The Mathematics of Financial Modelingand Investment Management

Index Page 758 Wednesday, February 4, 2004 1:13 PM

758 Index

Assets (Cont.)

cash distribution, 69

classes, 3–4. See also Tradi -

tional asset classes

inclusion, 503–507

return distribution, 508

volatility, 752

complexity, 752

covariance, 514

defaulting, 728

probability, 725

expected return, 87

inputs, requirement, 7–8

liquidity, 27

management, 13

risk management, usage,

751–755

market value, 40

package, 393

position. See Underlying asset

price, 67

cointegration, evidence, 344

riskiness, 24

selection, 2. See also Invest -

ment management process

methodologies, 324

types, 42

value, influence, 63

volatility, 694

Asymmetric risk, 66

Asymptotic normality, 376

Asymptotically self-similar sta -

tionary sequence, 388

Atlantic options, 65

Attraction, domain, 361

Augmented Dickey-Fuller (ADF)

test, 312–313, 340

Augmented matrix, 150

Autocorrelation, 287

function, 382. See also Time-

independent autocorrela -

tion function

Autocovariance function, 302.

See also Time-dependent

autocovariance function

Autocross correlations, evi -

dence, 344

Autopredictive model, 285

Autoregressive case, 298

Autoregressive Distributed Lag

(ARDL), 342, 540

Autoregressive equation, 296

Autoregressive form. See Infi -

nite autoregressive form

Autoregressive integrated moving

average (ARIMA), 152, 300

process, 301

Autoregressive models, 288. See

also Vectors

combination, 333

Autoregressive moving average

(ARMA), 297, 311–312,

379

models, 304–305, 317. See

also Nonstationary multi-

variate ARMA models;

Nonstationary univariate

ARMA models; Station-

ary multivariate ARMA

models; Stationary univari-

ate ARMA models

processes, 299–302, 548. See

also Heavy-tailed ARMA

processes

representation, 297–305

equivalence, 308–309

stationary processes, 300

Autoregressive representation.

See Causal autoregres-

sive representation; Time

series

Axiomatic set theory, 93

Axiomatic system, 166

Axiomatic theory, 165. See also

Probability

Bachelier, Louis, 75, 78–79, 81,

326



Backward-looking tracking errors,

558, 651

forward-looking tracking errors,

contrast, 555–556

Bader, Lawrence N., 508

Bagehot, Walter, 31

Baillie, R., 344

Balance sheet, usage, 685

Bamberg, G., 353

Bank/dealer counterparties, 717

Bankers Trust, 746

Banz, Rolf, 520

Barbell portfolio, 671

Barra, 578, 581

E3 factor model, 582

fundamental multifactor risk

model, 533

Barrier option, 695

Barrier structural model, 694–696

Basis points, 125

Basket, 50

default probability, 721

default swaps

pricing model, 718–721

valuation, 718–734

market. See Default basket

market

model, 720

pricing. See Credit default swaps

swaps. See First-to-default

basket swap; Second-to-

default basket swap

Basu, Sanjoy, 520

Bauer, D., 345, 538, 544

Bayesian Information Criteria

(BIC), 318

Bayesian statistics, 316

Beebower, Gilbert, 494

Behavioral finance, 502

Belief, intensity, 165

Bellman, R., 214

Bellman’s Dynamic Program -

ming, 214

Benchmarks. See Nonliability

driven entities

characteristics, 5

establishment, 2

exposure, 657

index, 4, 651. See also Portfo -

lios

risk profile, 553

volatility, 558

risk, 579, 582, 751

volatility, impact, 556–560

Bermuda options, 65

Bernardo, Josè M., 316

Bernoulli, Jacob, 100

Bernoulli distribution. See Joint

Bernoulli distribution

Bernstein, Peter L., 75, 526

Berry, Michael A., 436

Beta, 524–525

characteristics, 565

distributions, 367

portfolio. See Zero-beta port -

folio

usage, 517, 530–533

Bias-variance trade-off, 376

Bid-ask spread, 23, 30, 64, 575

charge. See Dealers

dealer charge, 28

establishment, 31

Billingsley, Patrick, 173

Binomial models, 423–427

one-period interval, 699

risk-neutral probabilities, 426–

427



Birge, J.R., 202

Bivariate diffusion, 729

Bivariate normal, 196

probability functions, 693

Black, Fischer, 69, 76, 89–90,

451, 477, 499, 521, 637,

638, 684, 695

Black box, 307

representation, 307

Black-Derman-Toy Model, 635,

638



Black-Karasinski Model, 635,

637–638

Black-Scholes equation, 260

Black-Scholes option pricing

formula, 446, 449–452

Girsanov theorem, applica -

tion, 462–463

Black-Scholes-Merton (BSM)

Model, 684–690

implications, 690

Blanchard, O.J., 334

Block trades, 50

Bogey, establishment, 2

Bohr, Niels, 444

Bollerslev, Tim, 344, 346, 382