Financial Modelling belongs to one of the areas of finance rapidly developing during the past years. This development is driven, among the others, by a corresponding rapid development of financial and capital markets and by their globalisation. The scope of Financial Modelling is closely related to, but not identical with Quantitative Finance, which can be described as an area of algorithmic and numerical applications of Financial Modelling. The latter includes also models of decision-making processes in finance, security pricing, risk modelling and management, and corporate finance issues. The definition of Financial Modelling admitted by the EURO Working Group reads: the development and implementation of tools supporting firms, investors, intermediaries, governments, and others in their financial-economic decision-making, including the validation of the premises behind these tools and the measurement of the effectivity of the use of these tools. The focus of Financial Modelling is thus clearly on real-life problems solving and includes the theoretical foundations of Financial Engineering.

The papers submitted to the Proceedings were all refereed and the final selection was made based on the recommendations of two referees or one referee and the Editor. The typesetting was performed using the electronic version of the paper submitted by the authors.

Contents:

Part I. Capital Market Theory. Otto Loistl, Olaf Vetter: Stochastic Modelling of Stock Markets to Assessing Trading Efficiency; Rosella Castellano, Luigina Bruni: The Specialist's Role and its Effect on Thin Stock Prices: The Italian Case; Rita L. D'Ecclesia, Marida Bertocchi, Jozsef Abaffy: Tracking Indices of Fixed - Income Securities for the Italian Market; Paolo Falbo, Rosanna Grassi: Pareto-Optimal Financial Trades with Risky and Not-Risky Assets.

Part II. Portfolio Theory and Management. Armin B. Cremers, Christof Hundack, Jens Lűssem: How to Determine Large Log- Optimal Portfolios; Engelbert J. Dockner, Hans Moritsch, Georg Ch. Pflug, Artur Swiętanowski: The AURORA Financial Management System: from Model Design to Parallel Implementation; Juan-Carlos Francos-Rodriguez, Thierry J. Chaussalet: Portfolio Selection Using Contract Based Utility Functions; Chris J. Adcock, Karl Shutes: Portfolio Selection Based on the Multivariate Skew Normal Distribution; Leonidas Sakalauskas: Portfolio Management by the Monte-Carlo Method.

Part III. Risk Analysis and Pricing Models. Włodzimierz Ogryczak: Stochastic Dominance Relation and Linear Risk Measures; Grażyna Trzpiot: Classification of Stock Market Investment Projects by Multivalued Stochastic Dominance; Maria R. Simonelli: Fuzzy Insurance Premium Principles; Paul K. Freeman, Landis MacKellar: Pricing Catastrophic Risk; Engelbert A. Dockner, Hans Moritsch: Pricing Constant Maturity Floaters with Embedded Options Using Monte Carlo Simulation.

Part IV. Emerging Markets. Joao Furtado, Mauricio R. do Valle: Globalisation, Stabilization and the Collapse of the National Company; Duąan Mramor, Aljoąa Valentinčič: Needs and Possibilities of Financing Slovenian Enterprises; Andrzej M. J. Skulimowski: A Discrete-Control-System Model of Order Driven Capital Markets; Ephraim Clark, Octave Jokung: Note on Asset Proportions, Stochastic Dominance, and 50% Rule.

Part V. Financial Time Series and Forecasting. Maria Bonilla, Paulina Marco, Ignacio Olmeda: A Computationally Intensive Comparison of ARCH-type Forecasts; Mary E. Wilkie-Thomson, Dilek Önkal-Atay, Andrew C. Pollock, Alex Macaulay: The Influence of Trend Strength on Directional Probabilistic Currency Predictions.

Part VI. Enterprise and Bank Models. Vladimir Simovič, Dragan Radič, Zdravko Zrinusič: Operational Model for Analysing and Visualisation of the Interesting and Suspicious Financial Transactions; Aram H. Arakelyan, Andranik V. Barseghyan: Model of Dynamic System for Optimal Management of Bank Resources; Roland Giles: Modelling the Speed o Adjustment of Financial Ratios to Unobservable Target Levels; Duąan Mramor, Marko Pahor: Testing Nonlinear Relationships between Excess Rate of Return on Equity and Financial Ratios; Tomasz Pietrzak: Investment Break-Even Point.

 

Prof. Jaap SPRONK, Chairman of the EURO Working Group on Financial Modelling: The volume edited by Professor Andrzej M. J. Skulimowski offers an inspiring collection of contributions to financial modeling. In addition to giving a broad overview of the field, reliable for newcomers in this area, it also provides a series of innovations that will intrigue the experts. Highly recommended.

 

Prof. Ignacy KALISZEWSKI, adviser to the President of the Central Depository of Securities, Warsaw, and reviewer of the book: This book provides support in solving real-life problems in portfolio management, contains a review of modern trends in financial theory and is indispensable for any financial analyst.

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