Dr Paul Wilmott has been described by the Financial Times as ‘the cult derivatives lecturer’. He has for many years been a financial consultant specializing in derivatives, risk management and quantitative finance. He is the author of the best-selling Paul Wilmott Introduces Quantitative Finance (Wiley 2000) and Paul Wilmott on Quantitative Finance (Wiley 2001). He has written over 100 research articles on finance and mathematics. Dr Wilmott runs www.wilmott.com, the popular quantitative finance community website, the quant magazine Wilmott, and is the Course Director for the Certificate in Quantitative Finance, www.7city.com/cqf. Paul Wilmott is a partner in a statistical arbitrage hedge fund.

• Introduction ixPaul Wilmott I Education in Quantitative Finance 1Riaz Ahmad II Financialcad® 5Owen Walsh III Quantitative Finance Review 2003 7Dan TudballChapter 1 Rewind 11Dan TudballChapter 2 In for the Count 19Dan TudballChapter 3 A Perspective on Quantitative Finance: Models for Beating the Market 33Ed ThorpChapter 4 Psychology in Financial Markets 39Henriëtte PrastChapter 5 Credit Risk Appraisal: From the Firm Structural Approach to Modern Probabilistic Methodologies 59Hugues E. Pirotte SpéderChapter 6 Modelling and Measuring Sovereign Credit Risk 69Ephraim ClarkChapter 7 The Equity-to-credit Problem (or the Story of Calibration, Co-calibration and Re-calibration) 79Elie AyacheChapter 8 Measuring Country Risk as Implied Volatility 109Ephraim ClarkChapter 9 Next Generation Models for Convertible Bonds with Credit Risk 117E.Ayache,P.A.ForsythandK.R.VetzalChapter 10 First to Default Swaps 135Antony Penaud and James SelfeChapter 11 Taken to the Limit: Simple and Not-so-simple Loan Loss Distributions 143Philipp J. SchönbucherChapter 12 Sovereign Debt Default Risk: Quantifying the (Un)Willingness to Pay 161Ephraim ClarkChapter 13 Chord of Association 167Aaron BrownChapter 14 Introducing Variety in Risk Management 181Fabrizio Lillo, Rosario N. Mantegna, Jean-Philippe Bouchaud and Marc PottersChapter 15 Alternative Large Risks Hedging Strategies for Options 191F. Selmi and Jean-Philippe BouchaudChapter 16 On Exercising American Options: The Risk of Making More Money than You Expected 199Hyungsok Ahn and Paul WilmottChapter 17 Phi-alpha Optimal Portfolios and Extreme Risk Management 223R. Douglas Martin, Svetlozar (Zari) Rachev, and Frederic SibouletChapter 18 Managing Smile Risk 249Patrick S. Hagan, Deep Kumar, Andrew S. Lesniewski and Diana E. WoodwardChapter 19 Adjusters: Turning Good Prices into Great Prices 297Patrick S. HaganChapter 20 Convexity Conundrums: Pricing CMS Swaps, Caps, and Floors 305Patrick S. HaganChapter 21 Mind the Cap 319Peter JäckelChapter 22 The Art and Science of Curve Building 349Owen WalshChapter 23 Stochastic Volatility Models: Past, Present and Future 355Peter JäckelChapter 24 Cliquet Options and Volatility Models 379Paul WilmottChapter 25 Long Memory and Regime Shifts in Asset Volatility 391Jonathan KinlayChapter 26 Heston’s Stochastic Volatility Model: Implementation, Calibration and Some Extensions 401Sergei Mikhailov and Ulrich NögelChapter 27 Forward-start Options in Stochastic Volatility Models 413Vladimir LucicChapter 28 Stochastic Volatility and Mean-variance Analysis 421Hyungsok Ahn and Paul WilmottIndex 435

Dr Paul Wilmott has been described by the Financial Times as ‘the cult derivatives lecturer’. He has for many years been a financial consultant specializing in derivatives, risk management and quantitative finance. He is the author of the best-selling Paul Wilmott Introduces Quantitative Finance (Wiley 2000) and Paul Wilmott on Quantitative Finance (Wiley 2001). He has written over 100 research articles on finance and mathematics. Dr Wilmott runs www.wilmott.com, the popular quantitative finance community website, the quant magazine Wilmott, and is the Course Director for the Certificate in Quantitative Finance, www.7city.com/cqf. Paul Wilmott is a partner in a statistical arbitrage hedge fund.

• Introduction ixPaul Wilmott I Education in Quantitative Finance 1Riaz Ahmad II Financialcad® 5Owen Walsh III Quantitative Finance Review 2003 7Dan TudballChapter 1 Rewind 11Dan TudballChapter 2 In for the Count 19Dan TudballChapter 3 A Perspective on Quantitative Finance: Models for Beating the Market 33Ed ThorpChapter 4 Psychology in Financial Markets 39Henriëtte PrastChapter 5 Credit Risk Appraisal: From the Firm Structural Approach to Modern Probabilistic Methodologies 59Hugues E. Pirotte SpéderChapter 6 Modelling and Measuring Sovereign Credit Risk 69Ephraim ClarkChapter 7 The Equity-to-credit Problem (or the Story of Calibration, Co-calibration and Re-calibration) 79Elie AyacheChapter 8 Measuring Country Risk as Implied Volatility 109Ephraim ClarkChapter 9 Next Generation Models for Convertible Bonds with Credit Risk 117E.Ayache,P.A.ForsythandK.R.VetzalChapter 10 First to Default Swaps 135Antony Penaud and James SelfeChapter 11 Taken to the Limit: Simple and Not-so-simple Loan Loss Distributions 143Philipp J. SchönbucherChapter 12 Sovereign Debt Default Risk: Quantifying the (Un)Willingness to Pay 161Ephraim ClarkChapter 13 Chord of Association 167Aaron BrownChapter 14 Introducing Variety in Risk Management 181Fabrizio Lillo, Rosario N. Mantegna, Jean-Philippe Bouchaud and Marc PottersChapter 15 Alternative Large Risks Hedging Strategies for Options 191F. Selmi and Jean-Philippe BouchaudChapter 16 On Exercising American Options: The Risk of Making More Money than You Expected 199Hyungsok Ahn and Paul WilmottChapter 17 Phi-alpha Optimal Portfolios and Extreme Risk Management 223R. Douglas Martin, Svetlozar (Zari) Rachev, and Frederic SibouletChapter 18 Managing Smile Risk 249Patrick S. Hagan, Deep Kumar, Andrew S. Lesniewski and Diana E. WoodwardChapter 19 Adjusters: Turning Good Prices into Great Prices 297Patrick S. HaganChapter 20 Convexity Conundrums: Pricing CMS Swaps, Caps, and Floors 305Patrick S. HaganChapter 21 Mind the Cap 319Peter JäckelChapter 22 The Art and Science of Curve Building 349Owen WalshChapter 23 Stochastic Volatility Models: Past, Present and Future 355Peter JäckelChapter 24 Cliquet Options and Volatility Models 379Paul WilmottChapter 25 Long Memory and Regime Shifts in Asset Volatility 391Jonathan KinlayChapter 26 Heston’s Stochastic Volatility Model: Implementation, Calibration and Some Extensions 401Sergei Mikhailov and Ulrich NögelChapter 27 Forward-start Options in Stochastic Volatility Models 413Vladimir LucicChapter 28 Stochastic Volatility and Mean-variance Analysis 421Hyungsok Ahn and Paul WilmottIndex 435

Dr Paul Wilmott has been described by the Financial Times as ‘the cult derivatives lecturer’. He has for many years been a financial consultant specializing in derivatives, risk management and quantitative finance. He is the author of the best-selling Paul Wilmott Introduces Quantitative Finance (Wiley 2000) and Paul Wilmott on Quantitative Finance (Wiley 2001). He has written over 100 research articles on finance and mathematics. Dr Wilmott runs www.wilmott.com, the popular quantitative finance community website, the quant magazine Wilmott, and is the Course Director for the Certificate in Quantitative Finance, www.7city.com/cqf. Paul Wilmott is a partner in a statistical arbitrage hedge fund.

• Introduction ixPaul Wilmott I Education in Quantitative Finance 1Riaz Ahmad II Financialcad® 5Owen Walsh III Quantitative Finance Review 2003 7Dan TudballChapter 1 Rewind 11Dan TudballChapter 2 In for the Count 19Dan TudballChapter 3 A Perspective on Quantitative Finance: Models for Beating the Market 33Ed ThorpChapter 4 Psychology in Financial Markets 39Henriëtte PrastChapter 5 Credit Risk Appraisal: From the Firm Structural Approach to Modern Probabilistic Methodologies 59Hugues E. Pirotte SpéderChapter 6 Modelling and Measuring Sovereign Credit Risk 69Ephraim ClarkChapter 7 The Equity-to-credit Problem (or the Story of Calibration, Co-calibration and Re-calibration) 79Elie AyacheChapter 8 Measuring Country Risk as Implied Volatility 109Ephraim ClarkChapter 9 Next Generation Models for Convertible Bonds with Credit Risk 117E.Ayache,P.A.ForsythandK.R.VetzalChapter 10 First to Default Swaps 135Antony Penaud and James SelfeChapter 11 Taken to the Limit: Simple and Not-so-simple Loan Loss Distributions 143Philipp J. SchönbucherChapter 12 Sovereign Debt Default Risk: Quantifying the (Un)Willingness to Pay 161Ephraim ClarkChapter 13 Chord of Association 167Aaron BrownChapter 14 Introducing Variety in Risk Management 181Fabrizio Lillo, Rosario N. Mantegna, Jean-Philippe Bouchaud and Marc PottersChapter 15 Alternative Large Risks Hedging Strategies for Options 191F. Selmi and Jean-Philippe BouchaudChapter 16 On Exercising American Options: The Risk of Making More Money than You Expected 199Hyungsok Ahn and Paul WilmottChapter 17 Phi-alpha Optimal Portfolios and Extreme Risk Management 223R. Douglas Martin, Svetlozar (Zari) Rachev, and Frederic SibouletChapter 18 Managing Smile Risk 249Patrick S. Hagan, Deep Kumar, Andrew S. Lesniewski and Diana E. WoodwardChapter 19 Adjusters: Turning Good Prices into Great Prices 297Patrick S. HaganChapter 20 Convexity Conundrums: Pricing CMS Swaps, Caps, and Floors 305Patrick S. HaganChapter 21 Mind the Cap 319Peter JäckelChapter 22 The Art and Science of Curve Building 349Owen WalshChapter 23 Stochastic Volatility Models: Past, Present and Future 355Peter JäckelChapter 24 Cliquet Options and Volatility Models 379Paul WilmottChapter 25 Long Memory and Regime Shifts in Asset Volatility 391Jonathan KinlayChapter 26 Heston’s Stochastic Volatility Model: Implementation, Calibration and Some Extensions 401Sergei Mikhailov and Ulrich NögelChapter 27 Forward-start Options in Stochastic Volatility Models 413Vladimir LucicChapter 28 Stochastic Volatility and Mean-variance Analysis 421Hyungsok Ahn and Paul WilmottIndex 435