Front Cover -- The Analytics of Risk Model Validation -- Copyright Page -- Table of Contents -- About the editors -- About the contributors -- Preface -- Chapter 1 Determinants of small business default -- Abstract -- 1. Introduction -- 2. Data, methodology and summary statistics -- 3. Empirical...

The determination of the values of stocks, bonds, options, futures, and derivatives is done by the scientific process of asset pricing, which has developed dramatically in the last few years due to advances in financial theory and econometrics. This book covers the science of asset pricing by...

Modern Portfolio Theory explores how risk averse investors construct portfolios in order to optimize market risk against expected returns. The theory quantifies the benefits of diversification. Modern Portfolio Theory provides a broad context for understanding the interactions of systematic risk...

The purpose of this paper is to derive explicit formulae for the asset allocation decision for the loss aversion utility function proposed by Kahneman and Tuversky. We show that these utility functions exhibit constant absolute risk aversion. We also give analytic results which interpret the...

This paper proposes an unobserved fundamental component of volatility as a measure of risk. This concept of fundamental volatility may be more meaningful than the usual measures of volatility for market regulators. Fundamental volatility can be obtained using a stochastic volatility model, which...

The authors develop a test of infinite degree stochastic dominance based on the use of the empirical moment generating function. Two applications are considered. One uses the income data of Anderson (Econometrica, 1996) and derives results consistent with his. In the other application, the...

The use of correlation between forecasts and actual returns is commonplace in the literature, often used as a measurement of investors’ skill. A prominent application of this is the concept of the Information Coefficient (IC). Not only can IC be used as a tool to rate analysts and fund...

In the matter of financial literacy it is often supposed that more is automatically preferable to less. This paper considers to what extent this may be true generally, and specifically focuses on the case of investment forecasting skill (a significant component of an individual's financial...