## Theory of Financial Risk and Derivative Pricing: From Statistical Physics to Risk Management"Risk control and derivative pricing have become of major concern to financial institutions, and there is a real need for adequate statistical tools to measure and anticipate the amplitude of the potential moves of the financial markets. Summarising recent theoretical developments in the field, this second edition has been substantially expanded. Additional chapters now cover stochastic processes, Monte-Carlo methods, Black-Scholes theory, the theory of the yield curve, and Minority Game. There are discussions on aspects of data analysis, financial products, non-linear correlations, and herding, feedback and agent based models. This book has become a classic reference for graduate students and researchers working in econophysics and mathematical finance, and for quantitative analysts working on risk management, derivative pricing and quantitative trading strategies."--Publisher's website. |

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### Contents

basic notions | 1 |

Maximum and addition of random variables | 17 |

Continuous time limit Ito calculus and path integrals | 43 |

Analysis of empirical data | 55 |

Financial products and financial markets | 69 |

basic results | 87 |

Nonlinear correlations and volatility fluctuations | 107 |

Skewness and pricevolatility correlations | 130 |

Optimal portfolios | 202 |

fundamental concepts | 226 |

hedging and residual risk | 254 |

the role of drift and correlations | 276 |

the Black and Scholes model | 290 |

some more specific problems | 300 |

minimum variance MonteCarlo | 317 |

The yield curve | 334 |

Crosscorrelations | 145 |

Risk measures | 168 |

Extreme correlations and variety | 186 |

Simple mechanisms for anomalous price statistics | 355 |

372 | |

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### Common terms and phrases

actually allows approximation asset assume average becomes Black-Scholes bond called Chapter compared compute conditional consider construction continuous contract correction correlation corresponding cumulants daily defined depends derivative describe determined discussed distribution effect empirical equal equation example exist expected exponential extreme fact factor Figure finally finds finite fixed fluctuations formula forward function future Gaussian given gives hedging hedging strategy important increase increments independent interest kurtosis larger leads Lévy limit linear loss matrix maturity mean measure method minimization negative Note observed obtained optimal option option price particular period portfolio positive possible power-law precisely present price changes probability quantity random variables reads result returns risk scale short simple statistical stocks strategy tail term theory trading underlying variance volatility zero

### References to this book

The Mathematical Theory of Minority Games: Statistical Mechanics of ... Anthony C. C. Coolen No preview available - 2005 |