Recent Research in Financial Modelling

The book contains a selection of recently revised papers
that have initiallybeen presented at two different meetings
of the EURO Working Group on Financial Modelling. The papers
related to the microstructure of capital markets provide
evidence that the price dynamics of financial assets can on-
ly be explained - and modelled - on the basis of a careful
examination of the decision process which leads traders to
interact and fix the equilibrium prices. The papers by Pec-
cati, Luciano, Ferrari and Cornaglia belong to this catego-
ry, and help considerably unterstand the performance of mar-
kets which are relatively far from perfection (owing to
thinness, frictions, taxation and the like). This is indeed
the case for some European Exchanges.
The very foundations of quantitative financial analysis have
been discussed in the contributions of Luciano, Canestrelli,
Uberti and Van der Meulen. The classical - although recent
- advances on the pricing of derivative securities have been
analyzed and applied by Kremer, Hallerbach and Jensen/Niel-
son, thus demonstrating that established theories still pro-
vide space for a deeper investigation.
Another major topic of interest relates to empirical studies
about how markets behave with respect to theoretical models.
In this respect, the contributions of Viren, Bradfield and
Wilkie/Pollock are quite significant. They present evidence
based on real data discussed in the light of advanced stati-
stical techniques. It is apparent that Corporate Finance and
Capital Markets are becoming more and more related and in-
teractingwith each other.

Recent Research in Financial Modelling. - Bank Management and the Financial Service Industry. - A Decomposition of Random Net Present Values. - Dynamic Portfolio Management with a Discrete-Time Stochastic Maximum Principle. - Factor Immunization. - Applicability and Future of Modern Portfolio Theory. - Present Value Models and Multi-Factor Risk Analysis. - Interest Rates and Policy Reactions: Some International Evidence. - An Explanation for the Weak Evidence in Support of the Systematic Risk-Return Relationship. - Present Value Decomposition of Foreign Currency Assets. - Institutionally Heterogeneous Agents in an Imitative Stock-Market. - Pricing Contingent Claims: First-and Second-Order Effects from Stochastic Interest Rate Development. - Market Making with Noise: The Case of a Specialist Financial Market with Heterogeneous Traders. - Can Subjective Exchange Rate Forecasts be Improved? . - A Nonlinear Model of Stock Market with Institutionally Different Agents and Imitation. - Small Business Diagnosis Using Statistical Modelling and Artificial Intelligence.