Wiley, 2005. — 369 p. — ISBN: 0-471-71886-6, 978-0-471-71886-4.While mainstream financial theories and applications assume that asset returns are normally distributed, overwhelming empirical evidence shows otherwise. Yet many professionals don’t appreciate the highly statistical models that take this empirical evidence into consideration. Fat-Tailed and Skewed Asset Return Distributions examines this dilemma and offers readers a less technical look at how portfolio selection, risk management, and option pricing modeling should and can be undertaken when the assumption of a non-normal distribution for asset returns is violated. Topics covered in this comprehensive book include an extensive discussion of probability distributions, estimating probability distributions, portfolio selection, alternative risk measures, and much more. Fat-Tailed and Skewed Asset Return Distributions provides a bridge between the highly technical theory of statistical distributional analysis, stochastic processes, and econometrics of financial returns and real-world risk management and investments.Contents:
Introduction.
Probability and Statistics.
Discrete Probability Distributions.
Continuous Probability Distributions.
Describing a Probability Distribution Function: Statistical Moments and Quantiles.
Joint Probability Distributions.
Copulas.
Stable Distributions.
Estimation Methodologies.
Stochastic Processes.
Stochastic Processes in Discrete Time and Time Series Analysis.
Stochastic Processes in Continuous Time.
Portfolio Selection.
Equity and Bond Return Distributions.
Risk Measures and Portfolio Selection.
Risk Measures in Portfolio Optimization and Performance Measures.
Risk Management.
Market Risk.
Credit Risk.
Operational Risk.
Option Pricing.
Introduction to Option Pricing and the Binomial Model.
Black-Scholes Option Pricing Model.
Extension of the Black-Scholes Model and Alternative Approaches.
