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by Robert C. Merton, Oldrich A. Vasicek
Finance, Economics, and Mathematics
Title Page
Copyright
Foreword
Preface
Part One: Efforts and Opinions
Chapter 1: Introduction to Part I
Chapter 2: Lifetime Achievement Award
Inspiration
Pioneering
Chapter 3: One-on-One Interview with Oldrich Alfons Vasicek
Chapter 4: Credit Superquant
Good Company
Credit Is Due
Part Two: Term Structure of Interest Rates
Chapter 5: Introduction to Part II
Chapter 6: An Equilibrium Characterization of the Term Structure
Abstract
Introduction
Notation and Assumptions
The Term Structure Equation
Stochastic Representation of the Bond Price
A Specific Case
References
Chapter 7: The Liquidity Premium
References
Chapter 8: Term Structure Modeling Using Exponential Splines
Introduction
Concepts and Terms
The Model
References
Chapter 9: The Heath, Jarrow, Morton Model
References
Part Three: General Equilibrium
Chapter 10: Introduction to Part III
Chapter 11: The Economics of Interest Rates
Abstract
Introduction
Optimal Investment Strategies
The Equilibrium Economy
Examples
Term Structure Models
Conclusions
References
Chapter 12: General Equilibrium with Heterogeneous Participants and Discrete Consumption Times
Abstract
Introduction
The Equilibrium Economy
Discrete Consumption Times
Proof of Convergence
Concluding Remarks
References
Chapter 13: Independence of Production and Technology Risks
References
Chapter 14: Risk-Neutral Economy and Zero Price of Risk
Abstract
Introduction
An Economy in Equilibrium
The Risk-Neutral Economy
An Economy with Zero Price of Risk
References
Part Four: Credit
Chapter 15: Introduction to Part IV
Chapter 16: Credit Valuation
The Approach
The Firm's Value
Loan Default
Debt Structure
Capital Flows
Loan Pricing
Portfolio Diversification
Summary
Chapter 17: Probability of Loss on Loan Portfolio
Chapter 18: Limiting Loan Loss Probability Distribution
Chapter 19: Loan Portfolio Value
The Limiting Distribution of Portfolio Losses
Properties of the Loss Distribution
The Risk-Neutral Distribution
The Portfolio Market Value
Adjustment for Granularity
Summary
References
Chapter 20: The Empirical Test of the Distribution of Loan Portfolio Losses
Part Five: Markets, Portfolios, and Securities
Chapter 21: Introduction to Part V
Chapter 22: The Efficient Market Model
Introduction and Summary
Risk, Risk Aversion, and Compensation
Measurement of Risk and Return
Efficient Market Hypothesis
The Role of the Portfolio in Risk Reduction
The Capital Asset Pricing Model
Generalization of the Model
Conclusion
References
Chapter 23: A Risk Minimizing Strategy for Portfolio Immunization
Abstract
Introduction
Immunization Risk
Appendix: Proof of the Theorem
References
Chapter 24: The Tradeoff between Return and Risk in Immunized Portfolios
Abstract
Introduction
Portfolio Value and Interest Rate Changes
Immunization Risk
Confidence Intervals
Risk and Return
References
Chapter 25: Bond Performance: Analyzing Sources of Return
Analysis of Return
Measurement of Return Components
Summary
References
Chapter 26: The Best-Return Strategy
Introduction
The Objective
The Costs
Nonuniform Costs
Strategy Implementation
Chapter 27: Volatility: Omission Impossible
Introduction
Stochastic Volatility Term Structure
Term Structures of Interest Rates
Volatility Exposure
Index Tracking
References
Chapter 28: A Multidimensional Framework for Risk Analysis
Abstract
Introduction
Risk Sources
Risk Exposures
Value at Risk
Stress Testing
Conclusions
References
Chapter 29: Plugging into Electricity
Forward and Futures Contracts on Nonstorable Commodities: The Case of Electricity
Forward, Futures, and Option Pricing in a Diffusion Setting
Examples
Expectations and Risk Premia
Energy Price Spikes
The spot price
Conclusion
Appendix A: Pricing of Futures, Forwards, and Options
Appendix B: Spot Price Spikes
Note
References
Chapter 30: Pricing of Energy Derivatives
Examples
Reference
Part Six: Probability Theory and Statistics
Chapter 31: Introduction to Part VI
Chapter 32: A Note on Using Cross-sectional Information in Bayesian Estimation of Security Betas
Abstract
Introduction
Bayesian Estimates
Discussion and Conclusions
References
Chapter 33: A Series Expansion for the Bivariate Normal Integral
Abstract
Introduction
The Expansion
Numerical Results
Appendix
References
Chapter 34: A Conditional Law of Large Numbers
Abstract
Introduction
The Limit Theorems
Proof of the Theorems
References
Chapter 35: A Test for Normality Based on Sample Entropy
Abstract
Entropy Estimation
Test for Normality
Acknowledgment
References
Chapter 36: Monotone Measures of Ergodicity for Markov Chains
Abstract
Introduction
Some Basic Lemmas
The Main Result
Ergodic Chains in Discrete Time
References
Chapter 37: An Inequality for the Variance of Waiting Time under a General Queueing Discipline
Abstract
Introduction
Assumptions and Definitions
The Main Results
References
About the Author
Index
End User License Agreement
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