Kamakura’s Robert Jarrow Publishes Framework for
Multi-Period Asset Management with Price Bubbles and Stochastic Volatility
NEW YORK, August 14, 2018: Kamakura Corporation announced today that Managing Director for Research Professor Robert A. Jarrow has published a new book that presents a rigorous framework for integrated fixed income and equity portfolio management on a multi-period basis in the presence of asset price bubbles and stochastic volatility for asset prices. The new book is entitled Continuous-Time Asset Pricing Theory: A Martingale-Based Approach and published by Springer Finance.
The publisher’s overview explains its unique contributions to the theory and practice of portfolio management:
“Yielding new insights into important market phenomena like asset price bubbles and trading constraints, this is the first textbook to present asset pricing theory using the martingale approach (and all of its extensions). Since the 1970s asset pricing theory has been studied, refined, and extended, and many different approaches can be used to present this material. Existing PhD–level books on this topic are aimed at either economics and business school students or mathematics students. While the first mostly ignore much of the research done in mathematical finance, the second emphasizes mathematical finance but does not focus on the topics of most relevance to economics and business school students. These topics are derivatives pricing and hedging (the Black–Scholes–Merton, the Heath–Jarrow–Morton, and the reduced-form credit risk models), multiple-factor models, characterizing systematic risk, portfolio optimization, market efficiency, and equilibrium (capital asset and consumption) pricing models. This book fills this gap, presenting the relevant topics from mathematical finance, but aimed at economics and business school students with strong mathematical backgrounds.”
Kamakura Corporation’s Founder and Chief Executive Officer Dr. Donald R. van Deventer put the importance of the book into perspective from an asset manager’s point of view. “Insurance companies, pension funds, and university endowments manage a complex pool of assets designed to produce the best risk-adjusted strategies for meeting their obligations, whether those liabilities are life insurance policies, pension pay-outs, or the funding needs of a university. The capital asset pricing model was path-breaking when it was invented in the 1960s, but its assumptions of constant interest rates, a single period, and constant “betas” or volatilities are woefully inadequate for anything but introductory examples of simple portfolio management. Professor Jarrow’s presentation of a more realistic approach rests on four decades of his work ranging from the Heath, Jarrow and Morton no-arbitrage framework for risk-free interest rates to his most recent research on asset price bubbles that drove the credit crisis a decade ago. The book is a masterpiece that any best-practice quantitative portfolio management or risk executive will refer to often.”
Kamakura’s President and Chief Operating Officer Martin Zorn added, “In the 23 years that Professor Jarrow has served as Managing Director for Research at Kamakura Corporation, he has shown our clients and our development teams for Kamakura Risk Manager (“KRM”) and Kamakura Risk Information Services (“KRIS”) that there are no reasons to manage risk in silos from the perspective of financial economics. This work demonstrates clearly, using clear prose and rigorous mathematics, that risk silos exist for political reasons alone. Enterprise risk management is not a buzzword but a short description that delivers the key message of this book: risk has to be analyzed holistically to deliver the optimal risk-adjusted performance for the institution involved, using a long ‘continuous time’ view of the world and recognizing that price bubbles exist and the volatilities of asset prices are random and correlated. It is hard to imagine a thoughtful risk manager who can read this book and then return to a narrow focus on asset and liability management, market risk, or credit risk alone with no consideration of their interaction with the rest of the organization.”
For more about Professor Jarrow, please see his webpage at the Johnston School of Management at Cornell University.
About Kamakura Corporation
Founded in 1990, Honolulu-based Kamakura Corporation is a leading provider of risk management information, processing, and software. Kamakura was recognized as a category leader in the Chartis Report, Technology Solutions for Credit Risk 2.0 2018. Kamakura was named to the World Finance 100 by the editor and readers of World Finance magazine in 2017, 2016 and 2012. In 2010, Kamakura was the only vendor to win two Credit Magazine innovation awards. Kamakura Risk Manager, first sold commercially in 1993 and now in version 10.0.3, is the first enterprise risk management system for users focused on credit risk, asset and liability management, market risk, stress testing, liquidity risk, counterparty credit risk, and capital allocation from a single software solution. The KRIS public firm default service was launched in 2002. The KRIS sovereign default service, the world’s first, was launched in 2008, and the KRIS non-public firm default service was offered beginning in 2011. Kamakura added its U.S. Bank default probability service in 2014.
Kamakura has served more than 330 clients with assets ranging in size from $1.5 billion to $3.0 trillion. Its risk management products are currently used in 47 countries, including the United States, Canada, Germany, the Netherlands, France, Austria, Switzerland, the United Kingdom, Russia, Ukraine, South Africa, Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Singapore, Sri Lanka, Taiwan, Thailand, Vietnam, and many other countries in Asia, Europe and the Middle East.
To follow risk commentary by Kamakura on a daily basis, please follow:
Kamakura CEO Dr. Donald van Deventer (www.twitter.com/dvandeventer)
Kamakura President Martin Zorn (www.twitter.com/riskmgrhi) and
Kamakura’s official twitter account (www.twitter.com/KamakuraCo).
For more information, please contact:
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