The book is divided into two parts: the first part introduces basic statistical methods and financial applications. This part covers six chapters, and is quite common to students in econometrics and time series analysis nowadays. Part two deals with advanced topics in quantitative finance. It introduces nonparametric regression and also applies the methodology to develop a substantive-empirical approach that combines domain knowledge wit statistical modelling with an immediate application to option pricing theory. Discrepancies between the theoretical and observed option prices are revealed in certain patterns of “implied volatilities”. These problems are analyzed in the next chapter. Chapter 9 introduces advanced multivariate and time series methods in financial econometrics to analyze time series data on, e.g., interest rates with different maturities. Special emphasis is given to statistical arbitrage and trading strategies. These topics are presented in chapters 10 and 11. The final chapter in part 2 deals with statistical methods in risk management, including measuring of risks for nonlinear portfolios, stress testing and extreme value theory.
From the authors’ website the datasets for the exercises, and instructions and sample outputs of the statistical software in R and MATLAB can be downloaded. Furthermore, any corrections of errors in the book can be found there. The book is not only useful for financial market economists, but, due to the wide range of special topics in the second part, also for students in the fields of engineering, mathematics, and statistics.