Financial Models with Levy Processes and Volatility Clustering

Beschreibung

The financial crisis that began in the summer of 2007 has led to criticisms that the financial models used by risk managers, portfolio managers, and even regulators simply do not reflect the realities of today's markets. While one tool cannot be blamed for the entire global financial crisis, improving the flexibility and statistical reliability of existing models, in addition to developing better models, is essential for both financial practitioners and academics seeking to explain and prevent extreme events. Nobody understands this better than the expert author team of Svetlozar Rachev, Young Shin Kim, Michele Leonardo Bianchi, and Frank Fabozzi, and in Financial Models with Lévy Processes and Volatility Clustering, they present a framework for modeling the behavior of stock returns in a univariate and multivariate setting-providing you with practical applications to option pricing and portfolio management. They also explain the reasons for working with non-normal distributions in financial modeling and the best methodologies for employing them. This reliable resource includes detailed discussions of the basics of probability distributions and explains the alpha-stable distribution and the tempered stable distribution. The authors also explore discrete-time option pricing models, beginning with the classical normal model with volatility clustering to more recent models that consider both volatility clustering and heavy tails. This practical guide: * Reviews the basics of probability distributions * Analyzes a continuous-time option pricing model (the so-called exponential Lévy model) * Defines a discrete-time model with volatility clustering and how to price options using Monte Carlo methods * Studies two multivariate settings that are suitable for explaining joint extreme events * And much more Filled with in-depth insights and expert advice, Financial Models with Lévy Processes and Volatility Clustering is a thorough guide to both current probability distribution methods and brand new methodologies for financial modeling.
An in-depth guide to understanding probability distributions and financial modeling for the purposes of investment management In Financial Models with Lévy Processes and Volatility Clustering, the expert author team provides a framework to model the behavior of stock returns in both a univariate and a multivariate setting, providing you with practical applications to option pricing and portfolio management. They also explain the reasons for working with non-normal distribution in financial modeling and the best methodologies for employing it. The book's framework includes the basics of probability distributions and explains the alpha-stable distribution and the tempered stable distribution. The authors also explore discrete time option pricing models, beginning with the classical normal model with volatility clustering to more recent models that consider both volatility clustering and heavy tails. * Reviews the basics of probability distributions * Analyzes a continuous time option pricing model (the so-called exponential Lévy model) * Defines a discrete time model with volatility clustering and how to price options using Monte Carlo methods * Studies two multivariate settings that are suitable to explain joint extreme events Financial Models with Lévy Processes and Volatility Clustering is a thorough guide to classical probability distribution methods and brand new methodologies for financial modeling.

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Svetlozar T. Rachev

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