308 Mathematics for Finance
covariance matrix 107
Cox–Ingersoll–Ross model 260
Cox–Ross–Rubinstein formula 181
cum-dividend price 292
delta 174, 192, 193, 197
delta hedging 192
delta neutral portfolio 192
delta-gamma hedging 199
delta-gamma neutral portfolio 198
delta-vega hedging 200
delta-vega neutral portfolio 198
derivative security 18, 85, 253
- American 183
- European 173
discount factor 24, 27, 33
discounted stock price 63
discounted value 24, 27
discrete compounding 25
distribution - binomial 57, 180
- log normal 71, 186
- normal 70, 186
diversifiable risk 122
dividend yield 131
divisibility 4, 74, 76, 87
duration 222
dynamic hedging 226
effective rate 36
efficient
- frontier 115
- portfolio 115
equivalent compounding 36
European - call option 147, 181, 188
- derivative security 173
- put option 147, 181, 189
ex-coupon price 248
ex-dividend price 292
exercise - price 13, 147
- time 13, 147
expected return 10, 53, 97, 108
expiry time 147
face value 39
fixed interest 255
fixed-coupon bond 255
flat term structure 229
floating interest 255
floating-coupon bond 255
floor 259
floorlet 259
forward- contract 11, 125
- price 11, 125
- rate 233
fundamental theorem of asset pricing
83, 88
future value 22, 25
futures - contract 134
- price 134
gamma 197
Girsanov theorem 187
Greek parameters 197
growth factor 22, 25, 32Heath–Jarrow–Morton model 261
hedging- delta 192
- delta-gamma 199
- delta-vega 200
- dynamic 226
in the money 169
initial- forward rate 232
- margin 135
- term structure 229
instantaneous forward rate 233
interest - compounded 25, 32
- fixed 255
- floating 255
- simple 22
- variable 255
interest rate 22
interest rate option 254
interest rate swap 255
LIBID 232
LIBOR 232
line of best fit 120
liquidity 4, 74, 77, 87
log normal distribution 71, 186
logarithmic return 34, 52
long forward position 11, 125
maintenance margin 135
margin call 135
market portfolio 119
market price of risk 212
marking to market 134
Markowitz bullet 113
martingale 63, 83