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ویرایش: 1
نویسندگان: Thierry Roncalli
سری: Chapman and Hall/CRC Financial Mathematics Series
ISBN (شابک) : 1138501875, 9781138501874
ناشر: Chapman and Hall/CRC
سال نشر: 2020
تعداد صفحات: 1177
زبان: English
فرمت فایل : PDF (درصورت درخواست کاربر به PDF، EPUB یا AZW3 تبدیل می شود)
حجم فایل: 15 مگابایت
در صورت تبدیل فایل کتاب Handbook of Financial Risk Management (Chapman and Hall/CRC Financial Mathematics Series) به فرمت های PDF، EPUB، AZW3، MOBI و یا DJVU می توانید به پشتیبان اطلاع دهید تا فایل مورد نظر را تبدیل نمایند.
توجه داشته باشید کتاب کتابچه راهنمای مدیریت ریسک مالی (چپمن و هال/سری ریاضیات مالی CRC) نسخه زبان اصلی می باشد و کتاب ترجمه شده به فارسی نمی باشد. وبسایت اینترنشنال لایبرری ارائه دهنده کتاب های زبان اصلی می باشد و هیچ گونه کتاب ترجمه شده یا نوشته شده به فارسی را ارائه نمی دهد.
راهنمای مدیریت ریسک مالی که بیش از 20 سال تدریس دوره های آکادمیک را توسعه داده است، می توان به دو بخش اصلی تقسیم کرد: مدیریت ریسک در بخش مالی. و بحث در مورد ابزارهای ریاضی و آماری مورد استفاده در مدیریت ریسک.
این متن جامع به خوانندگان این فرصت را می دهد که درک درستی از محصولات مالی داشته باشند. و مدلهای ریاضی که آنها را هدایت میکنند، با جزئیات بررسی میکنند که ریسکها کجا هستند و چگونه میتوان آنها را مدیریت کرد.
ویژگی های کلیدی:
Developed over 20 years of teaching academic courses, the Handbook of Financial Risk Management can be divided into two main parts: risk management in the financial sector; and a discussion of the mathematical and statistical tools used in risk management.
This comprehensive text offers readers the chance to develop a sound understanding of financial products and the mathematical models that drive them, exploring in detail where the risks are and how to manage them.
Key Features:
Cover Half Title Series Page Title Page Copyright Page Contents Preface List of Symbols and Notations 1. Introduction 1.1 The need for risk management 1.1.1 Risk management and the financial system 1.1.2 The development of financial markets 1.1.3 Financial crises and systemic risk 1.2 Financial regulation 1.2.1 Banking regulation 1.2.2 Insurance regulation 1.2.3 Market regulation 1.2.4 Systemic risk 1.3 Financial regulation overview 1.3.1 List of supervisory authorities 1.3.2 Timeline of financial regulation Part I: Risk Management in the Financial Sector 2. Market Risk 2.1 Regulatory framework 2.1.1 The Basel I/II framework 2.1.1.1 Standardized measurement method 2.1.1.2 Internal model-based approach 2.1.2 The Basel III framework 2.1.2.1 Standardized approach 2.1.2.2 Internal model-based approach 2.2 Statistical estimation methods of risk measures 2.2.1 Definition 2.2.1.1 Coherent risk measures 2.2.1.2 Value-at-risk 2.2.1.3 Expected shortfall 2.2.1.4 Estimator or estimate? 2.2.2 Historical methods 2.2.2.1 The order statistic approach 2.2.2.2 The kernel approach 2.2.3 Analytical methods 2.2.3.1 Derivation of the closed-form formula 2.2.3.2 Linear factor models 2.2.3.3 Volatility forecasting 2.2.3.4 Extension to other probability distributions 2.2.4 Monte Carlo methods 2.2.5 The case of options and derivatives 2.2.5.1 Identification of risk factors 2.2.5.2 Methods to calculate VaR and ES risk measures 2.2.5.3 Backtesting 2.2.5.4 Model risk 2.3 Risk allocation 2.3.1 Euler allocation principle 2.3.2 Application to non-normal risk measures 2.3.2.1 Main results 2.3.2.2 Calculating risk contributions with historical and simulated scenarios 2.4 Exercises 2.4.1 Calculating regulatory capital with the Basel I standardized measurement method 2.4.2 Covariance matrix 2.4.3 Risk measure 2.4.4 Value-at-risk of a long/short portfolio 2.4.5 Value-at-risk of an equity portfolio hedged with put options 2.4.6 Risk management of exotic options 2.4.7 P&L approximation with Greek sensitivities 2.4.8 Calculating the non-linear quadratic value-at-risk 2.4.9 Risk decomposition of the expected shortfall 2.4.10 Expected shortfall of an equity portfolio 2.4.11 Risk measure of a long/short portfolio 2.4.12 Kernel estimation of the expected shortfall 3. Credit Risk 3.1 The market of credit risk 3.1.1 The loan market 3.1.2 The bond market 3.1.2.1 Statistics of the bond market 3.1.2.2 Bond pricing 3.1.3 Securitization and credit derivatives 3.1.3.1 Credit securitization 3.1.3.2 Credit default swap 3.1.3.3 Basket default swap 3.1.3.4 Collateralized debt obligations 3.2 Capital requirement 3.2.1 The Basel I framework 3.2.2 The Basel II standardized approach 3.2.2.1 Standardized risk weights 3.2.2.2 Credit risk mitigation 3.2.3 The Basel II internal ratings-based approach 3.2.3.1 The general framework 3.2.3.2 The credit risk model of Basel II 3.2.3.3 The IRB formulas 3.2.4 The Basel III revision 3.2.4.1 The standardized approach 3.2.4.2 The internal ratings-based approach 3.2.5 The securitization framework 3.2.5.1 Overview of the approaches 3.2.5.2 Internal ratings-based approach 3.2.5.3 External ratings-based approach 3.2.5.4 Standardized approach 3.3 Credit risk modeling 3.3.1 Exposure at default 3.3.2 Loss given default 3.3.2.1 Definition 3.3.2.2 Stochastic modeling 3.3.2.3 Economic modeling 3.3.3 Probability of default 3.3.3.1 Survival function 3.3.3.2 Transition probability matrix 3.3.3.3 Structural models 3.3.4 Default correlation 3.3.4.1 The copula model 3.3.4.2 The factor model 3.3.4.3 Estimation methods 3.3.4.4 Dependence and credit basket derivatives 3.3.5 Granularity and concentration 3.3.5.1 Difference between fine-grained and concentrated portfolios 3.3.5.2 Granularity adjustment 3.4 Exercises 3.4.1 Single- and multi-name credit default swaps 3.4.2 Risk contribution in the Basel II model 3.4.3 Calibration of the piecewise exponential model 3.4.4 Modeling loss given default 3.4.5 Modeling default times with a Markov chain 3.4.6 Continuous-time modeling of default risk 3.4.7 Derivation of the original Basel granularity adjustment 3.4.8 Variance of the conditional portfolio loss 4. Counterparty Credit Risk and Collateral Risk 4.1 Counterparty credit risk 4.1.1 Definition 4.1.2 Modeling the exposure at default 4.1.2.1 An illustrative example 4.1.2.2 Measuring the counterparty exposure 4.1.2.3 Practical implementation for calculating counterparty exposure 4.1.3 Regulatory capital 4.1.3.1 Internal model method 4.1.3.2 Non-internal model methods (Basel II) 4.1.3.3 SA-CCR method (Basel III) 4.1.4 Impact of wrong way risk 4.1.4.1 An example 4.1.4.2 Calibration of the α factor 4.2 Credit valuation adjustment 4.2.1 Definition 4.2.1.1 Difference between CCR and CVA 4.2.1.2 CVA, DVA and bilateral CVA 4.2.1.3 Practical implementation for calculating CVA 4.2.2 Regulatory capital 4.2.2.1 The 2010 version of Basel III 4.2.2.2 The 2017 version of Basel III 4.2.3 CVA and wrong/right way risk 4.3 Collateral risk 4.3.1 Definition 4.3.2 Capital allocation 4.4 Exercises 4.4.1 Impact of netting agreements in counterparty credit risk 4.4.2 Calculation of the effective expected positive exposure 4.4.3 Calculation of the capital charge for counterparty credit risk 4.4.4 Calculation of CVA and DVA measures 4.4.5 Approximation of the CVA for an interest rate swap 4.4.6 Risk contribution of CVA with collateral 5. Operational Risk 5.1 Definition of operational risk 5.2 Basel approaches for calculating the regulatory capital 5.2.1 The basic indicator approach 5.2.2 The standardized approach 5.2.3 Advanced measurement approaches 5.2.4 Basel III approach 5.3 Loss distribution approach 5.3.1 Definition 5.3.2 Parametric estimation 5.3.2.1 Estimation of the loss severity distribution 5.3.2.2 Estimation of the loss frequency distribution 5.3.3 Calculating the capital charge 5.3.3.1 Monte Carlo approach 5.3.3.2 Analytical approaches 5.3.3.3 Aggregation issues 5.3.4 Incorporating scenario analysis 5.3.4.1 Probability distribution of a given scenario 5.3.4.2 Calibration of a set of scenarios 5.3.5 Stability issue of the LDA model 5.4 Exercises 5.4.1 Estimation of the loss severity distribution 5.4.2 Estimation of the loss frequency distribution 5.4.3 Using the method of moments in operational risk models 5.4.4 Calculation of the Basel II required capital 5.4.5 Parametric estimation of the loss severity distribution 5.4.6 Mixed Poisson process 6. Liquidity Risk 6.1 Market liquidity 6.1.1 Transaction cost versus volume-based measures 6.1.1.1 Bid-ask spread 6.1.1.2 Trading volume 6.1.1.3 Liquidation ratio 6.1.1.4 Liquidity ordering 6.1.2 Other liquidity measures 6.1.3 The liquidity-adjusted CAPM 6.2 Funding liquidity 6.2.1 Asset liability mismatch 6.2.2 Relationship between market and funding liquidity risks 6.3 Regulation of the liquidity risk 6.3.1 Liquidity coverage ratio 6.3.1.1 Definition 6.3.1.2 Monitoring tools 6.3.2 Net stable funding ratio 6.3.2.1 Definition 6.3.2.2 ASF and RSF factors 6.3.3 Leverage ratio 7. Asset Liability Management Risk 7.1 General principles of the banking book risk management 7.1.1 Definition 7.1.1.1 Balance sheet and income statement 7.1.1.2 Accounting standards 7.1.1.3 Role and importance of the ALCO 7.1.2 Liquidity risk 7.1.2.1 Definition of the liquidity gap 7.1.2.2 Asset and liability amortization 7.1.2.3 Dynamic analysis 7.1.2.4 Liquidity hedging 7.1.3 Interest rate risk in the banking book 7.1.3.1 Introduction on IRRBB 7.1.3.2 Interest rate risk principles 7.1.3.3 The standardized approach 7.1.4 Other ALM risks 7.1.4.1 Currency risk 7.1.4.2 Credit spread risk 7.2 Interest rate risk 7.2.1 Duration gap analysis 7.2.1.1 Relationship between Macaulay duration and modified duration 7.2.1.2 Relationship between the duration gap and the equity duration 7.2.1.3 An illustration 7.2.1.4 Immunization of the balance sheet 7.2.2 Earnings-at-risk 7.2.2.1 Income gap analysis 7.2.2.2 Net interest income 7.2.2.3 Hedging strategies 7.2.3 Simulation approach 7.2.4 Funds transfer pricing 7.2.4.1 Net interest and commercial margins 7.2.4.2 Computing the internal transfer rates 7.3 Behavioral options 7.3.1 Non-maturity deposits 7.3.1.1 Static and dynamic modeling 7.3.1.2 Behavioral modeling 7.3.2 Prepayment risk 7.3.2.1 Factors of prepayment 7.3.2.2 Structural models 7.3.2.3 Reduced-form models 7.3.2.4 Statistical measure of prepayment 7.3.3 Redemption risk 7.3.3.1 The funding risk of term deposits 7.3.3.2 Modeling the early withdrawal risk 7.4 Exercises 7.4.1 Constant amortization of a loan 7.4.2 Computation of the amortization functions S (t, u) and S* (t, u) 7.4.3 Continuous-time analysis of the constant amortization mortgage (CAM) 7.4.4 Valuation of non-maturity deposits 7.4.5 Impact of prepayment on the amortization scheme of the CAM 8. Systemic Risk and Shadow Banking System 8.1 Defining systemic risk 8.1.1 Systemic risk, systematic risk and idiosyncratic risk 8.1.2 Sources of systemic risk 8.1.2.1 Systematic shocks 8.1.2.2 Propagation mechanisms 8.1.3 Supervisory policy responses 8.1.3.1 A new financial regulatory structure 8.1.3.2 A myriad of new standards 8.2 Systemic risk measurement 8.2.1 The supervisory approach 8.2.1.1 The G-SIB assessment methodology 8.2.1.2 Identification of G-SIIs 8.2.1.3 Extension to NBNI SIFIs 8.2.2 The academic approach 8.2.2.1 Marginal expected shortfall 8.2.2.2 Delta conditional value-at-risk 8.2.2.3 Systemic risk measure 8.2.2.4 Network measures 8.3 Shadow banking system 8.3.1 Definition 8.3.2 Measuring the shadow banking 8.3.2.1 The broad (or MUNFI) measure 8.3.2.2 The narrow measure 8.3.3 Regulatory developments of shadow banking 8.3.3.1 Data gaps 8.3.3.2 Mitigation of interconnectedness risk 8.3.3.3 Money market funds 8.3.3.4 Complex shadow banking activities Part II: Mathematical and Statistical Tools 9. Model Risk of Exotic Derivatives 9.1 Basics of option pricing 9.1.1 The Black-Scholes model 9.1.1.1 The general framework 9.1.1.2 Application to European options 9.1.1.3 Principle of dynamic hedging 9.1.1.4 The implied volatility 9.1.2 Interest rate risk modeling 9.1.2.1 Pricing zero-coupon bonds with the Vasicek model 9.1.2.2 The calibration issue of the yield curve 9.1.2.3 Caps, floors and swaptions 9.1.2.4 Change of numéraire and equivalent martingale measure 9.1.2.5 The HJM model 9.1.2.6 Market models 9.2 Volatility risk 9.2.1 The uncertain volatility model 9.2.1.1 Formulation of the partial differential equation 9.2.1.2 Computing lower and upper pricing bounds 9.2.1.3 Application to ratchet options 9.2.2 The shifted log-normal model 9.2.2.1 The fixed-strike parametrization 9.2.2.2 The floating-strike parametrization 9.2.2.3 The forward parametrization 9.2.2.4 Mixture of SLN distributions 9.2.2.5 Application to binary, corridor and barrier options 9.2.3 Local volatility model 9.2.3.1 Derivation of the forward equation 9.2.3.2 Duality between local volatility and implied volatility 9.2.3.3 Dupire model in practice 9.2.3.4 Application to exotic options 9.2.4 Stochastic volatility models 9.2.4.1 General analysis 9.2.4.2 Heston model 9.2.4.3 SABR model 9.2.5 Factor models 9.2.5.1 Linear and quadratic Gaussian models 9.2.5.2 Dynamics of risk factors under the forward probability measure 9.2.5.3 Pricing caplets and swaptions 9.2.5.4 Calibration and practice of factor models 9.3 Other model risk topics 9.3.1 Dividend risk 9.3.1.1 Understanding the impact of dividends on option prices 9.3.1.2 Models of discrete dividends 9.3.2 Correlation risk 9.3.2.1 The two-asset case 9.3.2.2 The multi-asset case 9.3.2.3 The copula method 9.3.3 Liquidity risk 9.4 Exercises 9.4.1 Option pricing and martingale measure 9.4.2 The Vasicek model 9.4.3 The Black model 9.4.4 Change of numéraire and Girsanov theorem 9.4.5 The HJM model and the forward probability measure 9.4.6 Equivalent martingale measure in the Libor market model 9.4.7 Displaced diffusion option pricing 9.4.8 Dupire local volatility model 9.4.9 The stochastic normal model 9.4.10 The quadratic Gaussian model 9.4.11 Pricing two-asset basket options 10. Statistical Inference and Model Estimation 10.1 Estimation methods 10.1.1 Linear regression 10.1.1.1 Least squares estimation 10.1.1.2 Relationship with the conditional normal distribution 10.1.1.3 The intercept problem 10.1.1.4 Coefficient of determination 10.1.1.5 Extension to weighted least squares regression 10.1.2 Maximum likelihood estimation 10.1.2.1 Definition of the estimator 10.1.2.2 Asymptotic distribution 10.1.2.3 Statistical inference 10.1.2.4 Some examples 10.1.2.5 EM algorithm 10.1.3 Generalized method of moments 10.1.3.1 Method of moments 10.1.3.2 Extension to the GMM approach 10.1.3.3 Simulated method of moments 10.1.4 Non-parametric estimation 10.1.4.1 Non-parametric density 10.1.4.2 Non-parametric regression 10.2 Time series modeling 10.2.1 ARMA process 10.2.1.1 The VAR(1) process 10.2.1.2 Extension to ARMA models 10.2.2 State space models 10.2.2.1 Specification and estimation of state space models 10.2.2.2 Some applications 10.2.3 Cointegration and error correction models 10.2.3.1 Nonstationarity and spurious regression 10.2.3.2 The concept of cointegration 10.2.3.3 Error correction model 10.2.3.4 Estimation of cointegration relationships 10.2.4 GARCH and stochastic volatility models 10.2.4.1 GARCH models 10.2.4.2 Stochastic volatility models 10.2.5 Spectral analysis 10.2.5.1 Fourier analysis 10.2.5.2 Definition of the spectral density function 10.2.5.3 Frequency domain localization 10.2.5.4 Main properties 10.2.5.5 Statistical estimation in the frequency domain 10.2.5.6 Extension to multidimensional processes 10.2.5.7 Some applications 10.3 Exercises 10.3.1 Probability distribution of the t-statistic in the case of the linear regression model 10.3.2 Linear regression without a constant 10.3.3 Linear regression with linear constraints 10.3.4 Maximum likelihood estimation of the Poisson distribution 10.3.5 Maximum likelihood estimation of the exponential distribution 10.3.6 Relationship between the linear regression and the maximum likelihood method 10.3.7 The Gaussian mixture model 10.3.8 Parameter estimation of diffusion processes 10.3.9 The Tobit model 10.3.10 Derivation of Kalman filter equations 10.3.11 Steady state of time-invariant state space model 10.3.12 Kalman information filter versus Kalman covariance filter 10.3.13 Granger representation theorem 10.3.14 Probability distribution of the periodogram 10.3.15 Spectral density function of structural time series models 10.3.16 Spectral density function of some processes 11. Copulas and Dependence Modeling 11.1 Canonical representation of multivariate distributions 11.1.1 Sklar’s theorem 11.1.2 Expression of the copula density 11.1.3 Fréchet classes 11.1.3.1 The bivariate case 11.1.3.2 The multivariate case 11.1.3.3 Concordance ordering 11.2 Copula functions and random vectors 11.2.1 Countermonotonicity, comonotonicity and scale invariance property 11.2.2 Dependence measures 11.2.2.1 Concordance measures 11.2.2.2 Linear correlation 11.2.2.3 Tail dependence 11.3 Parametric copula functions 11.3.1 Archimedean copulas 11.3.1.1 Definition 11.3.1.2 Properties 11.3.1.3 Two-parameter Archimedean copulas 11.3.1.4 Extension to the multivariate case 11.3.2 Normal copula 11.3.3 Student’s t copula 11.4 Statistical inference and estimation of copula functions 11.4.1 The empirical copula 11.4.2 The method of moments 11.4.3 The method of maximum likelihood 11.5 Exercises 11.5.1 Gumbel logistic copula 11.5.2 Farlie-Gumbel-Morgenstern copula 11.5.3 Survival copula 11.5.4 Method of moments 11.5.5 Correlated loss given default rates 11.5.6 Calculation of correlation bounds 11.5.7 The bivariate Pareto copula 12. Extreme Value Theory 12.1 Order statistics 12.1.1 Main properties 12.1.2 Extreme order statistics 12.1.3 Inference statistics 12.1.4 Extension to dependent random variables 12.2 Univariate extreme value theory 12.2.1 Fisher-Tippet theorem 12.2.2 Maximum domain of attraction 12.2.2.1 MDA of the Gumbel distribution 12.2.2.2 MDA of the Fréchet distribution 12.2.2.3 MDA of the Weibull distribution 12.2.2.4 Main results 12.2.3 Generalized extreme value distribution 12.2.3.1 Definition 12.2.3.2 Estimating the value-at-risk 12.2.4 Peak over threshold 12.2.4.1 Definition 12.2.4.2 Estimating the expected shortfall 12.3 Multivariate extreme value theory 12.3.1 Multivariate extreme value distributions 12.3.1.1 Extreme value copulas 12.3.1.2 Deheuvels-Pickands representation 12.3.2 Maximum domain of attraction 12.3.3 Tail dependence of extreme values 12.4 Exercises 12.4.1 Uniform order statistics 12.4.2 Order statistics and return period 12.4.3 Extreme order statistics of exponential random variables 12.4.4 Extreme value theory in the bivariate case 12.4.5 Maximum domain of attraction in the bivariate case 13. Monte Carlo Simulation Methods 13.1 Random variate generation 13.1.1 Generating uniform random numbers 13.1.2 Generating non-uniform random numbers 13.1.2.1 Method of inversion 13.1.2.2 Method of transformation 13.1.2.3 Rejection sampling 13.1.2.4 Method of mixtures 13.1.3 Generating random vectors 13.1.3.1 Method of conditional distributions 13.1.3.2 Method of transformation 13.1.4 Generating random matrices 13.1.4.1 Orthogonal and covariance matrices 13.1.4.2 Correlation matrices 13.1.4.3 Wishart matrices 13.2 Simulation of stochastic processes 13.2.1 Discrete-time stochastic processes 13.2.1.1 Correlated Markov chains 13.2.1.2 Time series 13.2.2 Univariate continuous-time processes 13.2.2.1 Brownian motion 13.2.2.2 Geometric Brownian motion 13.2.2.3 Ornstein-Uhlenbeck process 13.2.2.4 Stochastic differential equations without an explicit solution 13.2.2.5 Poisson processes 13.2.2.6 Jump-diffusion processes 13.2.2.7 Processes related to Brownian motion 13.2.3 Multivariate continuous-time processes 13.2.3.1 Multidimensional Brownian motion 13.2.3.2 Multidimensional geometric Brownian motion 13.2.3.3 Euler-Maruyama and Milstein schemes 13.3 Monte Carlo methods 13.3.1 Computing integrals 13.3.1.1 A basic example 13.3.1.2 Theoretical framework 13.3.1.3 Extension to the calculation of mathematical expectations 13.3.2 Variance reduction 13.3.2.1 Antithetic variates 13.3.2.2 Control variates 13.3.2.3 Importance sampling 13.3.2.4 Other methods 13.3.3 MCMC methods 13.3.3.1 Gibbs sampling 13.3.3.2 Metropolis-Hastings algorithm 13.3.3.3 Sequential Monte Carlo methods and particle filters 13.3.4 Quasi-Monte Carlo simulation methods 13.4 Exercises 13.4.1 Simulating random numbers using the inversion method 13.4.2 Simulating random numbers using the transformation method 13.4.3 Simulating random numbers using rejection sampling 13.4.4 Simulation of Archimedean copulas 13.4.5 Simulation of conditional random variables 13.4.6 Simulation of the bivariate Normal copula 13.4.7 Computing the capital charge for operational risk 13.4.8 Simulating a Brownian bridge 13.4.9 Optimal importance sampling 14. Stress Testing and Scenario Analysis 14.1 Stress test framework 14.1.1 Definition 14.1.1.1 General objective 14.1.1.2 Scenario design and risk factors 14.1.1.3 Firm-specific versus supervisory stress testing 14.1.2 Methodologies 14.1.2.1 Historical approach 14.1.2.2 Macroeconomic approach 14.1.2.3 Probabilistic approach 14.2 Quantitative approaches 14.2.1 Univariate stress scenarios 14.2.2 Joint stress scenarios 14.2.2.1 The bivariate case 14.2.2.2 The multivariate case 14.2.3 Conditional stress scenarios 14.2.3.1 The conditional expectation solution 14.2.3.2 The conditional quantile solution 14.2.4 Reverse stress testing 14.2.4.1 Mathematical computation of reverse stress testing 14.2.4.2 Practical solutions 14.3 Exercises 14.3.1 Construction of a stress scenario with the GEV distribution 14.3.2 Conditional expectation and linearity 14.3.3 Conditional quantile and linearity 15. Credit Scoring Models 15.1 The method of scoring 15.1.1 The emergence of credit scoring 15.1.1.1 Judgmental credit systems versus credit scoring systems 15.1.1.2 Scoring models for corporate bankruptcy 15.1.1.3 New developments 15.1.2 Variable selection 15.1.2.1 Choice of the risk factors 15.1.2.2 Data preparation 15.1.2.3 Variable selection 15.1.3 Score modeling, validation and follow-up 15.1.3.1 Cross-validation approach 15.1.3.2 Score modeling 15.1.3.3 Score follow-up 15.2 Statistical methods 15.2.1 Unsupervised learning 15.2.1.1 Clustering 15.2.1.2 Dimension reduction 15.2.2 Parametric supervised methods 15.2.2.1 Discriminant analysis 15.2.2.2 Binary choice models 15.2.3 Non-parametric supervised methods 15.2.3.1 k-nearest neighbor classifier 15.2.3.2 Neural networks 15.2.3.3 Support vector machines 15.2.3.4 Model averaging 15.3 Performance evaluation criteria and score consistency 15.3.1 Shannon entropy 15.3.1.1 Definition and properties 15.3.1.2 Application to scoring 15.3.2 Graphical methods 15.3.2.1 Performance curve, selection curve and discriminant curve 15.3.2.2 Some properties 15.3.3 Statistical methods 15.3.3.1 Kolmogorov-Smirnov test 15.3.3.2 Gini coefficient 15.3.3.3 Choice of the optimal cut-off 15.4 Exercises 15.4.1 Elastic net regression 15.4.2 Cross-validation of the ridge linear regression 15.4.3 K-means and the Lloyd’s algorithm 15.4.4 Derivation of the principal component analysis 15.4.5 Two-class separation maximization 15.4.6 Maximum likelihood estimation of the probit model 15.4.7 Computation of feed-forward neural networks 15.4.8 Primal and dual problems of support vector machines 15.4.9 Derivation of the AdaBoost algorithm as the solution of the additive logit model 15.4.10 Weighted estimation Conclusion Appendix A: Technical Appendix A.1 Numerical analysis A.1.1 Linear algebra A.1.1.1 Eigendecomposition A.1.1.2 Generalized eigendecomposition A.1.1.3 Schur decomposition A.1.2 Approximation methods A.1.2.1 Spline functions A.1.2.2 Positive definite matrix approximation A.1.2.3 Numerical integration A.1.2.4 Finite difference methods A.1.3 Numerical optimization A.1.3.1 Quadratic programming problem A.1.3.2 Non-linear unconstrained optimization A.1.3.3 Sequential quadratic programming algorithm A.1.3.4 Dynamic programming in discrete time with finite states A.2 Statistical and probability analysis A.2.1 Probability distributions A.2.1.1 The Bernoulli distribution A.2.1.2 The binomial distribution A.2.1.3 The geometric distribution A.2.1.4 The Poisson distribution A.2.1.5 The negative binomial distribution A.2.1.6 The gamma distribution A.2.1.7 The beta distribution A.2.1.8 The noncentral chi-squared distribution A.2.1.9 The exponential distribution A.2.1.10 The normal distribution A.2.1.11 The Student’s t distribution A.2.1.12 The log-normal distribution A.2.1.13 The Pareto distribution A.2.1.14 The generalized extreme value distribution A.2.1.15 The generalized Pareto distribution A.2.1.16 The skew normal distribution A.2.1.17 The skew t distribution A.2.1.18 The Wishart distribution A.2.2 Special results A.2.2.1 Affine transformation of random vectors A.2.2.2 Change of variables A.2.2.3 Relationship between density and quantile functions A.2.2.4 Conditional expectation in the case of the normal distribution A.2.2.5 Calculation of a useful integral function in credit risk models A.3 Stochastic analysis A.3.1 Brownian motion and Wiener process A.3.2 Stochastic integral A.3.3 Stochastic differential equation and Itô’s lemma A.3.3.1 Existence and uniqueness of a stochastic differential equation A.3.3.2 Relationship with diffusion processes A.3.3.3 Itô calculus A.3.3.4 Extension to the multidimensional case A.3.4 Feynman-Kac formula A.3.5 Girsanov theorem A.3.6 Fokker-Planck equation A.3.7 Reflection principle and stopping times A.3.8 Some diffusion processes A.3.8.1 Geometric Brownian motion A.3.8.2 Ornstein-Uhlenbeck process A.3.8.3 Cox-Ingersoll-Ross process A.3.8.4 Multidimensional processes A.4 Exercises A.4.1 Discrete-time random process A.4.2 Properties of Brownian motion A.4.3 Stochastic integral for random step functions A.4.4 Power of Brownian motion A.4.5 Exponential of Brownian motion A.4.6 Exponential martingales A.4.7 Existence of solutions to stochastic differential equations A.4.8 Itô calculus and stochastic integration A.4.9 Solving a PDE with the Feynman-Kac formula A.4.10 Fokker-Planck equation A.4.11 Dynamic strategy based on the current asset price A.4.12 Strong Markov property and maximum of Brownian motion A.4.13 Moments of the Cox-Ingersoll-Ross process A.4.14 Probability density function of Heston and SABR models A.4.15 Discrete dynamic programming A.4.16 Matrix computation Bibliography Subject Index Author Index