Securities Valuation: Applications of Financial Modeling is a clear, concise guide to securities valuation and the principles of financial theory. It describes state-of-the-art methods for valuing a broad range of securities: equity, equity and interest rate options, swaps and swaptions, treasuries, corporate bonds with and without credit risks, mortgage-backed securities, collateralized mortgage obligations, credit derivative swaps, and more. Thomas Ho and Sang Bin Lee use their combined fifty years of experience in academia, financial business, and public services to present students and general readers with twenty-six challenging cases. These cases describe the contexts in which financial models are used, the practical complications of these models, and ways to deal with their limitations. Each chapter begins with a problem in valuation, formulates models for it, and then provides the solutions. The assumptions, input data, and output solutions for each model are clearly stated. The model is illustrated by a numerical example rendered in Excel. A companion website-www.thomasho.com-contains more than 130 Excel files of all the financial models from this book and its three companion volumes. Users can download the models, analyze them on their spreadsheets, and use them to do practice exercises Securities Valuation: Applications of Financial Modeling is ideal for undergraduate and graduate courses in finance and mathematical finance as well as for professional training programs. It is part of a series on financial modeling by the authors that also includes The Oxford Guide to Financial Modeling. Future titles in the series will focus on financial modeling for options, futures, and derivatives and financial modeling for financial institutions.

Table of Contents:
Each chapter ends with Excel Exercises, Notes, and a Bibliography. Preface 1. Introduction 1.1.: Diversification 1.2.: CAPM 1.3.: Beta Systematic Risk 1.4.: Dividend Discount Model 1.5.: An Application of the Capital Asset Pricing Model to Investment Services Excel Exercise 1.1. Diversification Case: Managing the Risk of a Pension Fund Excel Exercise 1.2. CAPM Case: Quarterly Earnings Report of an Energy Storage Operator Excel Exercise 1.3. Dividend Discount Model Case: Valuing REIT 2. Equity Options 2.1.: Option Description 2.2.: Institutional Framework 2.3.: Put Call Parity 2.4.: The Main Insight of the Black-Scholes Model 2.5.: The Option Behavior and Sensitivity Analysis 2.6.: Applications of the Option Model Excel Exercise 2.1. Cox Ross Rubinstein Model Case: Private Wealth Management-Designing a Structured Product Excel Exercise 2.2. Put Call Parity Case: Proprietary Trading Desk Excel Exercise 2.3. Black-Scholes Model Case: Use of Put Options in Hedging Excel Exercise 2.4. Risk Neutral and Market Probability Case: Asset Allocation and the Expected Returns of an Option 3. Exotic Options 3.1.: Options with Alternative Payoffs at Expiration 3.2.: Options with Boundary Conditions 3.3.: Early Exercise 3.4.: Compound Options Excel Exercise 3.1. American Stock Option Case: Valuing Employee Stock Options Excel Exercise 3.2. Compound Option Case: Project Financing and Compound Options Excel Exercise 3.3. Digital Option Case: IPO Incentive Option and Executive Option Design Excel Exercise 3.4. Greeks Case: Valuing an Equity Structured Product from a Term Sheet 4. Bond Mathematics, Treasury Securities, and Swaps 4.1.: Bond Mathematics 4.2.: Bonds and Bond Markets 4.3.: Swap Markets 4.4.: Economics of the Yield Curve 4.5.: The Bond Model 4.6.: Duration and Convexity 4.7.: Applications of the Bond Analytics Excel Exercise 4.1. Effective Duration Case: Interest Rate Bet Using Effective Duration Excel Exercise 4.2. Par Curve and Spot Curve Case: Law of One Price and Marking a Bond Position Excel Exercise 4.3. Dollar Duration Case: Transfer Pricing and Hedging at the Treasury Department Excel Exercise 4.4. Swap Case: A Hedging Program Designed by the Asset Liability Committee 5. Bond Options 5.1.: Interest Rate Movements: Historical Experiences 5.2.: Equilibrium Models 5.3.: Arbitrage-Free Models 5.4.: Key Rate Duration and Dynamic Hedging Excel Exercise 5.1. Cox, Ingersoll, and Ross Model Case: Building a Model by Knowing Your Clients Excel Exercise 5.2. Vasicek Model Case: Defined Benefits and Asset Management Excel Exercise 5.3. Ho-Lee Model Case: Using an Arbitrage-free Model to Determine the Profit Release Excel Exercise 5.4. Black Bond Option Case: Proprietary Trading Desk Excel Exercise 5.5. Swaption Case: Marking to Market an Illiquid Derivative Position 6. Corporate Bonds-Investment Grade 6.1.: Descriptions of a Corporate Bond 6.2.: Valuation of a Bond 6.3.: Option Adjusted Spreads 6.4.: Callable Bond 6.5.: Sinking Fund Bond and Putable Bonds Excel Exercise 6.1. Callable Bond Case: Funding Working Capital with Debt Excel Exercise 6.2. Sinking Fund Bond Case: Securitization and Asset Backed Securities 7. Corporate Bonds-High Yield Bonds 7.1.: An Example of a High Yield Bond 7.2.: Institutional Framework of Bankruptcy and Bankruptcy Proceedings 7.3.: The Fisher Model 7.4.: An Actuarial Model 7.5.: Historical Experiences and the Estimation of the Parameters of Default Models 7.6.: The Reduced Form Model 7.7.: The Structural Model Excel Exercise 7.1. Credit Default Swap Case: Credit Derivatives, Insurance Premium and Callable Bonds Excel Exercise 7.2. Ho-Singer Model Case: Reorganization and Debt Restructuring 8. Other Bonds: Convertible Bonds, MBS, CMO 8.1.: Description of a Convertible Bond 8.2.: Forced Conversion 8.3.: Default Risk 8.4.: Mortgage-Backed Securities (Pass Through Certificates) 8.5.: Prepayment Modeling and Valuation 8.6.: Collateralized Mortgage Obligations (CMO) Excel Exercise 8.1. Convertible Bonds Case: Hedging a Convertible Bond Issue Excel Exercise 8.2. Mortgage-Backed Securities (Level Payment, PSA, IO & PO) Case: Pricing Guaranteed Investment Contract and the Profit Spread Index