Mathematical Modeling in Finance with Stochastic Processes

Mathematical Modeling in Finance with Stochastic Processes Steven R. Dunbar February 5, 2011 ...

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Contents ...

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1 Background Ideas 1.1 Brief History of Mathematical Finance 1.2 Options and Derivatives 1.3 Speculation and Hedging 1.4 Arbi ...

6 LIST OF FIGURES 5.2 A standardized density histogram of daily close-to-close re- turns on the Pepsi Bottling Group, symbol NYS ...

Chapter 1 Background Ideas 1.1 Brief History of Mathematical Finance Rating Everyone. Section Starter Question Name as many fina ...

8 CHAPTER 1. BACKGROUND IDEAS The most important development in terms of impact on practice was the Black-Scholes model for opt ...

1.1 Brief History of Mathematical Finance uncertainty are the central elements that influence the value of financial in- strumen ...

10 CHAPTER 1. BACKGROUND IDEAS For example, one party in a deal may want the potential of rising income from a loan with a float ...

1.1. BRIEF HISTORY OF MATHEMATICAL FINANCE 11 tion of a diffusion process with an absorbing barrier. Not a bad performance for a ...

12 CHAPTER 1. BACKGROUND IDEAS price dynamics are described by a model in which the best estimate of an asset’s future price is ...

1.1. BRIEF HISTORY OF MATHEMATICAL FINANCE 13 option in a continuous time setting. Using this idea, the option value satis- fies ...

14 CHAPTER 1. BACKGROUND IDEAS cess strongly affected the speed of adoption of quantitative financial models. For example, exper ...

1.1. BRIEF HISTORY OF MATHEMATICAL FINANCE 15 as a financial institution, was never required to disclose the extent of its deriv ...

16 CHAPTER 1. BACKGROUND IDEAS year. Financial events since late 2008 show that many of the concerns of the previous paragraphs ...

1.2 Options and Derivatives Clip from “The Trillion Dollar Bet” Accessed Fri Jul 24, 2009 5:29 AM. 1.2 Options and Derivatives ...

18 CHAPTER 1. BACKGROUND IDEAS (f) the dividends expected during the life of the option. Vocabulary Acall optionis the right to ...

1.2. OPTIONS AND DERIVATIVES 19 products. In this text we will usually refer to options based on stocks, since stock options are ...

20 CHAPTER 1. BACKGROUND IDEAS 1.1 This isnotthe market for options! List of Figures at the current low price and sell it at the ...