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Preface
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Part I: Financial Assets and Risk Management
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Chapter 1
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Introduction to Risk Management and Derivatives In addition to providing a framework by which to classify the concept of risk, the purpose of this chapter is to introduce the study of risk management for individual securities and portfolios using derivative instruments, neuroeconomic models and automated trading.
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Chapter 2
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Equity Valuation and the Investment Portfolio This chapter begins with analyzing the firm's financial statement. AI method is used to predict the quarterly price from the financial statements. Next, the chapter introduces basic equity portfolio building skills needed to use the WinORS portfolio management system and generate a basic mean-variance efficient set for user entered portfolio.
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Chapter 3
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Price, Returns, and Volatility Modeling This chapter develops a uniform approach for measuring the statistical characteristics of traded instruments. The discussion begins with the development of simple averages and concludes with the development of volatility. Both historical and implied volatility are covered in detail
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Chapter 4
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Financial Econometrics and Explainable AI The chapter introduces AI, more specifically machine learning techniques for financial econometrics. The application of regression and artificial intelligence through neural networks to predict end-of-day and high-frequency stock prices is developed in detail. Focus is on optimizing trading profitability with minimization of wrong-direction trade errors.
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Part II: Option Contracts and Valuation Models
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Chapter 5
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Option Contract Basics This chapter provides a structured overview of global derivatives markets. The chapter presents the terminology of traded options including coverage of the put-call-parity theorem.
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Chapter 6
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The Binomial Option Pricing Model This chapter presents the single- and multi-period Binomial Option Pricing Model. Detailed examples with calculator solutions are provided.
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Chapter 7
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The Black and Scholes Option Pricing Model This chapter presents Black and Scholes Option Pricing Model. Computational differences between the Binomial approach and the Black-and-Scholes pricing model are provided. Development of option Greeks and a detailed calculation-based approach to estimate implied volatility are presented. The discussion is enhanced to support preparation for all qualifying examinations: Actuarial Society examination, FRM and PRM.
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Part III: Option Strategies for Directional Volatility
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Chapter 8
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Fundamental Option Strategies A description and definition of the basic option strategies for both call and put contracts. Includes coverage of covered calls and puts for portfolio insurance. Focus is on both micro-hedges (individual securities) and macro hedges (portfolios using index-based contracts).
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Chapter 9
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Advanced Option Spread Strategies This chapter describes and develops many of the well-known option spread strategies. Close linkage to real-time applications using WinORS. Spreads include various versions of butterflies, guts, condors, straddles and more. Applicable for both individual securities and portfolios.
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Part IV: Futures Instruments
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Chapter 10
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The Foundation of Modern Futures Markets The chapter presents and discusses the contemporary futures markets. References and comparisons are provided for both the global and domestic futures markets. The discussion continues with the development of futures pricing theories.
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Chapter 11
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Fundamental Applications of Equity Futures This is an applications-based chapter linked to simulation and back-testing algorithms within WinORS. There is a strong focus on the calculation of real-time hedge ratios for equity portfolios. State-of-the-art non-Gaussian risk-adjusted performance measures are introduced with calculation based examples.
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Chapter 12
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The Single Stock Futures Market The chapter focuses on the robust Single Stock Futures Exchange. Linkages to both single stock futures, exchange for physicals, and exchange traded futures for equity and fixed income instruments is provided.
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Chapter 13
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Fundamental Applications of Fixed Income Futures The WinORS bond valuation system focus on the portfolio valuation of risk-mitigating trading bonds across a number of different markets. Markets covered include Treasuries, munis, corporate and zero-coupon. Full coverage across a wide-number of analytical measures with supporting graphical output. Fixed income hedge methods provide a robust approach to the theory and approach of risk mitigating fixed income portfolios
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Chapter 14
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Crypto-Currency Futures The chapter discusses the origins of cryto-currency and their rise in today’s investment portfolios.
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Part V: Swaps, Automation, and Neuroeconomics
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Chapter 15
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Swaps, Interest Rate, and Credit Derivatives The chapter presents a detailed discussion on the valuation and use of swap agreements. In addition to providing an overview of the swaps market, interest rate swaps and associated option derivatives, or swaptions, are exemplified by practical applications. The chapter closes with a look at credit default swap contracts.
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Chapter 16
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Neuroeconomics and Applied Automated Trading This chapter presents an introduction of how operational artificial intelligence in the form of artificial neural networks are used to predict near high-frequency and end-of-day stock prices for the purpose of optimizing risk-adjusted trading profitability. Special emphasis is place on how to minimize wrong directional trade rules.
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Chapter 17
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Automated Trading: Policies and Performance An examination of the external and internal policies that guide the operation of the fully accessible WINKS automated trading system. The chapter includes a detailed examination of real-time and historical risk-adjusted performance for both individual securities and all managed portfolios. ESG and sector performance reports are also provided.
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Chapter 18
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Neuroeconomics and Big Data in the Capital Markets This chapter addresses the question: What is a Big Data CAPM? The chapter begins by differentiating among the terms data analytics, data visualization and predictive analytics. The chapter includes a “Big Data” exploration and critical evaluation of the equilibrium based CAPM valuation model.
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Copyright
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ISBN: 978-0-9908843-0-9, The NKD Group, Inc., 2010-2024, All Rights Reserved
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