What this book covers
Chapter 1, Time Series Analysis (Michael Puhle), explains working with time series data in R. Furthermore, you will learn how to model and forecast house prices, improve hedge ratios using cointegration, and model volatility.
Chapter 2, Portfolio Optimization (Péter Csóka, Ferenc Illés, Gergely Daróczi), covers the theoretical idea behind portfolio selection and shows how to apply this knowledge to real-world data.
Chapter 3, Asset Pricing Models (Kata Váradi, Barbara Mária Dömötör, Gergely Daróczi), builds on the previous chapter and presents models for the relationship between asset return and risk. We'll cover the Capital Asset Pricing Model and the Arbitrage Pricing Theory.
Chapter 4, Fixed Income Securities (Márton Michaletzky, Gergely Daróczi), deals with the basics of fixed income instruments. Furthermore, you will learn how to calculate the risk of such an instrument and construct portfolios that will be immune to changes in interest rates.
Chapter 5, Estimating the Term Structure of Interest Rates (Tamás Makara, Gergely Daróczi), introduces the concept of a yield curve and shows how to estimate it using prices of government bonds.
Chapter 6, Derivatives Pricing (Ágnes Vidovics-Dancs, Gergely Daróczi), explains the pricing of derivatives using discrete and continuous time models. Furthermore, you will learn how to calculate derivatives risk measures and the so-called "Greeks".
Chapter 7, Credit Risk Management (Dániel Havran, Gergely Daróczi), gives an introduction to the credit default models and shows how to model correlated defaults using copulas.
Chapter 8, Extreme Value Theory (Zsolt Tulassay), presents possible uses of Extreme Value Theory in insurance and finance. You will learn how to fit a model to the tails of the distribution of fire losses. Then we will use the fitted model to calculate Value-at-Risk and Expected Shortfall.
Chapter 9, Financial Networks (Edina Berlinger, Gergely Daróczi), explains how financial networks can be represented, simulated, visualized, and analyzed in R. We will analyze the interbank lending market and learn how to systemically detect important financial institutions.