Contents
Guide to the Encyclopedia of Financial Models
BASIC DIVIDEND DISCOUNT MODELS
THE FINITE LIFE GENERAL DIVIDEND DISCOUNT MODEL
CONSTANT GROWTH DIVIDEND DISCOUNT MODEL
MULTIPHASE DIVIDEND DISCOUNT MODELS
STOCHASTIC DIVIDEND DISCOUNT MODELS
EXPECTED RETURNS AND DIVIDEND DISCOUNT MODELS
Discounted Cash Flow Methods for Equity Valuation
COMPLICATIONS IN IMPLEMENTING THE DDM IN THE REAL WORLD
ADAPTING TO THE COMPLICATIONS: THE EARNINGS PER SHARE APPROACH
FREE CASH FLOW DCF MODEL—TOTAL FIRM VALUATION
USING THE CASH-FLOW STATEMENT TO ARRIVE AT OCF AND FCF
ESTIMATING TOTAL FIRM VALUE USING THE FCF MODEL
Relative Valuation Methods for Equity Analysis
BASIC PRINCIPLES OF RELATIVE VALUATION
Equity Analysis in a Complex Market
AN INTEGRATED APPROACH TO A SEGMENTED MARKET
CONSTRUCTING, TRADING, AND EVALUATING PORTFOLIOS
Equity Portfolio Selection Models in Practice
PORTFOLIO CONSTRAINTS COMMONLY USED IN PRACTICE
BENCHMARK EXPOSURE AND TRACKING ERROR MINIMIZATION
INCORPORATING TRANSACTION COSTS
Basics of Quantitative Equity Investing
FUNDAMENTAL VS. QUANTITATIVE INVESTOR
THE QUANTITATIVE STOCK SELECTION MODEL
THE OVERALL QUANTITATIVE INVESTMENT PROCESS
Quantitative Equity Portfolio Management
TRADITIONAL AND QUANTITATIVE APPROACHES TO EQUITY PORTFOLIO MANAGEMENT
FORECASTING STOCK RETURNS, RISKS, AND TRANSACTION COSTS
EVALUATING RESULTS AND UPDATING THE PROCESS
A CLOSER LOOK AT PRICING MODELS
IS FORECASTING MARKETS WORTH THE EFFORT?
Factor Models for Portfolio Construction
USE OF PRINCIPAL COMPONENTS ANALYSIS
Principal Components Analysis and Factor Analysis
PCA AND FACTOR ANALYSIS COMPARED
Multifactor Equity Risk Models and Their Applications
APPLICATIONS OF EQUITY RISK MODELS
Factor-Based Equity Portfolio Construction and Analysis
DEVELOPING FACTOR-BASED TRADING STRATEGIES
DESIRABLE PROPERTIES OF FACTORS
BUILDING FACTORS FROM COMPANY CHARACTERISTICS
Cross-Sectional Factor-Based Models and Trading Strategies
CROSS-SECTIONAL METHODS FOR EVALUATION OF FACTOR PREMIUMS
PERFORMANCE EVALUATION OF FACTORS
MODEL CONSTRUCTION METHODOLOGIES FOR A FACTOR-BASED TRADING STRATEGY
BACKTESTING OUR FACTOR TRADING STRATEGY
APPENDIX: THE COMPUSTAT POINT-IN-TIME, IBES CONSENSUS DATABASES AND FACTOR DEFINITIONS
The Fundamentals of Fundamental Factor Models
FUNDAMENTAL ANALYSIS AND THE BARRA FUNDAMENTAL FACTOR MODEL
CRITICAL INSIGHTS FROM THE BARRA FUNDAMENTAL FACTOR MODEL
Multifactor Equity Risk Models and Their Applications
MODEL DESCRIPTION AND ESTIMATION
APPLICATIONS IN PORTFOLIO CONSTRUCTION AND RISK CONTROL
Multifactor Fixed Income Risk Models and Their Applications
APPROACHES USED TO ANALYZE RISK
Scope and Methods of Financial Econometrics
FINANCIAL ECONOMETRICS AT WORK
Regression Analysis: Theory and Estimation
ESTIMATION OF LINEAR REGRESSIONS
SAMPLING DISTRIBUTIONS OF REGRESSIONS
DETERMINING THE EXPLANATORY POWER OF A REGRESSION
USING REGRESSION ANALYSIS IN FINANCE
NONNORMALITY AND AUTOCORRELATION OF THE RESIDUALS
Categorical and Dummy Variables in Regression Models
INDEPENDENT CATEGORICAL VARIABLES
DEPENDENT CATEGORICAL VARIABLES
COMPARING QUANTILE AND OLS APPROACHES
REASONS FOR USING QUANTILE METHODS
BACKGROUND AND FURTHER EXAMPLES
ARCH/GARCH Models in Applied Financial Econometrics
REVIEW OF LINEAR REGRESSION AND AUTOREGRESSIVE MODELS
GENERALIZATIONS OF THE ARCH/GARCH MODELS
Classification and Regression Trees and Their Use in Financial Modeling
STRENGTHS AND WEAKNESSES OF CART
APPLICATION OF CART IN STOCK SELECTION
Applying Cointegration to Problems in Finance
STATIONARY AND NONSTATIONARY VARIABLES AND COINTEGRATION
Nonlinearity and Nonlinear Econometric Models in Finance
STUDY OF NONLINEARITY IN ECONOMETRICS AND STATISTICS
Robust Estimates of Betas and Correlations
ROBUST ESTIMATES OF CORRELATION
Working with High-Frequency Data
HOW ARE HIGH-FREQUENCY DATA RECORDED?
PROPERTIES OF HIGH-FREQUENCY DATA
HIGH-FREQUENCY DATA ARE VOLUMINOUS
HIGH-FREQUENCY DATA ARE SUBJECT TO BID-ASK BOUNCE
HIGH-FREQUENCY DATA ARE IRREGULARLY SPACED IN TIME
Milestones in Financial Modeling
THE PRECURSORS: PARETO, WALRAS, AND THE LAUSANNE SCHOOL
THE RUIN PROBLEM IN INSURANCE: LUNDBERG
THE PRINCIPLES OF INVESTMENT: MARKOWITZ
UNDERSTANDING VALUE: MODIGLIANI AND MILLER
EFFICIENT MARKETS: FAMA AND SAMUELSON
CAPITAL ASSET PRICING MODEL: SHARPE, LINTNER, AND MOSSIN
ARBITRAGE PRICING THEORY: ROSS
ARBITRAGE, HEDGING, AND OPTION THEORY: BLACK, SCHOLES, AND MERTON
From Art to Financial Modeling
THE ROLE OF INFORMATION TECHNOLOGY
INTEGRATING QUALITATIVE AND QUANTITATIVE INFORMATION
PRINCIPLES FOR ENGINEERING A SUITE OF MODELS
Basic Data Description for Financial Modeling and Analysis
EMPIRICAL CUMULATIVE FREQUENCY DISTRIBUTION
CUMULATIVE FREQUENCY DISTRIBUTIONS
Time Series Concepts, Representations, and Models
STYLIZED FACTS OF FINANCIAL TIME SERIES
INFINITE MOVING-AVERAGE AND AUTOREGRESSIVE REPRESENTATION OF TIME SERIES
Extracting Risk-Neutral Density Information from Options Market Prices
AN APPROPRIATE PARAMETRIC MODEL
TWO PARAMETRIC MODELS FOR RND ESTIMATION
INFORMATION CONVEYED BY THE BASIC FINANCIAL STATEMENTS
RATIOS AND THEIR CLASSIFICATION
USING FINANCIAL RATIO ANALYSIS
DIFFICULTIES WITH MEASURING CASH FLOW
CASH FLOWS AND THE STATEMENT OF CASH FLOWS
USEFULNESS OF CASH FLOWS IN FINANCIAL ANALYSIS
Finite Mathematics for Financial Modeling
Important Functions and Their Features
IMPORTANCE OF THE TIME VALUE OF MONEY
DETERMINING THE UNKNOWN INTEREST RATE
DETERMINING THE NUMBER OF COMPOUNDING PERIODS
THE TIME VALUE OF A SERIES OF CASH FLOWS
VALUING CASH FLOWS WITH DIFFERENT TIME PATTERNS
THE CALCULATION OF INTEREST RATES AND YIELDS
Fundamentals of Matrix Algebra
HOMOGENEOUS DIFFERENCE EQUATIONS
NONHOMOGENEOUS DIFFERENCE EQUATIONS
SYSTEMS OF LINEAR DIFFERENCE EQUATIONS
SYSTEMS OF HOMOGENEOUS LINEAR DIFFERENCE EQUATIONS
DIFFERENTIAL EQUATIONS DEFINED
ORDINARY DIFFERENTIAL EQUATIONS
SYSTEMS OF ORDINARY DIFFERENTIAL EQUATIONS
CLOSED-FORM SOLUTIONS OF ORDINARY DIFFERENTIAL EQUATIONS
NUMERICAL SOLUTIONS OF ORDINARY DIFFERENTIAL EQUATIONS
Partial Differential Equations in Finance
PARTIAL DIFFERENTIAL EQUATIONS FOR OPTION PRICING
PRICING EUROPEAN OPTIONS WITH PDES
PRICING AMERICAN OPTIONS WITH PDES
Model Selection and Its Pitfalls
MODEL SELECTION AND ESTIMATION
THE (MACHINE) LEARNING APPROACH TO MODEL SELECTION
SAMPLE SIZE AND MODEL COMPLEXITY
DANGEROUS PATTERNS OF BEHAVIOR
SURVIVORSHIP BIASES AND OTHER SAMPLE DEFECTS
Managing the Model Risk with the Methods of the Probabilistic Decision Theory
AN OUTLINE OF PROBABLISTIC DECISION THEORY
MODEL RISK OF A SIMPLE PORTFOLIO
Fat-Tailed Models for Risk Estimation
THE FUNDAMENTALS: NORMAL DISTRIBUTION
INCORPORATING HEAVY TAILS AND SKEWNESS: PARAMETRIC FAT-TAILED MODELS
INCORPORATING HEAVY TAILS AND SKEWNESS: SEMI-PARAMETRIC FAT-TAILED MODELS