Index Page 771 Wednesday, February 4, 2004 1:13 PM
Index 771Optimization (Cont.)
performing, 500
problem. See Constrained opti -
mization problem; Qua-
dratic optimization problem
formulation, 665
procedures, 324
theory, 82. See also Computer-
based optimization theory
usage, 660
Optimizers, 487, 490
Option price, 64, 66–69
components, 66–68
factors, 68
process, 451
Option pricing, 447–454
model, 68–69
theory, 684
Option-adjusted duration, 118
Optionality risk, 653
Option-free bond, 116
value, 117–118
Options, 64–69
buyer, 66, 67
premium, 64
risk-return, 66
theory, 89–90
time premium, 67
time to expiration, 68
valuation, relationship. See
Bond valuation
Order
flow, 23
handling/clearance charges, 28, 83
imbalance, 30
integration, 310
processing costs, 30
statistics, 369–371
Ordered arrays, 141
Ordinary differential equations
(ODE), 240–243, 261–- See also Linear ODE
closed-form solutions, 246–249
numerical solutions, 249–256
order/degree, 241
solution, 241–243
systems, 243–245
Ordinary least square (OLS)
estimates, 437–438
method, 312, 323, 335
Ornstein-Unlenbeck process,
280–281, 636
Orthogonal vector, 156
Ouliaris, S., 544
Outcomes/events, 169–170
Outputs, definition, 306
Overfitting, 317
Overreaction hypothesis, 573
Over-the-counter (OTC)
instrument, 58
markets, 26, 46, 65
options, 65
traded shares, 46
trading, 45
Pacific Coast Exchange, 46
Pacific Investment Management
Company (PIMCO), 552
Pagan, Adrian, 524
Pair trading, 574
Par value. See Bonds
relation, 597
Pareto, Wilfredo, 75–78
Pareto behavior, 376
Pareto distribution, 366, 370, 531
Pareto Law, 78, 389
Pareto tail, 378
Partial differential equations
(PDE), 240, 259–265, 451
numerical solutions, 263–265
obeying, 628
solving, 452
Partial duration, technical differ-
ence. See Rate duration
Partitions, 182–183
Passive portfolio
management, contrast. See
Active portfolio
strategy, 6. See also Low-risk
passive portfolio strate-
gies
Passive strategies, 564–565
Path dependence models, 423
Path dependent option, 695
Pathwise Riemann-Stieltjes inte -
grals, 443
Payaslioglu, Cem, 289
Payment failure, 683
Payoff price pair, 406
Payoff rate, 616. See also Arbi -
trage
processes, 442–445
absence, 455
introduction, 466
Peaks over threshold, point pro-
cess, 371–373
Pearl, Judea, 168
Pension
funds, 41–42, 45
obligations, 42
Perfect dependency, 724
Perfect market, 28–30
results, 83
Performance. See Portfolios
lowest level measurement,
753–754
measurement/evaluation. See
Investment
Perold, André F., 508
Per-period default probabilities, 712
Perpetual instrument, 24
Pesaran, Hashem M., 540
Pesaran, M.H., 342
Petrov, B.N., 318
Phillips, P.C.B., 544
Physical settlement, 680
Pickand estimator, 375–376
Pictet, O.V., 377, 389
Plan sponsors, 41–42
Plerou, Vasiliki, 390, 522, 536Pliska, Stanley R., 90, 457
Poincaré, Henri, 78
Point process. See Exceedances;
Extreme point; Peaks over
threshold
theory, 80
Points. See Critical point; Sad -
dle point
density, 99–100
measure, 372
processes, 697
Poisson assumption, 731
Poisson distribution, 707
Poisson intensity, 699
Poisson process, 80, 697–698,
714, 740. See also Homo -
geneous Poisson process;
Joint Poisson process
Polynomial cointegration, 540
Polynomial time, 211
Polynomials
restrictions, 302
roots, 301
Pontryagin’s Maximum Princi -
ple, 214
Portfolio M, definition, 481
Portfolio management. See Bonds;
Mean-variance portfolio
management
contrast. See Active portfolio
management
engineered approach, 568
risk management, usage, 751–
755
strategies, relationship. See
Risk factors
Portfolio risk
control, 552
measure, 659
reduction, 513
Portfolios
assets, 63
beta, 518, 559. See also Track -
ing errors
tracking error, relationship
(quantification), 559
choice, 487–491, 566
construction. See Indexed
portfolio
approaches, 8–9
risk control, relationship, 582
diversification, 435
exposure, 657
assessment, 583–586
holdings, 660
immunization, 667–672
first-order conditions, 670
managers
benchmark index, 97
modeling demands, 13
performance, 9
payoff, 394
performance, 98, 578
replication, 89–90
risk-return report, 583