John Wiley & Sons, Inc., Third Avenue, New York, NY , . This book grew out of an MBA course in analysis of financial time series that I have. Analysis of Financial Time Series, Third Edition, By Ruey S. Tsay. Copyright where f(·) is the probability density function (pdf) of the standardized Student-t. Analysis of financial time series / Ruey S. Tsay. – 3rd ed. p. cm. – (Wiley series in probability and statistics). Includes bibliographical references and index.
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Time Series Analysis and Its Applications: With R Examples (Third kindr ed in meaning but distinct in usage., for ex pressing almost every shade of human. This book provides a broad, mature, and systematic introduction to current financial econometric models and their applications to modeling and prediction of . This book provides a broad, mature, and systematic introduction to current financial econometric models and their applications to modeling and.
The primary objective of the revision is to update the data used and to reanalyze the examples so that one can better understand the properties of asset returns. The second goal of the revision is to include R commands and demonstrations, making it possible and easier for readers to reproduce the results shown in the book.
To deal with dependence in extremes, I include the extremal index in Chapter 7 and discuss its impact on value at risk. I also rewrite Chapter 7 to make it easier to understand and more complete. Substantial efforts are made to draw a balance between the length and cover- age of the book. I do not include credit risk or operational risk in this revision for three reasons.
First, effective methods for assessing credit risk require further study. Second, the data are not widely available. Explain the target audience.
We write reports on all our risk analyses, of course, but sometimes there can be several versions: the executive summary; the main report; and the technical report with all the formulae and guides for testing.
Often, others will want to run the model and change parameters, so we make a model version that minirnises the ability to mess up the mathematics, and write the code to allow the most flexibility. These days we usually put a VBA user interface on the front to make life easier and perhaps add a reporting facility to compare results. We might add a help file too.
Clients will also sometimes ask us to prepare a Powerpoint presentation. Knowing the knowledge level and focus of each target audience, and knowing what types of reporting will be needed at the offset, saves a lot of time. Discuss any possible hostile reactions. The results of a risk analysis will not always be popular, and when people dislike the answers they start attacking the model or, if you're unlucky, the modeller. Assumptions are the primary Achilles' heel, as we can argue forever about whether assumptions are right.
I talk about getting download-in for assumptions in Section 5. Statistical analysis of data is also rather draining - it usually involves a couple of very technical people with opposing arguments about the appropriateness of a statistical procedure that nobody else understands.
The decision to include and exclude certain datasets can also create a lot of tension.
The arguments can be minimised, or at least convincingly dismissed, if people likely to be hostile are brought into the analysis process early, or an external expert is asked to give an independent review. Figure out a timeline. Decision-makers have something of a habit of setting unrealistic deadlines.
When these deadlines pass, nothing very dramatic usually happens, as the deadlines are some artificial internal confection.
Our consultants deal with deadlines all the time, of course, but we openly discuss whether a deadline is really that important because, if we have to meet a tight deadline and that happens , the quality of the risk analysis may be lower than would have been achievable with more time. The decision-maker has to be honest about time limits and decide whether it is worth postponing things for a bit.
Figure out the priority level. The risk analyst might have other work to juggle too. The project might be of high importance and justify pulling off other resources to help with the analysis or instructing others in the organisation to set aside time to provide good quality input. Decide on how regularly the decision-maker and risk analyst will meet. Things change and the risk analysis may have to be modified, so find that out sooner rather than later.
Sometimes it is better not to revise some assumptions for a new analysis because it makes it impossible to compare. You can often see a similar problem with historic data, e. It seems that the basis for these statistics keeps changing, making it impossible to know whether the problem is getting better or worse. In a corporate environment there will be certain base assumptions used for things like interest and exchange rates, production capacity and energy price.
The same assumptions should be used in all Chapter 2 Planning a risk analysis 23 models. In a risk analysis world these should be probabilistic forecasts, but they are nonetheless often fixed-point values. Oil companies, for example, have the challenging job of figuring out what the oil price might be in the future. They can get it very wrong so often take a low price for planning purposes, e.
The risk analyst working hard on getting everything else really precise could find such an assumption irritating, but it allows consistency between analyses where oil price forecast uncertainty could be so large as to mask the differences between investment opportunities. Some assumptions we make are conservative, meaning that, if, for example, we need a certain percentile of the output to be above X before we accept the risk as acceptable, then a conservative assumption will bias the output to lower values.
Thus, if the output still gives numbers that say the risk is acceptable, we know we are on pretty safe ground. Conservative assumptions are most useful as a sensitivity tool to demonstrate that one has not taken an unacceptable risk, but they are to be avoided whenever possible because they run counter to the principle of risk analysis which is to give an unbiased report of uncertainty. The potential client has spent a few months working on a problem, building up a cashflow model, etc.
If done properly, risk analysis is an integral part of the planning of a project, not an add-on at the end.
One of the prime reasons for doing risk analyses is to identify risks and risk management strategies so the decision-makers can decide how the risks can be managed, which could well involve a revision of the project plan. That can save a lot of time and money on a project. If risk analysis is added on at the end, you lose all that potential benefit. The data collection efforts required to produce a fixed-value model of a project are little different from the efforts required for a risk analysis, so adding a risk analysis on at the end is inefficient and delays a project, as the risk analyst has to go back over previous work.
We advocate that a risk analyst write the report as the model develops. This helps keep a track of what one is doing and makes it easier to meet the report submission deadline at the end. I also like to write down my thinking because it helps me spot any mistakes early. Finally, try to allow the risk analyst enough time to check the model for errors and get it reviewed. Chapter 16 offers some advice on model validation. Well I would say that, of course, but it does make a lot of sense.
Consultants are expensive on a daily basis, but, certainly at Vose Consulting, we are far faster my guess is over 10 times faster than a novice - we know what we're doing and we know how to communicate and organise effectively. Please don't get a bright person within your organisation, install some risk analysis software on their computer and tell them to get on with the job.
It will end in tears. The courses they 24 Risk Analysis teach show you how to drive the software and reinforce the notion that risk analysis modelling is pretty easy Vose Consulting courses generally assume you have already attended a software familiarisation course. In a lot of cases, risk analysis is in fact pretty easy, as long as you avoid some common basic errors discussed in Section 7.
However, it can also become quite tricky too, for sometimes subtle reasons, and you should have someone who understands risk analysis well enough to be able to recognise and handle the trickier models.
The author begins with basic characteristics of financial time series data before covering three main topics:. Key features of the new edition include additional coverage of modern day topics such as arbitrage, pair trading, realized volatility, and credit risk modeling; a smooth transition from S-Plus to R; and expanded empirical financial data sets.
The overall objective of the book is to provide some knowledge of financial time series, introduce some statistical tools useful for analyzing these series and gain experience in financial applications of various econometric methods.
View Instructor Companion Site. This item: Analysis of Financial Time Series, 3rd Edition. Time Series: Request permission to reuse content from this site. The coverage of the book is comprehensive. It starts from basic time series techniques and finishes with advanced concepts such as state space models and MCMC methods.
There is a balance between the theoretical background necessary to appreciate the nuances and the practical aspect of implementation. More importantly it gives insights about what time series models can't address.
The book has an excellent supporting website which has all the programs and data sets which helps to internalize the concepts. Finally, teaching professionals should find the solutions manual as a valuable tool to explain concepts and to ensure understanding.