Derivatives and Internal Models Book

I	Fundamentals	1
1	Introduction	3
2	Legal environment	7
3	Fundamental risk factors of financial markets	11
4	Financial instruments : a system of derivatives and underlyings	47
II	Methods	61
5	Overview of the assumptions	63
6	Present value methods, yields and traditional risk measures	67
7	Arbitrage	81
8	The Black-Scholes differential equation	89
9	Integral forms and analytic solutions in the Black-Scholes world	103
10	Numerical solutions using finite differences	113
11	Binomial and trinomial trees	149
12	Monte Carlo simulations	169
13	Hedging	183
14	Martingales and numeraires	205
15	Interest rates and term structure models	231
III	Instruments	283
16	Spot transactions on interest rates	285
17	Forward transactions on interest rates	311
18	Plain Vanilla options	323
19	Exotic options	343
20	Structured products and stripping	367
IV	Risk	375
21	Fundamentals	377
22	The variance-covariance method	397
23	Simulation methods	427
24	Interest rate risk and cash flows	435
25	Example of a VaR computation	453
26	Backtesting : checking the applied methods	459
V	Portfolios	467
27	Classical portfolio management	469
28	Attributes and their characteristic portfolios	493
29	Active management and benchmarking	509
VI	Market data	527
30	Interest rate term structures	529
31	Volatility	543
32	Market parameter from historical time series	565
33	Time series modeling	581
34	Forecasting with time series models	601
35	Principle component analysis	615
36	Pre-treatment of time series and assessment of models	625