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Development of Quantitative Finance and Risk Management: Past, Present, and Future

Development of Quantitative Finance and Risk Management: Past, Present, and Future. 李正福 教授 羅格斯大學財務金融講座教授 交通大學財務金融兼任講座教授 數量財務及會計評論主編 亞太金融市場及政策評論主編. 2008/01/11 Conference on Quantitative Finance and Risk Management. Outline. Part I – Introduction Part II – Essays

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Development of Quantitative Finance and Risk Management: Past, Present, and Future

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  1. Development of Quantitative Finance and Risk Management:Past, Present, and Future 李正福 教授 羅格斯大學財務金融講座教授 交通大學財務金融兼任講座教授 數量財務及會計評論主編 亞太金融市場及政策評論主編 2008/01/11 Conference on Quantitative Finance and Risk Management

  2. Outline Part I – Introduction Part II – Essays Chapter 1 Theoretical Framework of Finance 1) Classical Theory 2) New classical theory 3) CAPM and APT 4) Options and Futures Theory Chapter 2 Policy Framework of Finance 1) Investment Policy 2) Financial Policy      3) Dividend Policy 4) Production Policy Chapter 3 Research Methods of Quantitative Finance and Risk Management 1) Statistics 2) Econometrics 3) Mathematics 4) Operation research 5) Stochastic process 6) Computer science and technology 7) Entropy 8) Fuzzy set Theory 9) Other Methods Chapter 4 Overview of Quantitative Finance and Risk Management Research

  3. Outline Part III –Portfolio Analysis Chapter 1 Basic Concepts of Portfolio Analysis Chapter 2 Markowitz Portfolio-Selection Model Chapter 3 Capital Asset Pricing Model and Beta Forecasting Chapter 4 Index Model for Portfolio Selection Chapter 5 Performance-Measure Approaches for Selecting Optimum Portfolios Part IV – Options and Futures A. Basic Concepts and Strategies Chapter 1 Introduction Chapter 2 Options and Option Strategy B. Statistical Analysis Approaches Chapter 3 Binomial Option Pricing Models Chapter 4 Multinomial Option Pricing Model Chapter 5 The Lognormal Option Pricing Model Chapter 6 Bivariate Normal Option Pricing Models

  4. Outline Part IV – Options and Futures C. Stochastic Calculus Approaches Chapter 7 Ito Calculus and The Black and Scholes Option Pricing Model Chapter 8 Constant Elasticity of Variance (CEV) Option Pricing Model Chapter 9 Stochastic Volatility Option Pricing Model Chapter 10 A General Option Pricing Model D. Applications Chapter 11 Option Valuation and Hedging Chapter 12 Foreign Exchange Option Pricing Models Chapter 13 Index Option Pricing Models Chapter 14 Real Options Chapter 15 Option Pricing Model and Risk Management Chapter 16 Summary and Concluding Remarks Part V – Contributed Papers (See Appendix A) Part VI – Summary and Concluding Remarks 1. Theory 2. Methods 3. Application a. New Products b. Trading Strategy c. Hedging Strategy d. Wealth Management e. Risk Management f. CDO and Subprime Markets g. Others

  5. Part I – Introduction

  6. Part II –Essays

  7. Part II – Essays Chapter 1 Theoretical Framework of Finance 1) Classical Theory 2) New classical theory 3) CAPM and APT 4) Options and Futures Theory Chapter 2 Policy Framework of Finance 1) Investment Policy 2) Financial Policy 3) Dividend Policy 4) Production Policy Chapter 3 Research Methods of Quantitative Finance and Risk Management 1) Statistics 2) Econometrics 3) Mathematics 4) Operation research 5) Stochastic process 6) Computer science and technology 7) Entropy 8) Fuzzy set Theory 9) Other Methods Chapter 4 Overview of Quantitative Finance and Risk Management Research

  8. Part III –Portfolio Analysis

  9. Part III – Portfolio Analysis Chapter 1 Basic Concepts of Portfolio Analysis Chapter 2 Markowitz Portfolio-Selection Model Chapter 3 Capital Asset Pricing Model and Beta Forecasting Chapter 4 Index Model for Portfolio Selection Chapter 5 Performance-Measure Approaches for Selecting Optimum Portfolios

  10. Part IV –Options and Futures

  11. Part IV – Options and Futures A. Basic Concepts and Strategies Chapter 1 Introduction Chapter 2 Options and Option Strategy B. Statistical Analysis Approaches Chapter 3 Binomial Option Pricing Models Chapter 4 Multinomial Option Pricing Model Chapter 5 The Lognormal Option Pricing Model Chapter 6 Bivariate Normal Option Pricing Models

  12. Part IV – Options and Futures C. Stochastic Calculus Approaches Chapter 7 Ito Calculus and The Black and Scholes Option Pricing Model Chapter 8 Constant Elasticity of Variance (CEV) Option Pricing Model Chapter 9 Stochastic Volatility Option Pricing Model Chapter 10 A General Option Pricing Model D. Applications Chapter 11 Option Valuation and Hedging Chapter 12 Foreign Exchange Option Pricing Models Chapter 13 Index Option Pricing Models Chapter 14 Real Options Chapter 15 Option Pricing Model and Risk Management Chapter 16 Summary and Concluding Remarks

  13. Part V –Contributed Papers (See Appendix A)

  14. Part VI –Summary and Concluding Remarks

  15. Part VI – Summary and Concluding Remarks • Theory • Methods • Application • a. New Products • b. Trading Strategy • c. Hedging Strategy • d. Wealth Management • e. Risk Management • f. CDO and Subprime Markets • g. Others

  16. Appendix A Chapter 1: The Creation and Control of Speculative Bubbles in a Laboratory Setting James S. Ang, Florida State University, USA Dean Diavatopoulous, Florida State University, USA Thomas V. Schwarz, Grand Valley State University, USA Chapter 2: Business Models: Applications to Capital Budgeting, Equity Value and Return Attribution Thomas S. Y. Ho Sang Bin Lee, Hanyang University, Korea Chapter 3: Risk and Valuation Under an Intertemporal Capital Asset Pricing Models Michael J. Brennan, Anderson School, USA Yihong Xia, Pennsylvania University, USA Chapter 4: Portfolio Optimization Models and Mean-Variance Spanning Tests Wei-Peng Chen, Shih Hsin University, Taiwan Huimin Chung, National Chiao Tung University, Taiwan Keng-Yu Ho, National Central University, Taiwan Tsui-Ling Hseu, National Chiao Tung University, Taiwan Chapter 5: A Further Analysis of Convergence Rate and Pattern of the Binomial Models San-Lin Chung, National Taiwan University, Taiwan Pai-Ta Shih, National Dong Hwa University, Taiwan

  17. Appendix A Chapter 6: Combining Fundamental Measures for Stock Selection: Some Thoughts Kenton K. Yee, Columbia Business School, USA Chapter 7: Dividends vs. Reinvestments in Continuous Time: A More General Model Ren-Raw Chen, Rutgers University, USA Ben Logan Oded Palmon, Rutgers University, USA Larry Shepp, Rutgers University, USA Chapter 8: Time Series Modeling of Asset Returns Volatilities Tze Leung Lai, Stanford University, USA Haipeng Xing, Columbia University, USA Chapter 9: On Estimation Risk and Power Utility Portfolio Selection Robert R. Grauer, Simon Fraser University, USA Frederick C. Shen Chapter 10: Segmenting financial services market: An Empirical Study of Statistical and Non-parametric Methods Kenneth Lawrence, New Jersey Institute of Technology, USA Dinesh Pai, Rutgers University, USA Ronald Klimberg, St. Joseph’s University, USA Stephen Kudbya, New Jersey Institute of Technology, USA Sheila Lawrence, Rutgers University, USA

  18. Appendix A Chapter 11: Recovering Probabilistic Information From Options Prices and the Underlying Bruce Mizrach, Rutgers University, USA Chapter 12: Combinatorial Methods for Reverse-Engineering and Construction of Credit Risk Ratings Alexander Kogan, Rutgers University, USA Miguel A. Lejeune, Carnegie Mellon University, USA Chapter 13: Displaced Log Normal and Lognormal American Option Pricing: A Comparison Ren-Raw Chen, Rutgers University, USA Cheng-Few Lee, Rutgers University, USA Chapter 14: Are Tails Fast Enough to Explain Smile Ren-Raw Chen, Rutgers University, USA Oded Palmon, Rutgers University, USA John Wald, Pennsylvania State University, USA Chapter 15: Two Alternative Approaches to Derive Black-Schools Option Pricing Model: Comparison and Analysis Cheng-Few Lee, Rutgers University, USA Carle Shu Ming Lin, Rutgers University, USA

  19. Appendix A Chapter 16: Spurious Regression and Data Mining in Conditional Asset Pricing Models Wayne Ferson, University of Southern California, USA Sergei Sarkissian, McGill University, USA Timothy Simin, Pennsylvania State University, USA Chapter 17: Structural Approach for Credit Risk Modeling Jingzhi Huang, Pennsylvania State University, USA Chapter 18: An Empirical Investigation of the Rationales for Integrated Risk-Management Behavior Michael S. Pagano, Villanova University, USA Chapter 19: Implementing Risk Management Systems with a Benchmark: a Web-Based DSS Approach Larry Eisenberg, University of Southern Mississippi, USA Chang-tseh Hsieh, University of Southern Mississippi, USA Chapter 20: The Le Chatelier Principle in the Markowitz Quadratic Programming Investment Model: A Case of World Equity Fund Market Chin W. Yang, Clarion University of Pennsylvania, USA Ken Hung, National Dong Hwa University, Taiwan Jing Chui, Clarion University of Pennsylvania, USA

  20. Appendix A Chapter 21: Copula, Correlated Defaults and Credit VaR Jow-Ran Chang, National Tsing Hua University, Taiwan An-Chi Chen, KGI Securities Co. Ltd., Taiwan Chapter 22: An Errors-in-variables Problem in Asset Pricing Tests Dongcheol Kim, Rutgers University, USA Chapter 23: Pricing and Hedging Interest Rate Derivatives In the Presence of Unspanned Stochastic Volatilities Feng Zhao, Rutgers University, USA Chapter 24: Liquidity Risk and Arbitrage Pricing Theory Umut Cetin, Technische University Wein, USA Robert A. Jarrow, Cornell University, USA Philip Protter, Cornell University, USA Chapter 25: Stock Returns, Extreme Values, and Conditional Skewed Distribution Thomas C. Chiang, Drexel University, USA Jiandong Li, Drexel University, USA

  21. Appendix A Chapter 26: MCMC Estimation of Multiscale Stochastic Volatility Models German Molina, Vega Capital Services Ltd., UK Chuan-Hsiang Han, National Tsing Hua University, Taiwan Jean-Pierre Fouque, University of California, USA Chapter 27: Security Market Microstructure: The Analysis of a Non-Frictionless Market Robert Schwartz, Zicklin School of Business, USA Reto Francioni, Martin Reck Chapter 28: Robust prediction of default risk? Chung-Hua Shen, National Taiwan University, Taiwan Yi-Kai Chen,National University of Kaohsiung, Taiwan Bor-Yi Huang, Shih Chien University, Taiwan Chapter 29: Risk Management for Catastrophe Loss Jin-Ping Lee, Feng Chia University, Taiwan Min-Teh Yu, Providence University, Taiwan Chapter 30: Regime Shifts and the Term Structure of Interest Rates Chien-Chung Nieh, Tamkang University, Taiwan Shu Wu, The University of Kansas, USA Yong Zeng, The University of Missouri at Kansas City, USA

  22. Appendix A Chapter 31: ARM Processes and Their Modeling and Forecasting Methodology Benjamin Melamed, Rutgers Business School, USA Chapter 32: Alternative Econometric Methods for Information-based Equity-selling Mechanisms Cheng Few Lee, Rutgers University, USA Yi Lin Wu, National Tsing Hua University, Taiwan Chapter 33: Implementation Problems and Solutions in Stochastic Volatility Models of the Heston Type Jia-Hau Guo, Soochow University, Taiwan Mao-Wei Hung, National Taiwan University, Taiwan Chapter 34: Univariate and Bivariate GARCH Analyses for the Volume versus GARCH effects Zhuo Qiao, National University of Singapore, Singapore Wing-Keung Wong, National University of Singapore, Singapore Chapter 35: Application of Fuzzy Set Theory to Finance Research: Method and Application Shin-Yun Wang, National Dong Hwa University, Taiwan Cheng-Few Lee, Rutgers University, USA

  23. Appendix A Chapter 36: Hedonic Regression Analysis: A Primer Ben J. Sopranzetti, Rutgers University, USA Chapter 37: Risk-Adverse Portfolio Optimization via Stochastic Dominance Contraints Darinka Dentcheva, Stevens Institute of Technology, USA Andrzej Ruszczynski, Rutgers University, USA Chapter 38: A Real Option Approach to the Comprehensive Analysis of Bank Consolidation Values Chuang-Chang Chang, National Central University, Taiwan Pei-Fang Hsieh, National Central University, Taiwan Hung-Neng Lai, National Central University, Taiwan Chapter 39: Numerical Methods of PDE in Computational Finance Gang Nathan Dong, Rutgers University, USA Chapter 40: Capital Structure in Asia and CEO Entrenchment Kin Wai Lee, Nanyang Technological University, Singapore Gillian Hian Heng Yeo, Nanyang Technological University, Singapore

  24. Appendix A Chapter 41: Estimating Future Hedge Ratio: A General Hyperbolic Distribution Approach Cheng-Few Lee, National Chiao Tung University, Taiwan Jang-Yi Lee, Tunghai University, Taiwan Kehluh Wang, National Chiao Tung University, Taiwan Yuan-Chung Sheu, National Chiao Tung University, Taiwan Chapter 42: The Sensitivity of Corporate Bond Volatility to Macroeconomic Announcements Nikolay Kosturov, University of Oklahoma, USA Duane Stock, University of Oklahoma, USA Chapter 43: Option Pricing and Hedging Performance under Stochastic Volatility and Stochastic Interest Rates Gurdip Bakshi, University of Maryland, USA Charles Cao, Penn State University, USA Zhiwu Chen, Yale University, USA Chapter 44: Itô’s Calculus and the Derivation of the Black-Scholes Option-Pricing Model George Chalamandaris, Athens University of Economics and Business, Greece A.G. Malliaris, Loyola University Chicago, USA Chapter 45: Portfolio Analysis Jack Clark Francis, Baruch College, USA

  25. Appendix A Chapter 46: Equity Market Microstructure: The Analysis of a Non-Frictionless Market Reto Francioni, Deutsche Bank, USA Sonali Hazarika, Baruch College, USA Martin Reck, Deutsche Bank, USA Robert A. Schwartz, Baruch College, USA Chapter 47: Raw Material Convenience Yields and Business Cycle Chang-Wen Duan, Tamkang University, Taiwan William T. Lin,Tamkang University, Taiwan Chapter 48: Default and Prepayment Study in US Subprime Markets C.H. Ted Hong, Beyondbond, USA Chapter 49: The Valuation of Uncertain Income Streams and the Pricing of Options Mark Rubinstein, University of California Berkley, USA Chapter 50: A Primer on the Implicit Financing Assumptions of Traditional Capital Budgeting Approaches Ivan Brick, Rutgers University, USA Daniel Weaver, Rutgers University, USA

  26. Appendix A Chapter 51: Portfolio Theory, CAPM, and Performance Measures Luis Ferruz, University of Zaragoza, Spain Chapter 52: The Effect of Default Risk on Equity Liquidity: Evidence Based on the Panel Threshold Model Huimin Chung, National Chiao Tung University , Taiwan Wei-Peng Chen, Shih-Hsin University , Taiwan Yu-Dan Chen, National Chiao Tung University , Taiwan Chapter 53: Derivation and application of Greek letters Cheng-Few Lee, Rutgers University, USA David Chen, Rutgers University, USA Weikang Shih, Rutgers University, USA Chapter 54: Put option approach to determine bank risk premium Dar-Yeh Huang, National Taiwan University, Taiwan Fu-Shuen Shie, National Taiwan University, Taiwan Wei-Hsiung Wu, National Taiwan University, Taiwan Chapter 55: Alternative Methods to Determine Optimal Capital Structure: Theory and Application Sheng-Syan Chen, National Taiwan University, Taiwan Cheng-Few Lee, National Chiao Tung University, Taiwan Han-Hsing Lee, National Chiao Tung University, Taiwan

  27. Appendix A Chapter 56: Characteristic function and Finance Research Ying-Lin Hsu, National Chung Hsing University, Taiwan Cheng-Few Lee, Rutgers University, USA Chapter 57: Entropy and Its Application in Finance Research Hyley Huang, National Chiao Tung University and Wintek Corporation, Taiwan Cheng-Few Lee, Rutgers University, USA Chapter 58: Structure Equation Model in Finance and Accounting Research Chingfu Chang, National Chengchi University, Taiwan Cheng-Few Lee, Rutgers University, USA Chapter 59: Genetic Programming for Options Pricing Nemmara Chidambaran, Rutgers University, USA Chapter 60: Predicting Prices with Defense Forecasting Glenn Schafer, Rutgers University, USA Sam Ring, Rutgers University, USA

  28. Appendix A Chapter 61: Hedging Theories and Applications Keshab Shrestha, Nanyang Technological University, Singapore Chapter 62: Intertemporal Equilibrium Models, Portfolio Theory and the Capital Asset Pricing Model Stephen J. Brown, New York University, USA Chapter 63: Issue of Corporate Finance Research Kose John, New York University, USA Chapter 64: Asian Options Itzhak Venezia, Hebrew University, USA Chapter 65: Keiretsu Style Main Bank Relationships, R&D Investment, Leverage, and Firm Value: Evidence from Japanese Listed Companies Hai-Chin Yu, Chung Yuan University, Taiwan Chih-Sean Chen, Chung Yuan University, Taiwan Der-Tzon Hsieh, National Taiwan University, Taiwan

  29. Appendix A Chapter 66: Alternative Models for Estimating the Cost of Equity Capital for Property/Casualty Insurers Alice Lee, San Francisco State University, USA J.D. Cumming, Temple University, USA Chapter 67: An ODE Approach for the Expected Discounted Penalty at Ruin Cheng Few Lee, Rutgers University, USA Yu-Ting Chen, National Chao Tung University, Taiwan Yuan-Chung Sheu, National Chao Tung University, Taiwan Chapter 68: Functional Forms, Market Segmentation and Pricing of Closed-end Country Funds Cheng-Few Lee, Rutgers University, USA Dilip K. Patro, Federal Deposit Insurance Company, USA Bo Liu, Rutgers University, USA Alice C. Lee, San Francisco State University, USA Chapter 69: Actuarial mathematics and its applications in quantitative finance Cho-Jieh Chen, University of Alberta, Canada Chapter 70: Examining the Impact of US IT Stock Market on Other IT Stock Markets Zhuo Qiao, National University of Singapore, Singapore Venus Khim-Sen Liew, Universiti Malaysia Sabah, Malaysia Wing-Keung Wong, Hong Kong Baptist University, Hong Kong

  30. Appendix A Chapter 71: Time-Series Econometrics and Dynamic Financial Models Robert H. Patrick, Rutgers University, USA Chaptere72 Framework of Structure Finance Francis Eng, Rutgers University, USA Chapter73 Persistence, Predictability and Portfolio Planning Michael J. Brennan, University of California at Los Angeles, USA Yihong Xia Wharton School, USA Chapter 74 Application of Alternative ODE in Finance and Economics Research Cheng Few Lee, Rutgers University, USA Junmin Shi, Rutgers University, USA Chapter 75 Term Structure and Risk Management ChunChi Wu, University of Missouri, USA Chapter 76 Issues in Operational Risk Modeling Mo Chaudhury, State Street Corporation, USA Satya Mohit, State Street Corporation, USA Chapter 77 Application of Simultaneous Equation in Finance Research Carl R. Chen, University of Dayton, USA Cheng Few Lee, Rutgers University, USA

  31. Appendix A Chapter 78: Alternative Method for Credit Risk Management: Theory and Method Cheng Few Lee, Rutgers University, USA Bi-Huei Tsai, National Chiao Tung University, Taiwan Kehluh Wang, National Chiao Tung University, Taiwan Jessica Shin-Ying Mai, Rutgers University, USA Chapter 79 : Future Hedge Ratios: A Review Sheng-Syan Cheng, National Taiwan University, Taiwan Keshab Shrestha, Nanyang Technological University, Singapore Cheng Few Lee, Rutgers University, USA Chapter 80 : International Portfolio Management: Theory and Method Wan-Jiun Paul Chiou, Shippensburg University, USA Cheng Few Lee, Rutgers University, USA

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