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The study of investment under uncertainty was stagnant for several decades until developments in real options revitalized the field. The topics covered in this book include the reasons behind the under-investment programme.
We present a simple methodology that integrates commodity and asset pricing models. Given current evidence on the financialization of commodity markets, valuable information about commodity risk premiums can be extracted from asset pricing models and used to substantially improve the estimates of expected spot prices provided by current commodity price models. The methodology can be used with any pair of commodity and asset pricing models. An implementation of the methodology is presented using the Schwartz and Smith (2000) two-factor commodity price model and the CAPM. Reasonable expected spot prices are obtained without negative consequences in the model's fit to futures prices.
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A comprehensive text and reference, first published in 2002, on the theory of financial engineering with numerous algorithms for pricing, risk management, and portfolio management.
Past cycles of sovereign lending and default suggest that debt crises will recur at some point. This book shows why investors should reckon with similar credit events in the future. Surveying the sovereign bond market, the author provides investors with a useful toolkit for analyzing sovereign bonds and foreseeing trends in the international financial architecture. The result should be a better understanding of debt crises and more deliberate investment decisions.
The deep understanding of the forces that affect the valuation, risk and return of fixed income securities and their derivatives has never been so important. As the world of fixed income securities becomes more complex, anybody who studies fixed income securities must be exposed more directly to this complexity. This book provides a thorough discussion of these complex securities, the forces affecting their prices, their risks, and of the appropriate risk management practices. Fixed Income Securities, however, provides a methodology, and not a shopping list. It provides instead examples and methodologies that can be applied quite universally, once the basic concepts have been understood.
The theoretical foundation for real options goes back to the mid 1980s and the development of a model that forms the basis for many current applications of real option theory. Over the last decade the theory has rapidly expanded and become enriched thanks to increasing research activity. Modern real option theory may be used for the valuation of entire companies as well as for particular investment projects in the presence of uncertainty. As such, the theory of real options can serve as a tool for more practically oriented decision making, providing management with strategies maximizing its capital market value. This book is devoted to examining a new framework for classifying real options f...