Encyclopedia of Financial Models, Volume II

VOLUME II

The need for serious coverage of financial modeling has never been greater, especially with the size, diversity, and efficiency of modern capital markets. With this in mind, the Encyclopedia of Financial Models, 3 Volume Set has been created to help a broad spectrum of individuals ranging from finance professionals to academics and students understand the various models currently available and apply them in real–world situations.

Edited by Frank Fabozzi, this set includes contributions from global financial experts as well as academics with extensive consulting experience in this field. Incorporating timely research and in–depth analysis, Volume II of the Encyclopedia of Financial Models covers:

Equity Models and Valuation Factor Models for Portfolio Construction Financial Econometrics Financial Modeling Principles Financial Statement Analysis Finite Mathematics for Financial Modeling Model Risk and Selection

Volume II

Equity Models and Valuation 1

Dividend Discount Models 3

Discounted Cash Flow Methods for Equity Valuation 15

Relative Valuation Methods for Equity Analysis 33

Equity Analysis in a Complex Market 47

Equity Portfolio Selection Models in Practice 61

Basics of Quantitative Equity Investing 89

Quantitative Equity Portfolio Management 107

Forecasting Stock Returns 121

Factor Models for Portfolio Construction 135

Factor Models 137

Principal Components Analysis and Factor Analysis 153

Multifactor Equity Risk Models and Their Applications 171

Factor–Based Equity Portfolio Construction and Analysis 195

Cross–Sectional Factor–Based Models and Trading Strategies 213

The Fundamentals of Fundamental Factor Models 243

Multifactor Equity Risk Models and Their Applications 255

Multifactor Fixed Income Risk Models and Their Applications 267

Financial Econometrics 293

Scope and Methods of Financial Econometrics 295

Regression Analysis: Theory and Estimation 305

Categorical and Dummy Variables in Regression Models 333

Quantile Regression 353

ARCH/GARCH Models in Applied Financial Econometrics 359

Classification and Regression Trees and Their Use in Financial Modeling 375

Applying Cointegration to Problems in Finance 383

Nonlinearity and Nonlinear Econometric Models in Finance 401

Robust Estimates of Betas and Correlations 437

Working with High–Frequency Data 449

FinancialModeling Principles 465

Milestones in Financial Modeling 467

From Art to Financial Modeling 479

Basic Data Description for Financial Modeling and Analysis 485

Time Series Concepts, Representations, and Models 501

Extracting Risk–Neutral Density Information from Options Market Prices 521

Financial Statement Analysis 529

Financial Statements 531

Financial Ratio Analysis 545

Cash–Flow Analysis 565

Finite Mathematics for Financial Modeling 579

Important Functions and Their Features 581

Time Value of Money 595

Fundamentals of Matrix Algebra 621

Difference Equations 629

Differential Equations 643

Partial Differential Equations in Finance 659

Model Risk and Selection 689

Model Risk 691

Model Selection and Its Pitfalls 699

Managing the Model Risk with the Methods

of the Probabilistic Decision Theory 719

Fat–Tailed Models for Risk Estimation 731