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Securities valuation: applications of financial modeling

Author: Ho, Thomas A. ; Lee, Sang BinPublisher: Oxford University Press (OUP) 2005.Language: EnglishDescription: 324 p. ; 24 cm.ISBN: 0195172752Type of document: BookBibliography/Index: Includes bibliographical references and index
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Item type Current location Collection Call number Status Date due Barcode Item holds
Book Europe Campus
Main Collection
Print HG4636 .H6 2005
(Browse shelf)
001220999
Available 001220999
Total holds: 0

Includes bibliographical references and index

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Securities Valuation Applications of Financial Modeling Contents Preface x 1. Introduction 1 5 1.1 Diversification 1 1.2 Capital Asset Pricing Model (CAPM) 1.3 Beta: The Systematic Risk 7 1.4 The Stock Model--Dividend Discount Model 9 1.5 An Application of the Capital Asset Pricing Model in Investment Services 11 Excel Model Exercises 11 12 E1.1 Diversification 11 Case: Managing the Risk of a Pension Fund E1.2 CAPM 15 Case: Quarterly Earnings Report of an Energy Storage Operator 16 E1.3 Dividend Discount Model 22 Case: Valuation of a Real Estate Investment Trust (REIT) 23 Notes 26 Bibliography 27 2. Equity Options 29 29 30 2.1 Description of an Option 2.2 Institutional Framework 2.3 Put-Call Parity 31 2.4 The Main Insight of the Black-Scholes Model 33 2.5 Valuation Methods 40 2.6 Relationships of Risk-Neutral and Market Binomial Lattices 2.7 Option Behavior and the Sensitivity Analysis 46 2.8 Applications of Option Models 48 Excel Model Exercises 51 E2.1 Cox-Ross-Rubinstein Option Pricing Model 51 Case: Private Wealth Management--Designing a Structured Product 52 45 vi CONTENTS E2.2 The Put-Call Parity 64 Case: Proprietary Trading Desk 65 E2.3 The Black-Scholes Option Pricing Model 70 Case: Use of Put Options in Hedging 71 E2.4 The Relationship of Risk-Neutral and Market Binomial Lattices 80 Case: Asset Allocation and the Expected Returns of an Option 80 Notes 83 83 Bibliography 3. Exotic Options 85 3.1 Options with Alternative Payoffs at Expiration 85 3.2 Options with Boundary Conditions 87 3.3 Options with the Early Exercise Feature (American) and the Bellman Optimization 90 3.4 Compound Options Excel Model Exercises 95 97 97 E3.1 American Stock Option Case: Valuing Employee Stock Options 97 E3.2 Compound Option 104 Case: Project Financing and the Compound Option 105 E3.3 Digital Option 110 Case: IPO Incentive Option and Executive Option Design 111 E3.4 Greeks (Delta, Gamma, Theta, Vega, Rho, Omega): A Binomial Lattice Versus a Closed-Form Solution 115 Case: Valuing an Equity-Structured Product from a Term Sheet 116 Bibliography 121 4. Bond Mathematics, Treasury Securities, and Swaps 4.1 Bond Mathematics 123 4.2 Bonds and Bond Markets 4.3 Swap Markets 127 125 123 4.4 Economics of the Yield Curve 128 4.5 The Bond Model 132 4.6 Forward Prices and Forward Rates 135 4.7 Duration and Convexity 140 4.8 Applications of the Bond Analytics 147 CONTENTS vii Excel Model Exercises 149 E4.1 Effective Duration 149 Case: Interest Rate Bet Using Effective Duration 151 E4.2 Par Yield Curve, Spot Yield Curve, Discount Function, and Forward Prices 155 Case: The Law of One Price and Marking a Bond Position 156 E4.3 Dollar Duration 160 Case: Transfer Pricing and Hedging at a Treasury Desk E4.4 Swap Model 168 Case: A Hedging Program Designed by an Asset Liability Committee 169 Notes 165 173 173 175 175 Bibliography 5. Bond Options 5.1 Interest Rate Movements: Historical Experiences 5.2 Equilibrium Models 180 5.3 Arbitrage-Free Models 183 5.4 Key Rate Duration and Dynamic Hedging 189 Excel Model Exercises 193 E5.1 Cox-Ingersoll-Ross Model 193 Case: Building a Model by Knowing Your Clients E5.2 Vasicek Model 198 Case: Defined Benefits and Asset Management E5.3 Ho-Lee Model 203 Case: Using an Arbitrage-Free Model to Determine Profit Release 203 E5.4 The Black Model of the Bond Option 208 Case: Proprietary Trading Desk 209 E5.5 Swaption Model 212 Case: Marking to Market an Illiquid Derivative Position 213 Notes 194 199 217 217 219 Bibliography 6. Corporate Bonds: Investment Grade 6.1 Describing a Corporate Bond 219 6.2 Valuation of a Bond 224 6.3 Option-Adjusted Spread 229 6.4 Valuation of Callable Bonds 233 viii CONTENTS 6.5 Valuation of Sinking Fund Bonds Excel Model Exercises 236 241 E6.1 Callable Bonds 241 Case: Funding Working Capital with Debt 241 E6.2 Sinking Fund Bonds 246 Case: Securitization and the Asset-Backed Securities 246 Note 251 Bibliography 251 7. Corporate Bonds: High-Yield Bonds 252 7.1 An Example of a High Yield Bond 252 7.2 Institutional Framework of Bankruptcy and Bankruptcy Proceedings 255 7.3 The Fisher Model 7.4 An Actuarial Model 258 259 7.5 Historical Experience and Estimation of the Parameters of Default Models 260 7.6 The Reduced-Form Models 264 7.7 The Structural Models 266 7.8 Valuation of a Debt Package Using a Compound Option Model Excel Model Exercises 269 273 E7.1 Credit Default Swap 273 Case: Credit Derivatives, Insurance Premiums, and Callable Bonds 274 E7.2 Ho-Singer Model 278 Case: Reorganization and Debt Restructuring Note 280 284 284 Bibliography 8. Other Bonds: Convertible Bonds, MBS, CMO 8.1 Description of a Convertible Bond 287 8.2 Call Provision and Forced Conversion 289 8.3 Credit Risk 293 8.4 Mortgage-Backed Securities (Pass Through Certificates) 8.5 Prepayment Model and Valuation 295 8.6 Collateralized Mortgage Obligations (CMOs) 301 8.7 Other Bonds 305 Excel Model Exercises 307 E8.1 Convertible Bonds 307 Case: Hedging a Convertible Bond Issue 287 293 308 CONTENTS ix E8.2 Mortgage-Backed Securities (Level Payments, PSA, IO and PO) 310 Case: Pricing a Guaranteed Investment Contract and the Profit Spread 311 Bibliography Index 316 315

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