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When the volatility and drift of the instantaneous forward rate are assumed to be deterministic, this is known as the Gaussian Heath–Jarrow–Morton (HJM) model of forward rates. [1]: 394 For direct modeling of simple forward rates the Brace–Gatarek–Musiela model represents an example.
Capital asset pricing model; Carhart four-factor model; Carr–Madan formula; Chan–Karolyi–Longstaff–Sanders process; Chen model; Cheyette model; Constant elasticity of variance model; Consumption-based capital asset pricing model; Cox–Ingersoll–Ross model
Financial models with long-tailed distributions and volatility clustering have been introduced to overcome problems with the realism of classical financial models. These classical models of financial time series typically assume homoskedasticity and normality and as such cannot explain stylized phenomena such as skewness, heavy tails, and volatility clustering of the empirical asset returns in ...
The general structure of any financial model is standard: (i) input (ii) calculation algorithm (iii) output; see Financial forecast.While the output for a project finance model is more or less uniform, and the calculation is predetermined by accounting rules, the input is highly project-specific.
Financial risk modeling is the use of formal mathematical and econometric techniques to measure, monitor and control the market risk, credit risk, and operational risk on a firm's balance sheet, on a bank's accounting ledger of tradeable financial assets, or of a fund manager's portfolio value; see Financial risk management.
Dynamic financial analysis (DFA) is method for assessing the risks of an insurance company using a holistic model as opposed to traditional actuarial analysis, which analyzes risks individually. Specifically, DFA reveals the dependencies of hazards and their impacts on the insurance company's financial well being as a whole such as business mix ...
Free Cash Flow Projections: Projections of the amount of Cash produced by a company's business operations after paying for operating expenses and capital expenditures. [ 1 ] Discount Rate: The cost of capital (Debt and Equity) for the business.
In 2015, Fama and French extended the model, adding a further two factors — profitability and investment. Defined analogously to the HML factor, the profitability factor (RMW) is the difference between the returns of firms with robust (high) and weak (low) operating profitability; and the investment factor (CMA) is the difference between the returns of firms that invest conservatively and ...