Synopses & Reviews
The modern field of asset pricing asks for sound pricing models grounded on the theory of financial economics as well as for accurate estimation techniques when it comes to empirical inferences of the specified model. This book provides a canonical framework that shows how to bridge the gap between the continuous-time pricing practice in financial engineering and the capital market data inevitably only available at discrete-time intervals. Starting with a comprehensive treatment of the particular stochastic modeling and econometric estimation framework, the main parts of the book cover applications to risky assets traded on the markets for funds, fixed-income products and electricity derivatives. The second edition newly incorporates the financial modeling chapter which elaborates on the vital PDE- and EMM-approaches. The reorganized and improved text further integrates the latest research contributions in the three covered application fields.
Review
From the reviews of the second edition: "This book provides a canonical framework that shows how to bridge the gap between the continuous-time pricing practice in financial engineering and the capital market data inevitably only available at discrete-time intervals. ... The reorganized and improved text further integrates the latest research contributions in three covered application fields: equities with closed funds, fixed-income products and electricity derivatives." (T. Postelnicu, Zentralblatt MATH, Vol. 1086, 2006)
Review
From the reviews of the second edition:
"This book provides a canonical framework that shows how to bridge the gap between the continuous-time pricing practice in financial engineering and the capital market data inevitably only available at discrete-time intervals. ... The reorganized and improved text further integrates the latest research contributions in three covered application fields: equities with closed funds, fixed-income products and electricity derivatives." (T. Postelnicu, Zentralblatt MATH, Vol. 1086, 2006)
Synopsis
The modern field of asset pricing requires the use of sound pricing models grounded on the theory of financial economics. This book provides a framework that integrates the continuous-time pricing practice in financial engineering and capital market data that is only available at discrete-time intervals. Starting with a comprehensive treatment of stochastic modeling and econometric estimation framework, the main parts of the book cover applications to risky assets traded on the markets for funds, fixed-income products, and electricity derivatives. The second edition incorporates recent research in this area of financial modeling.
Synopsis
The modern field of asset pricing asks for sound pricing models grounded on the theory of financial economies a la Ingersoll (1987) as weIl as for accu- rate estimation techniques a la Hamilton (1994b) when it comes to empirical inferences of the specified model. The idea behind this book on hand is to provide the reader with a canonical framework that shows how to bridge the gap between the continuous-time pricing practice in financial engineering and the capital market data inevitably only available at discrete time intervals. Three major financial markets are to be examined for which we select the equity market, the bond market, and the electricity market. In each mar- ket we derive new valuation models to price selected financial instruments in continuous-time. The decision criterium for choosing a continuous-time model- ing framework is the richness of the stochastic theory available for continuous- time processes with Merton's pioneering contributions to financial economics, collected in Merton (1992). The continuous-time framework, reviewed and as- sessed by Sundaresan (2000), allows us to obtain analytical pricing formulae that would be unavailable in a discrete time setting. However, at the time of implementing the derived theoretical pricing models on market data, that is necessarily sampled at discrete time intervals, we work with so-called exact discrete time equivalents a la Bergstrom (1984). We show how to conveniently work within astate space framework which we derive in a general setting as weIl as explicitly for each of the three applications.
Synopsis
Covers applications to risky assets traded on the markets for funds, fixed-income products and electricity derivatives. Integrates the latest research and includes a new chapter on financial modeling.
Table of Contents
Asset Pricing Framework: Financial Modeling.- Estimation Principles.-
Pricing Equities: Introduction and Survey.- Valuation Model.- First Empirical Results.- Implications for Investment Strategies.- Summary and Conclusions.-
Pricing Fixed-Income Securities: Introduction and Survey.- Term Structure Model.- Initial Characteristic Results.- Risk Management and Derivates Pricing.- Calibration to Standard Instruments.- Summary and Conclusions.-
Pricing Electricity Forwards: Introduction and Survey.- Electricity Pricing Model.- Empirical Inference.- Summary and Conclusions.- List of Symbols and Notation.- List of Tables.- List of Figures.- References.- Index.