Index 309
martingale probability 63, 250
maturity date 39
minimum variance
- line 109
- portfolio 108
money market 43, 235
no-arbitrage principle 7, 79, 88
normal distribution 70, 186
option
- American 183
- at the money 169
- call 13, 147, 181, 188
- European 173, 181
- in the money 169
- interest rate 254
- intrinsic value 169
- out of the money 169
- payoff 173
- put 18, 147, 181, 189
- time value 170
out of the money 169
par, bond trading at 42, 249
payoff 148, 173
periodic compounding 25
perpetuity 24, 30
portfolio 76, 87
- admissible 5
- attainable 107
- delta neutral 192
- delta-gamma neutral 198
- delta-vega neutral 198
- expected return 108
- market 119
- variance 108
- vega neutral 197
positive part 148
predictable strategy 77, 88
preferable compounding 36
present value 24, 27
principal 22
put option 18, 181 - American 147
- European 147, 189
put-call parity 150 - estimates 153
random interest rates 237
random walk 67
rate
- coupon 249
- effective 36
- forward 233
- – initial 232
- – instantaneous 233
- of interest 22
–ofreturn 1,49 - spot 229
regression line 120
residual random variable 121
residual variance 122
return 1, 49
–expected 53 - including dividends 50
- logarithmic 34, 52
reversed butterfly 209
rho 197
risk 10, 91 - diversifiable 122
- market price of 212
- systematic 122
- undiversifiable 122
risk premium 119, 123
risk-neutral - expectation 60, 83
–market 60 - probability 60, 83, 250
scenario 47
security market line 123
self-financing strategy 76, 88
short forward position 11, 125
short rate 235
short selling 5, 74, 77, 87
simple interest 22
spot rate 229
Standard and Poor Index 141
state 238
stochastic calculus 71, 185
stochastic differential equation 71
stock index 141
stock price 47
strategy 76, 87 - admissible 79, 88
- predictable 77, 88
- self-financing 76, 88
- value of 76, 87
strike price 13, 147
stripped bond 230
swap 256
swaption 258
systematic risk 122
term structure 229
theta 197
time value of money 21