Handbooks in Operations Research and Management Science: Financial Engineering

Edited by

  • John Birge, Robert R. McCormick School of Engineering, Northwestern University, Evanston, IL, U.S.A.
  • Vadim Linetsky, Department of Industrial Engineering, Northwestern University, Evanston, IL, U.S.A.

The remarkable growth of financial markets over the past decades has been accompanied by an equally remarkable explosion in financial engineering, the interdisciplinary field focusing on applications of mathematical and statistical modeling and computational technology to problems in the financial services industry. The goals of financial engineering research are to develop empirically realistic stochastic models describing dynamics of financial risk variables, such as asset prices, foreign exchange rates, and interest rates, and to develop analytical, computational and statistical methods and tools to implement the models and employ them to design and evaluate financial products and processes to manage risk and to meet financial goals. This handbook describes the latest developments in this rapidly evolving field in the areas of modeling and pricing financial derivatives, building models of interest rates and credit risk, pricing and hedging in incomplete markets, risk management, and portfolio optimization. Leading researchers in each of these areas provide their perspective on the state of the art in terms of analysis, computation, and practical relevance. The authors describe essential results to date, fundamental methods and tools, as well as new views of the existing literature, opportunities, and challenges for future research.
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Graduate students of finance, international business, and economics


Book information

  • Published: October 2007
  • Imprint: ELSEVIER
  • ISBN: 978-0-444-51781-4

Table of Contents

I. IntroductionJohn Birge & Vadim LinetskyChapter 1. A Partial Introduction to Financial Asset Pricing Theory Robert Jarrow & Philip ProtterII. Derivative Securities: Models and MethodsChapter 2. Jump-Diffusion ModelsSteven Kou Chapter 3. Modeling Financial Security Returns Using Levy ProcessesLiuren Wu Chapter 4. Pricing with Wishart Risk Factors Christian Gourieroux & Razvan SufanaChapter 5. Volatility EstimationFederico Bandi and Jeff Russell Chapter 6. Spectral Methods in Derivatives PricingVadim LinetskyChapter 7. Variational Methods in Derivatives Pricing Liming Feng, Pavlo Kovalov & Vadim Linetsky Chapter 8. Discrete Path-Dependent OptionsSteven Kou III. Interest Rate and Credit Risk Models and Derivatives Chapter 9. Topics in Interest Rate TheoryTomas Bjork Chapter 10. Calculating Portfolio Credit RiskPaul GlassermanChapter 11. Valuation of Basket Credit Derivatives in the Credit Migrations EnvironmentTomasz Bielecki, Stephane Crepey, Monique Jeanblanc & Marek Rutkowski IV. Incomplete Markets Chapter 12. Incomplete MarketsJeremy StaumChapter 13. Option Pricing: Real and Risk-Neutral Distributions George Constantinides, Jens Jackwerth & Stylianos PerrakisChapter 14. Total Risk Minimization Using Monte Carlo SimulationsThomas Coleman, Yuying Li & Maria-Cristina Patron Chapter 15. Queuing-Theoretic Approaches to Financial Price Fluctuations Erhan Bayraktar, Ulrich Horst & Ronnie Sircar V. Risk Management Chapter 16. Economic Credit Capital Allocation and Risk Contributions Helmut Mausser & Dan RosenChapters 17. Liquidity Risk and Option Pricing Theory Robert Jarrow & Phillip Protter Chapter 18. Financial Engineering: Applications in InsurancePhelim Boyle & Mary Hardy, VI. Portfolio Optimization Chapter 19. Dynamic Portfolio Choice and Risk Aversion Costis Skiadas Chapter 20. Optimization Methods in Portfolio ManagementJohn BirgeChapter 21. Simulation Methods for Optimal PortfoliosJerome Detemple, Rene Garcia & Marcel RindisbacherChapter 22. Duality Theory and Approximate Dynamic Programming for Pricing American Options and Portfolio OptimizationMartin Haugh & Leonid Kogan Chapter 23. Asset Allocation with Multivariate Non-Gaussian Returns Dilip Madan & Ju-Yi YenChapter 24. Large Deviation Techniques and Financial Applications Phelim Boyle, Shui Feng & Weidong Tian