N. H. CHAN is Choh-Ming Li Chair Professor of Statistics at The Chinese University of Hong Kong and Associate Editor of six journals. Dr. Chan is also the author of Time Series: Applications to Finance with R and S-Plus, Second Edition, published by Wiley.H. Y. WONG is Associate Professor in the Risk Management Science Program of the Department of Statistics at The Chinese University of Hong Kong. His areas of interest include data analysis, statistical computing, risk management, and stochastic calculus.

• List of Figures xList of Tables xivPreface xx1 An Introduction to Excel VBA 11.1 How to start Excel VBA 11.2 VBA Programming Fundamentals 31.3 Linking VBA to C++ 141.5 Random Number Generation 191.6 List of functions defined in the book 222 Background 272.1 A brief review of Martingales and Itô’s calculus 282.2 Volatility 392.3 Mark to Market and Calibration 412.4 Variance Reduction Techniques 433 Structured Products 553.1 When is simulation unnecessary? 553.2 Simulation of Black-Scholes model and European Options 563.3 American Options 613.4 Range Accrual Notes 693.5 FX accumulator: The case of Citic Pacific LTD 733.6 Life Insurance Contracts 803.7 Multi-asset Instruments 834 Volatility Modeling 934.1 Local Volatility Models: Simulation and Binomial tree 944.2 The Heston Stochastic Volatility Model 1044.3 Simulation of Exotic Option Prices under Heston Model 1104.4 The GARCH Option Pricing Model 1214.5 Jump-Diffusion Model 1275 Fixed-Income Derivatives I: Short-Rate Models 1375.1 Yield Curve Building 1385.2 The Hull-White Model 1505.3 Pricing Interest Rate Products Using The Direction Simulation Approach 1565.4 Pricing Interest Rate Products Using The Trinomial Tree Approach 1616 Fixed-Income Derivatives II: LIBOR Market Models 1696.1 LIBOR Market Models 1716.2 Calibration to Caps and Swaptions 1776.3 Simulation Across Different Forward Measures 1866.4 Bermudan Swaptions in a Three-Factor Model 1946.5 Epilogue 1967 Credit Derivatives and Counterparty Credit Risk 1997.1 Structural Models of Credit Risk 2007.2 The Vasicek Single-Factor Model 2037.3 Copula Approach to Credit Derivative Pricing 2127.4 Counterparty credit risk 2238 Value-at-Risk and Related Risk Measures 2378.1 Value-at-Risk 2378.2 Parametric VaR 2388.3 Delta-normal Approximation 2458.4 Delta-Gamma Approximation 2478.5 VaR Simulation Methods 2498.6 VaR-related Risk Measures 2588.7 VaR Back-testing 2649 The Greeks 2679.1 Black-Scholes Greeks 2699.2 Greeks in A Binomial Tree 2719.3 Finite Difference Approximation 2729.4 Likelihood Ratio Method 2769.5 Pathwise Derivative Estimates 2799.6 Greek Calculation with Discontinuous Payoffs 28910 Appendix 295References 315Subject Index 319Author Index 323

N. H. CHAN is Choh-Ming Li Chair Professor of Statistics at The Chinese University of Hong Kong and Associate Editor of six journals. Dr. Chan is also the author of Time Series: Applications to Finance with R and S-Plus, Second Edition, published by Wiley.H. Y. WONG is Associate Professor in the Risk Management Science Program of the Department of Statistics at The Chinese University of Hong Kong. His areas of interest include data analysis, statistical computing, risk management, and stochastic calculus.

• List of Figures xList of Tables xivPreface xx1 An Introduction to Excel VBA 11.1 How to start Excel VBA 11.2 VBA Programming Fundamentals 31.3 Linking VBA to C++ 141.5 Random Number Generation 191.6 List of functions defined in the book 222 Background 272.1 A brief review of Martingales and Itô’s calculus 282.2 Volatility 392.3 Mark to Market and Calibration 412.4 Variance Reduction Techniques 433 Structured Products 553.1 When is simulation unnecessary? 553.2 Simulation of Black-Scholes model and European Options 563.3 American Options 613.4 Range Accrual Notes 693.5 FX accumulator: The case of Citic Pacific LTD 733.6 Life Insurance Contracts 803.7 Multi-asset Instruments 834 Volatility Modeling 934.1 Local Volatility Models: Simulation and Binomial tree 944.2 The Heston Stochastic Volatility Model 1044.3 Simulation of Exotic Option Prices under Heston Model 1104.4 The GARCH Option Pricing Model 1214.5 Jump-Diffusion Model 1275 Fixed-Income Derivatives I: Short-Rate Models 1375.1 Yield Curve Building 1385.2 The Hull-White Model 1505.3 Pricing Interest Rate Products Using The Direction Simulation Approach 1565.4 Pricing Interest Rate Products Using The Trinomial Tree Approach 1616 Fixed-Income Derivatives II: LIBOR Market Models 1696.1 LIBOR Market Models 1716.2 Calibration to Caps and Swaptions 1776.3 Simulation Across Different Forward Measures 1866.4 Bermudan Swaptions in a Three-Factor Model 1946.5 Epilogue 1967 Credit Derivatives and Counterparty Credit Risk 1997.1 Structural Models of Credit Risk 2007.2 The Vasicek Single-Factor Model 2037.3 Copula Approach to Credit Derivative Pricing 2127.4 Counterparty credit risk 2238 Value-at-Risk and Related Risk Measures 2378.1 Value-at-Risk 2378.2 Parametric VaR 2388.3 Delta-normal Approximation 2458.4 Delta-Gamma Approximation 2478.5 VaR Simulation Methods 2498.6 VaR-related Risk Measures 2588.7 VaR Back-testing 2649 The Greeks 2679.1 Black-Scholes Greeks 2699.2 Greeks in A Binomial Tree 2719.3 Finite Difference Approximation 2729.4 Likelihood Ratio Method 2769.5 Pathwise Derivative Estimates 2799.6 Greek Calculation with Discontinuous Payoffs 28910 Appendix 295References 315Subject Index 319Author Index 323

N. H. CHAN is Choh-Ming Li Chair Professor of Statistics at The Chinese University of Hong Kong and Associate Editor of six journals. Dr. Chan is also the author of Time Series: Applications to Finance with R and S-Plus, Second Edition, published by Wiley.H. Y. WONG is Associate Professor in the Risk Management Science Program of the Department of Statistics at The Chinese University of Hong Kong. His areas of interest include data analysis, statistical computing, risk management, and stochastic calculus.

• List of Figures xList of Tables xivPreface xx1 An Introduction to Excel VBA 11.1 How to start Excel VBA 11.2 VBA Programming Fundamentals 31.3 Linking VBA to C++ 141.5 Random Number Generation 191.6 List of functions defined in the book 222 Background 272.1 A brief review of Martingales and Itô’s calculus 282.2 Volatility 392.3 Mark to Market and Calibration 412.4 Variance Reduction Techniques 433 Structured Products 553.1 When is simulation unnecessary? 553.2 Simulation of Black-Scholes model and European Options 563.3 American Options 613.4 Range Accrual Notes 693.5 FX accumulator: The case of Citic Pacific LTD 733.6 Life Insurance Contracts 803.7 Multi-asset Instruments 834 Volatility Modeling 934.1 Local Volatility Models: Simulation and Binomial tree 944.2 The Heston Stochastic Volatility Model 1044.3 Simulation of Exotic Option Prices under Heston Model 1104.4 The GARCH Option Pricing Model 1214.5 Jump-Diffusion Model 1275 Fixed-Income Derivatives I: Short-Rate Models 1375.1 Yield Curve Building 1385.2 The Hull-White Model 1505.3 Pricing Interest Rate Products Using The Direction Simulation Approach 1565.4 Pricing Interest Rate Products Using The Trinomial Tree Approach 1616 Fixed-Income Derivatives II: LIBOR Market Models 1696.1 LIBOR Market Models 1716.2 Calibration to Caps and Swaptions 1776.3 Simulation Across Different Forward Measures 1866.4 Bermudan Swaptions in a Three-Factor Model 1946.5 Epilogue 1967 Credit Derivatives and Counterparty Credit Risk 1997.1 Structural Models of Credit Risk 2007.2 The Vasicek Single-Factor Model 2037.3 Copula Approach to Credit Derivative Pricing 2127.4 Counterparty credit risk 2238 Value-at-Risk and Related Risk Measures 2378.1 Value-at-Risk 2378.2 Parametric VaR 2388.3 Delta-normal Approximation 2458.4 Delta-Gamma Approximation 2478.5 VaR Simulation Methods 2498.6 VaR-related Risk Measures 2588.7 VaR Back-testing 2649 The Greeks 2679.1 Black-Scholes Greeks 2699.2 Greeks in A Binomial Tree 2719.3 Finite Difference Approximation 2729.4 Likelihood Ratio Method 2769.5 Pathwise Derivative Estimates 2799.6 Greek Calculation with Discontinuous Payoffs 28910 Appendix 295References 315Subject Index 319Author Index 323