Frank J. Fabozzi 
Encyclopedia of Financial Models, Volume III 

Volume 3 of the Encyclopedia of Financial
Models

The need for serious coverage of financial modeling has never
been greater, especially with the size, diversity, and efficiency
of modern capital markets. With this in mind, the Encyclopedia
of Financial Models has been created to help a broad spectrum
of individuals–ranging from finance professionals to
academics and students–understand financial modeling and make
use of the various models currently available.

Incorporating timely research and in-depth analysis, Volume
3 of the Encyclopedia of Financial Models covers both
established and cutting-edge models and discusses their real-world
applications. Edited by Frank Fabozzi, this volume includes
contributions from global financial experts as well as academics
with extensive consulting experience in this field. Organized
alphabetically by category, this reliable resource consists of
forty-four informative entries and provides readers with a balanced
understanding of today’s dynamic world of financial
modeling.

* Volume 3 covers Mortgage-Backed Securities Analysis
and Valuation, Operational Risk, Optimization Tools, Probability
Theory, Risk Measures, Software for Financial Modeling, Stochastic
Processes and Tools, Term Structure Modeling, Trading Cost
Models, and Volatility

* Emphasizes both technical and implementation issues, providing
researchers, educators, students, and practitioners with the
necessary background to deal with issues related to financial
modeling

* The 3-Volume Set contains coverage of the fundamentals and
advances in financial modeling and provides the mathematical and
statistical techniques needed to develop and test financial
models

Financial models have become increasingly commonplace, as well
as complex. They are essential in a wide range of financial
endeavors, and the Encyclopedia of Financial Models will
help put them in perspective.

Inhaltsverzeichnis

Volume III

Mortgage-Backed Securities Analysis and Valuation 1

Valuing Mortgage-Backed and Asset-Backed Securities 3

The Active-Passive Decomposition Model for MBS 17

Analysis of Nonagency Mortgage-Backed Securities 29

Measurements of Prepayments for Residential Mortgage-Backed Securities 47

Prepayments and Factors Influencing the Return of Principal for Residential Mortgage-Backed Securities 65

Operational Risk 79

Operational Risk 81

Operational Risk Models 91

Modeling Operational Loss Distributions 103

Optimization Tools 121

Introduction to Stochastic Programming and Its Applications to Finance 123

Robust Portfolio Optimization 137

Probability Theory 149

Concepts of Probability Theory 151

Discrete Probability Distributions 165

Continuous Probability Distributions 195

Continuous Probability Distributions with Appealing Statistical Properties 207

Continuous Probability Distributions Dealing with Extreme Events 227

Stable and Tempered Stable Distributions 241

Fat Tails, Scaling, and Stable Laws 259

Copulas 283

Applications of Order Statistics to Risk Management Problems 289

Risk Measures 297

Measuring Interest Rate Risk: Effective Duration and Convexity 299

Yield Curve Risk Measures 307

Value-at-Risk 319

Average Value-at-Risk 331

Risk Measures and Portfolio Selection 349

Back-Testing Market Risk Models 361

Estimating Liquidity Risks 371

Estimate of Downside Risk with Fat-Tailed and Skewed Models 381

Moving Average Models for Volatility and Correlation, and Covariance Matrices 395

Software for Financial Modeling 415

Introduction to Financial Model Building with MATLAB 417

Introduction to Visual Basic for Applications 449

Stochastic Processes and Tools 469

Stochastic Integrals 471

Stochastic Differential Equations 485

Stochastic Processes in Continuous Time 495

Conditional Expectation and Change of Measure 507

Change of Time Methods 519

Term Structure Modeling 531

The Concept and Measures of Interest Rate Volatility 533

Short-Rate Term Structure Models 543

Static Term Structure Modeling in Discrete and Continuous Time 559

The Dynamic Term Structure Model 575

Essential Classes of Interest Rate Models and Their Use 593

A Review of No Arbitrage Interest Rate Models 603

Trading Cost Models 621

Modeling Market Impact Costs 623

Volatility 635

Monte Carlo Simulation in Finance 637

Stochastic Volatility 653

Über den Autor

Frank J. Fabozzi is editor of the Journal of Portfolio Management and an Adjunct Professor of Finance at Yale University’s School of Management. Frank is a Chartered Financial Analyst and Certified Public Accountant. He is on the board of directors of the Guardian Life family of funds and the Black Rock complex of funds. He earned a doctorate of economics from the City University of New York in 1972 and in 1994 received an honorary doctorate of Human Letters from Nova Southeastern University. Frank is a Fellow of the International Center for Finance at Yale University.