The compiled works of the man behind the evolution of quantitative finance Finance, Economics, and Mathematics is the complete Vasicek reference work, including published and unpublished work and interviews with the man himself. The name Oldrich A. Vasicek is synonymous with cutting-edge research in the finance fields, and this book comes straight from the source to bring you the undiluted mother lode of quant wisdom from one of the founders of the field. From his early work in yield curve dynamics, to the mean-reverting short-rate model, to his thoughts on derivatives pricing, to his work on credit risk, to his most recent research on the economics of interest rates, this book represents the life's work of an industry leader. Going beyond the papers, you'll also find the more personal side inspirational as Vasicek talks about the academics and professionals who made lasting impressions and collaborated, debated, and ultimately helped spawn some of his greatest thinking. Oldrich Vasicek has won virtually every important award and prize for his groundbreaking research in quantitative finance. You've followed his work for years; this book puts it all in a single volume to give you the definitive reference you'll turn to again and again. * Explore Vasicek's insights on topics he helped create * Discover his research and ideas that have gone unpublished until now * Understand yield curves and the Vasicek model from the source himself * Gain a reference collection of some of the most influential work in quantitative finance Vasicek's research is the foundation of one of the most important innovations in finance. Quants around the world have been influenced by his ideas, and his status as thought leader is cemented in the annals of finance history. Finance, Economics, and Mathematics is the definitive Vasicek reference every finance professional needs.
Foreword (by Robert C. Merton) ix Preface xi PART ONE Efforts and Opinions 1 CHAPTER 1 Introduction to Part I 3 CHAPTER 2 Lifetime Achievement Award (by Dwight Cass) 7 CHAPTER 3 One-on-One Interview with Oldrich Alfons Vasicek (by Nina Mehta) 13 CHAPTER 4 Credit Superquant (by Robert Hunter) 21 PART TWO Term Structure of Interest Rates 27 CHAPTER 5 Introduction to Part II 29 CHAPTER 6 An Equilibrium Characterization of the Term Structure 33 CHAPTER 7 The Liquidity Premium 45 CHAPTER 8 Term Structure Modeling Using Exponential Splines (with Gifford Fong) 49 CHAPTER 9 The Heath, Jarrow, Morton Model 63 PART THREE General Equilibrium 65 CHAPTER 10 Introduction to Part III 67 CHAPTER 11 The Economics of Interest Rates 71 CHAPTER 12 General Equilibrium with Heterogeneous Participants and Discrete Consumption Times 89 CHAPTER 13 Independence of Production and Technology Risks 107 CHAPTER 14 Risk-Neutral Economy and Zero Price of Risk 111 PART FOUR Credit 125 CHAPTER 15 Introduction to Part IV 127 CHAPTER 16 Credit Valuation 131 CHAPTER 17 Probability of Loss on Loan Portfolio 143 CHAPTER 18 Limiting Loan Loss Probability Distribution 147 CHAPTER 19 Loan Portfolio Value 149 CHAPTER 20 The Empirical Test of the Distribution of Loan Portfolio Losses 161 PART FIVE Markets, Portfolios, and Securities 163 CHAPTER 21 Introduction to Part V 165 CHAPTER 22 The Efficient Market Model (with John A. McQuown) 169 CHAPTER 23 A Risk Minimizing Strategy for Portfolio Immunization (with Gifford Fong) 195 CHAPTER 24 The Tradeoff between Return and Risk in Immunized Portfolios (with Gifford Fong) 203 CHAPTER 25 Bond Performance: Analyzing Sources of Return (with Gifford Fong and Charles J. Pearson) 213 CHAPTER 26 The Best-Return Strategy 223 CHAPTER 27 Volatility: Omission Impossible (with Gifford Fong and Daihyun Yoo) 237 CHAPTER 28 A Multidimensional Framework for Risk Analysis (with Gifford Fong) 247 CHAPTER 29 Plugging into Electricity (with Helyette Geman) 261 CHAPTER 30 Pricing of Energy Derivatives 277 PART SIX Probability Theory and Statistics 281 CHAPTER 31 Introduction to Part VI 283 CHAPTER 32 A Note on Using Cross-sectional Information in Bayesian Estimation of Security Betas 287 CHAPTER 33 A Series Expansion for the Bivariate Normal Integral 297 CHAPTER 34 A Conditional Law of Large Numbers 305 CHAPTER 35 A Test for Normality Based on Sample Entropy 315 CHAPTER 36 Monotone Measures of Ergodicity for Markov Chains (with Julian Keilson) 325 CHAPTER 37 An Inequality for the Variance of Waiting Time under a General Queueing Discipline 333 About the Author 339 Index 341
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