Derivatives and Internal Models

2nd Edition

Hans-Peter Deutsch
 

Series: Finance and Capital Markets Series
 

Palgrave Macmillan

This classic book provides a comprehensive and thorough introduction to derivative pricing, risk management and portfolio optimization, covering all relevant topics with enough hands-on, depth of detail to enable readers to develop their own pricing and risk tools.
 
The accompanying website http://www.palgrave.com/deutsch contains tried and tested executable spreadsheets with hundreds of detailed, real world examples
 
In this book, Dr. Hans-Peter Deutsch provides insight into modern market risk quantification methods such as variance-covariance, historical simulation, Monte Carlo, hedge ratios, etc., including time series analysis and statistical concepts such as GARCH Models or Chi-Square-distributions.
He also shows how optimal trading decisions can be deduced once risk has been quantified by introducing risk adjusted performance measures and a complete presentation of modern quantitative portfolio optimization.
Furthermore, all the important modern derivatives and their pricing methods are presented; from basic discounted cash flow methods to Black-Scholes, binomial trees, differential equations, finite difference schemes, Monte Carlo methods, Martingales and Numeraires, terms structure models, etc.
 
All these methods are explained with adequate mathematical rigor and in great detail both in theory and with the help of hundreds of spreadsheet examples using one consistent logical approach and notation. This book should enable any bank to create and implement its own so-called “internal” risk models.