moderate understanding of mathematics at high school level or to anyone with a university degree in mathematics, physics or engineering, no prior knowledge of finance is necessary. Instead the emphasis is on understanding ideas rather than on mathematical rigour, meaning that this book offers a fast-track introduction to financial analysis for readers with some quantitative background, highlighting those areas of mathematics that are particularly relevant to solving problems in financial risk management and asset management. Unique to this book is a focus on both continuous and discrete time finance so that Quantitative Methods in Finance is not only about the application of mathematics to finance; it also explains, in very pedagogical terms, how the continuous time and discrete time finance disciplines meet, providing a comprehensive, highly accessible guide which will provide readers with the tools to start applying their knowledge immediately. All together, the Market Risk Analysis four volume set illustrates virtually every concept or formula with a practical, numerical example or a longer, empirical case study. Across all four volumes there are approximately 300 numerical and empirical examples, 400 graphs and figures and 30 case studies many of which are contained in interactive Excel spreadsheets available from the accompanying CD-ROM . Empirical examples and case studies specific to this volume include: Principal component analysis of European equity indices; Calibration of Student t distribution by maximum likelihood; Orthogonal regression and estimation of equity factor models; Simulations of geometric Brownian motion, and of correlated Student t variables; Pricing European and American options with binomial trees, and European options with the Black-Scholes-Merton formula; Cubic spline fitting of yields curves and implied volatilities; Solution of Markowitz problem with no short sales and other constraints; Calculation of risk adjusted performance metrics including generalised Sharpe ratio, omega and kappa indices.