The Mathematics of Financial Modelingand Investment Management

Index Page 773 Wednesday, February 4, 2004 1:13 PM

Index 773

Ranks, 151–153 Rank-size order property, 357 Rate duration, partial duration (technical difference), 139 Rational number, 98–99. See also Irrational number r-dimensional Brownian motion, 278 Read, S., 353 Real estate, 3 Real function, 101 Real markets, brokers/dealers (role), 28–31 Real matrix, 145 Real numbers, one-to-one rela - tionship, 99 Real-valued function, 101, 134– 136, 172 Fourier transform, 137 Real-valued measurable function, 174–175 Real-valued variables, 204 Recession periods, 347 Reconstitution, 606 Recourse, concept, 202 Recovery. See Stochastic recovery assumption. See Proportional- ity recovery assumption fluctuation, 706 model. See Fractional recov - ery model payment, 698 ratio, 698 Rectangular matrix, 145 Recursive difference equations, 249 Recursive relationship, 276 Reddington, F.M., 667 Reduced form models, 684. See also Credit risk modeling observations, 710 Redundant securities, 446 Reference designation, 71 entity, 679, 728 defaults, 718 obligation, 679–680 value, 714 rate, 54 Refunding. See Bonds Regression. See Linear regression function, 197–199 Regular deflator, 455 Regulatory accounting princi - ples (RAP), 6, 40 Regulatory constraints, 5 Regulatory surplus, 40 Reichenbach, Hans, 166 Reichlin, L., 334 Reilly, Frank K., 649 Reinvestment. See Yield risk, 499, 615 Relative frequency, 166 Relative prices, 699 dispersion, 23 Relative risk, 560

Relative strength, 572 Representations, 283. See also Autoregressive moving average; State-space rep- resentation Reproducible assets, 21. See also Nonreproducible assets Repudiation, 683 Repurchase agreement, 601 market, government bond (issuance), 611 Residential mortgages, 653 Residual claim, 22 Residual risk, 515, 579, 582 decomposition. See Active systematic-active residual risk decomposition Resnick, S., 368, 385 Resource Description Framework (RDF), development, 16 Retirement payments, 42 Return on investment (ROI), examination, 18 Return/risk decisions. See Strate - gic return/risk decisions Returns. See Compound return; Simple net return average value, 8 correlation, 8 covariance, 8 dynamic market models, 537–538 expectations, 552 forecast, 487–488 generation function, 532 nonlinear dynamic models, 546–549 potential, 66 predictability, 22 rates, 575 volatility, 287 bounds, 575 Return-to-maturity expecta - tions theory, 616 Return-to-maturity theory, 617 Reverse cash and carry trade, 61 Reversibility, 22, 23 Reward to Variability Ratio, 750–751 Riemann, Bernhard, 127 Riemann integrals, 127–129, 174 properties, 129–130 Riemann sum, 126–128. See also Lower Riemann sum; Upper Riemann sum Riemann-Stieltjes integral, 177. See also Pathwise Rie- mann-Stieltjes integrals Right continuous function, 104 Right endpoint, 363 Risager, Ole, 344 Risk. See Credit risk; Markets; Operational risk approach. See Tracking errors bearers, 41 category, 38

control, 738. See also Stock market relationship. See Portfolios decomposition, 577–582. See also Active risk; Active systematic-active residual risk decomposition; Residual risk; System- atic-residual risk decomposition; Total risk summary, 582 equilibrium market price, 482 increase, 88 indices, 533 lowest level measurement, 753–754 measurement, usage, 752–753 measures, 747–751 modeling. See Contribution risk modeling models, 745–747 application. See Multifac- tor risk models illustration. See Multifactor risk models premium, 88, 436. See also Capital market line; His - torical risk premiums reduction. See Prices reward per unit. See Market shape, 737 tolerance, 7 types, 31 Risk factors, 532, 652 compensation, 88 groups, 658 portfolio management strate - gies, relationship, 652–653 statistical independence, 658 Risk management, 737, 738, 754 factors, 752 policies, determinant, 738 reasons, 744–745 regulatory implications, 754–755 usage. See Assets; Portfolio management Risk neutral measure, 687 Risk-adjusted returns, produc - tion, 569 Risk-averse investors, 484, 490 Risk-aversion parameter, 486 Risk-free asset absence, 484 existence, 512–513 introduction, 480 investment, 417 purchase, 426 replication, 741 return, 519 usage, 512 zero variance, 477 Risk-free bank account, deter- ministic instantaneous interest rate, 218 Risk-free bond, 624

The Mathematics of Financial Modelingand Investment Management

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