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This book will provide a firm foundation in the understanding of financial economics applied to asset pricing. It carries the real world perspective of how the market works, including behavioral biases, and also wraps that understanding in the context of a rigorous economics framework of investors’ risk preferences, underlying price dynamics, rational choice in the large, and market equilibrium other than inexplicable irrational bubbles. It concentrates on analyses of stock, credit, and option pricing. Existing highly cited finance models in pricing of these assets are covered in detail, and theory is accompanied by rigorous applications of econometrics. Econometrics contain elucidations of both the statistical theory as well as the practice of data analyses. Linear regression methods and some nonlinear methods are also covered. The contribution of this book, and at the same time, its novelty, is in employing materials in probability theory, economics optimization, econometrics, and data analyses together to provide a rigorous and sharp intellect for investment and financial decision-making. Mistakes are often made with far too often sweeping pragmatism without deeply knowing the underpinnings of how the market economics works. This book is written at a level that is both academically rigorous for university courses in investment, derivatives, risk management, as well as not too mathematically deep so that finance and banking graduate professionals can have a real journey into the frontier financial economics thinking and rigorous data analytical findings.

Econometrics. --- Finance models. --- Financial Econometrics. --- Option pricing. --- Stock pricing.

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corporate finance --- financial markets and institutions --- financial engineering --- financial law --- financial econometrics

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Investors seek to hedge against interest rate risk by taking long or short positions on bonds of different maturities. We study changes in risk taking behavior in a low interest rate environment by estimating a market stochastic discount factor that is non-linear and therefore consistent with the empirical properties of cashflow valuations identified in the literature. We provide evidence that non-linearities arise from hedging strategies of investors exposed to interest rate risk. Capital losses are amplified when interest rates increase and risk averse investors have taken positions on instruments with longer maturity, expecting instead interest rates to revert back to their historical average.

Banks and Banking --- Finance: General --- Investments: General --- Investments: Bonds --- Interest Rates: Determination, Term Structure, and Effects --- Financial Econometrics --- Portfolio Choice --- Investment Decisions --- General Financial Markets: General (includes Measurement and Data) --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Finance --- Investment & securities --- Financial services law & regulation --- Yield curve --- Bonds --- Securities --- Market risk --- Securities markets --- Financial services --- Financial institutions --- Financial regulation and supervision --- Financial markets --- Interest rates --- Financial instruments --- Financial risk management --- Capital market --- United States

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The paper developes a VAR macrofinance model of the Czech economy. It shows that yield misalignments from the yields implied by the macrofinance model partially determine subsequent yield changes over three to nine months. These yield misalignments tend to persist for a number of months. This persistence of the misalignments was explained by (a) the fact that the macro-economy influences asset markets only at lower frequencies, (b) the liquidity effect particularly during the times of capital inflows to Czech Republic, and (c) the fact that not all misalignments were greater than their historical one standard deviation.

Macroeconomics --- Economics --- Finance --- Econometric models. --- Czech Republic --- Česká republika --- ČR --- Tschechische Republik --- Česko --- Czechia --- チェコ --- Cheko --- チェコ共和国 --- Cheko Kyōwakoku --- Tschechien --- Tschechenland --- Tschechei --- République tchèque --- República Checa --- Chequia --- Txèquia‏ --- Txeca --- República Txeca --- Češka --- Czech Socialist Republic (Czechoslovakia) --- Czechoslovakia --- Economic conditions --- Banks and Banking --- Finance: General --- Inflation --- Investments: Bonds --- Industries: General --- Financial Econometrics --- Interest Rates: Determination, Term Structure, and Effects --- Portfolio Choice --- Investment Decisions --- General Financial Markets: General (includes Measurement and Data) --- Macroeconomics: Production --- Price Level --- Deflation --- Investment & securities --- Yield curve --- Sovereign bonds --- Industrial production --- Stock markets --- Financial services --- Financial institutions --- Production --- Prices --- Financial markets --- Interest rates --- Bonds --- Industries --- Stock exchanges

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The global financial crisis has placed the spotlight squarely on bank stress tests. Stress tests conducted in the lead-up to the crisis, including those by IMF staff, were not always able to identify the right risks and vulnerabilities. Since then, IMF staff has developed more robust stress testing methods and models and adopted a more coherent and consistent approach. This paper articulates the solvency stress testing framework that is being applied in the IMF’s surveillance of member countries’ banking systems, and discusses examples of its actual implementation in FSAPs to 18 countries which are in the group comprising the 25 most systemically important financial systems (“S-25”) plus other G-20 countries. In doing so, the paper also offers useful guidance for readers seeking to develop their own stress testing frameworks and country authorities preparing for FSAPs. A detailed Stress Test Matrix (STeM) comparing the stress test parameters applie in each of these major country FSAPs is provided, together with our stress test output templates.

Banks and banking --- Bank protection. --- Agricultural banks --- Banking --- Banking industry --- Commercial banks --- Depository institutions --- Finance --- Financial institutions --- Money --- Econometric models. --- Protection --- Bank examination --- Bank auditing --- Auditing --- Examinations --- E-books --- Banks and Banking --- Finance: General --- Financial Econometrics --- Field Experiments --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Financial Institutions and Services: Government Policy and Regulation --- General Financial Markets: Government Policy and Regulation --- Bankruptcy --- Liquidation --- Financial services law & regulation --- Stress testing --- Financial Sector Assessment Program --- Solvency stress testing --- Bank solvency --- Financial sector policy and analysis --- Basel III --- Financial regulation and supervision --- Financial risk management --- Financial services industry --- State supervision --- United Kingdom