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Mastering R for Quantitative Finance

Mastering R for Quantitative Finance

By : Gabler
4 (11)
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Mastering R for Quantitative Finance

Mastering R for Quantitative Finance

4 (11)
By: Gabler

Overview of this book

This book is intended for those who want to learn how to use R's capabilities to build models in quantitative finance at a more advanced level. If you wish to perfectly take up the rhythm of the chapters, you need to be at an intermediate level in quantitative finance and you also need to have a reasonable knowledge of R.
Table of Contents (15 chapters)
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Preface
Preface
What this book covers
What you need for this book
Who this book is for
Conventions
Reader feedback
Customer support
Free Chapter
1
1. Time Series Analysis
1. Time Series Analysis
Multivariate time series analysis
Volatility modeling
Summary
References and reading list
2
2. Factor Models
2. Factor Models
Arbitrage pricing theory
Modeling in R
Summary
References
3
3. Forecasting Volume
3. Forecasting Volume
Motivation
The intensity of trading
The volume forecasting model
Implementation in R
Summary
References
4
4. Big Data – Advanced Analytics
4. Big Data – Advanced Analytics
Getting data from open sources
Introduction to big data analysis in R
K-means clustering on big data
Big data linear regression analysis
Summary
References
5
5. FX Derivatives
5. FX Derivatives
Terminology and notations
Currency options
Exchange options
Quanto options
Summary
References
6
6. Interest Rate Derivatives and Models
6. Interest Rate Derivatives and Models
The Black model
The Vasicek model
The Cox-Ingersoll-Ross model
Parameter estimation of interest rate models
Using the SMFI5 package
Summary
References
7
7. Exotic Options
7. Exotic Options
A general pricing approach
The role of dynamic hedging
How R can help a lot
A glance beyond vanillas
Greeks – the link back to the vanilla world
Pricing the Double-no-touch option
Another way to price the Double-no-touch option
The life of a Double-no-touch option – a simulation
Exotic options embedded in structured products
Summary
References
8
8. Optimal Hedging
8. Optimal Hedging
Hedging of derivatives
Hedging in the presence of transaction costs
Further extensions
Summary
References
9
9. Fundamental Analysis
9. Fundamental Analysis
The basics of fundamental analysis
Collecting data
Revealing connections
Including multiple variables
Separating investment targets
Setting classification rules
Backtesting
Industry-specific investment
Summary
References
10
10. Technical Analysis, Neural Networks, and Logoptimal Portfolios
10. Technical Analysis, Neural Networks, and Logoptimal Portfolios
Market efficiency
Technical analysis
Neural networks
Logoptimal portfolios
Summary
References
11
11. Asset and Liability Management
11. Asset and Liability Management
Data preparation
Interest rate risk measurement
Liquidity risk measurement
Modeling non-maturity deposits
Summary
References
12
12. Capital Adequacy
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12. Capital Adequacy
Principles of the Basel Accords
Risk measures
Risk categories
Summary
References
13
13. Systemic Risks
13. Systemic Risks
Systemic risk in a nutshell
The dataset used in our examples
Core-periphery decomposition
The simulation method
Possible interpretations and suggestions
Summary
References
14
Index
Index

Principles of the Basel Accords

In 1988, the BCBS published a regulatory framework in Basel, Switzerland, to set the minimum capital that a bank needs to hold to minimize the risk of insolvency. The so-called First Basel Accord, which is now referred to as Basel I, was enforced by the law in all of the G-10 countries by 1992. By 2009, 27 jurisdictions were involved in the Basel Regulatory Framework (the history of the Basel Committee can be read at http://www.bis.org/bcbs/history.htm).

Basel I

The first Basel Accord mainly focuses on credit risk, and formalizes the appropriate risk weighting considering different asset classes. Based on the Accord, the assets of banks should be classified into categories regarding credit risk, and the exposure of each category should be weighted with the defined measures (0 percent, 20 percent, 50 percent, and 100 percent). The resulted value of risk-weighted assets (RWA) is used for the determination of capital adequacy. According to the Basel I legislation...

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