Financial calculus Introduction to Financial Option Valuation 9 potx
Financial calculus Introduction to Financial Option Valuation_2 pdf
... data 47
199 8 199 9 2000 2001
40
50
60
70
80
90
100
110
120
130
140
Price
IBM weekly
Fig. 5.2. Weekly IBM share price from January 199 8 to December 2001.
−5 0 5
0
0.1
0.2
0.3
0.4
IBM Daily
Histogram
−5
0 ... characterized by (6.8) and (6 .9) is the solution to an SDE.
Reasonably accessible SDE texts are (Gard, 198 8; Mao, 199 7; Øksendal, 199 8),
although all require some background i...
Financial calculus Introduction to Financial Option Valuation_3 doc
... of the Black–Scholes formula
include (Bj
¨
ork, 199 8; Duffie, 2001; Karatzas and Shreve, 199 8; Nielsen, 199 9;
Øksendal, 199 8).
It is possible to weaken the boundary conditions (8.17) and (8.18) ... RITCHIE, option trader, source (Bass, 199 9)
74 Black–Scholes PDE and formulas
The key idea in this chapter is hedging to eliminate risk.Toreinforce the idea,
and emphasize that it is a co...
Financial calculus Introduction to Financial Option Valuation_4 pptx
... getting into the nitty-gritty
of differentiation. Exceptions are (Kwok, 199 8; Nielsen, 199 9). For more infor-
mation on interpreting the Greek formulas, see (Hull, 2000; Kwok, 199 8; Nielsen,
199 9), ... Value’)
grid on
Fig. 9. 5. Program of Chapter 9: ch 09. m.
94 More on hedging
their Nobel Prizes. However, in mid- 199 8 a combination of extreme events in the
market plunged LTCM into...
Financial calculus Introduction to Financial Option Valuation_5 doc
... (Duffie, 2001; Karatzas and Shreve, 199 8; Nielsen, 199 9) cover this material
in depth, while perhaps the most accessible introduction is (Baxter and Rennie,
199 6). Chapter 6 of (Kritzman, 2000) ... DEWYNNE (Wilmott et al., 199 5)
Risk neutral valuation, which was developed by John Cox and Stephen Ross,
has the dual virtues that it can be applied to practically any option valuation...
Financial calculus Introduction to Financial Option Valuation_6 ppt
... derivatives.
PAUL WILMOTT (Wilmott, 199 8)
A smiley implied volatility is the wrong number
to put in the wrong formula
to obtain the right price.
RICCARDO REBONATO (Rebonato, 199 9)
It is the strong opinion ... from
(6.15),
P
a −
1 .96 b
√
M
≤ a
M
≤ a +
1 .96 b
√
M
= 0 .95 .
We may re-write this as
P
a
M
−
1 .96 b
√
M
≤ a ≤ a
M
+
1 .96 b
√
M
= 0 .95 . (15.4)
The ratio b/
√
M appea...
Financial calculus Introduction to Financial Option Valuation_8 potx
... applied to any of the generalized path-dependent options men-
tioned in Sections 19. 2, 19. 3, 19. 4.
196 Exotic options
The binomial method does not naturally extend to path-dependent options, ... p)V
i+1
n
, ( 19. 9)
for 0 ≤ n ≤ i and 0 ≤ i ≤ M −1. The overall method is then defined by (16.1),
(16.2) and ( 19. 9).
19. 7 Notes and references
The texts (Kwok, 199 8) and (Wilmott et al...
Financial calculus Introduction to Financial Option Valuation_9 potx
... $143 million in 199 7)
PHILIP MCBRIDE JOHNSON (Johnson, 199 9)
19. 8 Program of Chapter 19 and walkthrough 199
19. 7. Write down a pseudo-code algorithm for Monte Carlo applied to a float-
ing strike ... $1.7 billion loss in 199 4)
Baring’s Bank (bankrupted after $1.3 billion loss in 199 5)
Sumitomo (lost $1.3 billion in 199 6)
Government of Belgium ($1.2 billion loss in 199 7)
Nation...
Financial calculus Introduction to Financial Option Valuation_10 ppt
... widths
10
2
[1.8841, 2.0752] [1 .96 23, 2.0004] 0. 89 5.0
10
3
[1 .95 38, 2.0087] [1 .99 37, 2.0048] 0.88 4 .9
10
4
[1 .98 90, 2.0062] [1 .99 93, 2.0027] 0.88 5.0
10
5
[1 .99 69, 2.0023] [1 .99 94, 2.0005] 0.88 5.0
var(e
√
U
− ... widths
10
2
[1.8841, 2.0752] [1 .96 01, 2.0031] 4.4
10
3
[1 .95 38, 2.0087] [1 .99 51, 2.0084] 4.1
10
4
[1 .98 90, 2.0062] [1 .99 94, 2.0036] 4.1
10
5
[1 .99 69,...
An Introduction to Financial Option Valuation: Mathematics, Stochastics and Computation_13 pot
... see (Iserles, 199 6; Mitchell and Griffiths,
198 0; Morton and Mayers, 199 4; Strikwerda, 198 9).
The texts (Clewlow and Strickland, 199 8; Kwok, 199 8; Wilmott, 199 8; Wilmott
et al., 199 5; Seydel, 2002) ... and
(23. 19) , and also do justice to the Lax Equivalence Theorem, include (Iserles,
199 6; Mitchell and Griffiths, 198 0; Morton and Mayers, 199 4; Strikwerda,
198 9). A freely avai...
An Introduction to Financial Option Valuation: Mathematics, Stochastics and Computation_14 pot
... options. Working paper, University of Columbia, New
York.
Bass, Thomas A. ( 199 9) The Predictors. London: Penguin.
Baxter, Martin and Andrew Rennie ( 199 6) Financial Calculus: An Introduction to
Derivative ... 56, 57, 59, 60, 66, 70, 118
London International Financial Futures and Options
Exchange, 5, 135
London Stock Exchange, 50
Long-Term Capital Management, 93 94
lookback opti...
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