Securities Valuation: Applications of Financial Modeling

Paperback | February 16, 2005

byThomas S.Y. Ho, Sang Bin Lee

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Securities Valuation: Applications of Financial Modeling is a clear, concise guide to securities valuation and the principles of financial theory. It describes state-of-the-art methods for valuing a broad range of securities: equity, equity and interest rate options, swaps and swaptions,treasuries, corporate bonds with and without credit risks, mortgage-backed securities, collateralized mortgage obligations, credit derivative swaps, and more. Thomas Ho and Sang Bin Lee use their combined fifty years of experience in academia, financial business, and public services to present students and general readers with twenty-six challenging cases. These cases describe the contexts in which financial models are used, the practical complicationsof these models, and ways to deal with their limitations. Each chapter begins with a problem in valuation, formulates models for it, and then provides the solutions. The assumptions, input data, and output solutions for each model are clearly stated. The model is illustrated by a numerical example rendered in Excel. A more than 130 Excel files of all the financial models from this book and its three companion volumes. Users can download the models, analyze them on their spreadsheets, and use them to do practice exercises Securities Valuation: Applications of Financial Modeling is ideal for undergraduate and graduate courses in finance and mathematical finance as well as for professional training programs. It is part of a series on financial modeling by the authors that also includes The Oxford Guide to FinancialModeling. Future titles in the series will focus on financial modeling for options, futures, and derivatives and financial modeling for financial institutions.

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Securities Valuation: Applications of Financial Modeling is a clear, concise guide to securities valuation and the principles of financial theory. It describes state-of-the-art methods for valuing a broad range of securities: equity, equity and interest rate options, swaps and swaptions,treasuries, corporate bonds with and without cred...

Thomas S.Y. Ho is the President of the Thomas Ho Company, Ltd. He is the founder/CEO of Global Advanced Technology and a former professor of finance at the Stern School of Business, New York University. Sang Bin Lee is Professor of Finance at Hanyang University in Korea and a Commissioner of the Korean SEC. He was president of the ...

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Format:PaperbackDimensions:336 pages, 6.89 × 9.8 × 0.98 inPublished:February 16, 2005Publisher:Oxford University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0195172752

ISBN - 13:9780195172751

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Table of Contents

Each chapter ends with Excel Exercises, Notes, and a Bibliography.Preface1. Introduction1.1. Diversification1.2. CAPM1.3. Beta Systematic Risk1.4. Dividend Discount Model1.5. An Application of the Capital Asset Pricing Model to Investment ServicesExcel Exercise 1.1. DiversificationCase: Managing the Risk of a Pension FundExcel Exercise 1.2. CAPMCase: Quarterly Earnings Report of an Energy Storage OperatorExcel Exercise 1.3. Dividend Discount ModelCase: Valuing REIT2. Equity Options2.1. Option Description2.2. Institutional Framework2.3. Put Call Parity2.4. The Main Insight of the Black-Scholes Model2.5. The Option Behavior and Sensitivity Analysis2.6. Applications of the Option ModelExcel Exercise 2.1. Cox Ross Rubinstein ModelCase: Private Wealth Management-Designing a Structured ProductExcel Exercise 2.2. Put Call ParityCase: Proprietary Trading DeskExcel Exercise 2.3. Black-Scholes ModelCase: Use of Put Options in HedgingExcel Exercise 2.4. Risk Neutral and Market ProbabilityCase: Asset Allocation and the Expected Returns of an Option3. Exotic Options3.1. Options with Alternative Payoffs at Expiration3.2. Options with Boundary Conditions3.3. Early Exercise3.4. Compound OptionsExcel Exercise 3.1. American Stock OptionCase: Valuing Employee Stock OptionsExcel Exercise 3.2. Compound OptionCase: Project Financing and Compound OptionsExcel Exercise 3.3. Digital OptionCase: IPO Incentive Option and Executive Option DesignExcel Exercise 3.4. GreeksCase: Valuing an Equity Structured Product from a Term Sheet4. Bond Mathematics, Treasury Securities, and Swaps4.1. Bond Mathematics4.2. Bonds and Bond Markets4.3. Swap Markets4.4. Economics of the Yield Curve4.5. The Bond Model4.6. Duration and Convexity4.7. Applications of the Bond AnalyticsExcel Exercise 4.1. Effective DurationCase: Interest Rate Bet Using Effective DurationExcel Exercise 4.2. Par Curve and Spot CurveCase: Law of One Price and Marking a Bond PositionExcel Exercise 4.3. Dollar DurationCase: Transfer Pricing and Hedging at the Treasury DepartmentExcel Exercise 4.4. SwapCase: A Hedging Program Designed by the Asset Liability Committee5. Bond Options5.1. Interest Rate Movements: Historical Experiences5.2. Equilibrium Models5.3. Arbitrage-Free Models5.4. Key Rate Duration and Dynamic HedgingExcel Exercise 5.1. Cox, Ingersoll, and Ross ModelCase: Building a Model by Knowing Your ClientsExcel Exercise 5.2. Vasicek ModelCase: Defined Benefits and Asset ManagementExcel Exercise 5.3. Ho-Lee ModelCase: Using an Arbitrage-free Model to Determine the Profit ReleaseExcel Exercise 5.4. Black Bond OptionCase: Proprietary Trading DeskExcel Exercise 5.5. SwaptionCase: Marking to Market an Illiquid Derivative Position6. Corporate Bonds-Investment Grade6.1. Descriptions of a Corporate Bond6.2. Valuation of a Bond6.3. Option Adjusted Spreads6.4. Callable Bond6.5. Sinking Fund Bond and Putable BondsExcel Exercise 6.1. Callable BondCase: Funding Working Capital with DebtExcel Exercise 6.2. Sinking Fund BondCase: Securitization and Asset Backed Securities7. Corporate Bonds-High Yield Bonds7.1. An Example of a High Yield Bond7.2. Institutional Framework of Bankruptcy and Bankruptcy Proceedings7.3. The Fisher Model7.4. An Actuarial Model7.5. Historical Experiences and the Estimation of the Parameters of Default Models7.6. The Reduced Form Model7.7. The Structural ModelExcel Exercise 7.1. Credit Default SwapCase: Credit Derivatives, Insurance Premium and Callable BondsExcel Exercise 7.2. Ho-Singer ModelCase: Reorganization and Debt Restructuring8. Other Bonds: Convertible Bonds, MBS, CMO8.1. Description of a Convertible Bond8.2. Forced Conversion8.3. Default Risk8.4. Mortgage-Backed Securities (Pass Through Certificates)8.5. Prepayment Modeling and Valuation8.6. Collateralized Mortgage Obligations (CMO)Excel Exercise 8.1. Convertible BondsCase: Hedging a Convertible Bond IssueExcel Exercise 8.2. Mortgage-Backed Securities (Level Payment, PSA, IO and PO)Case: Pricing Guaranteed Investment Contract and the Profit SpreadIndex

Editorial Reviews

"Securities Valuation provides a hands-on, yet highly analytic, approach to the valuation of securities, ranging from equities to options to fixed income securities. Ho and Lee have written a superb textbook that combines academic rigor and real-world applicability. The book is well-suited forderivatives and fixed income courses."--Hans R. Stoll, The Anne Marie and Thomas B. Walker Professor of Finance, Owen Graduate School of Management, Vanderbilt University