Frequently Asked Questions In Quantitative Finance

302 Frequently Asked Questions In Quantitative Finance Table 6.2:Formulæ for European put. Put Payoff max(K−S,0) ValueV −Se−D(T− ...

Chapter 6: Black–Scholes and Greeks 303 Table 6.3:Formulæ for European binary call. Binary Call Payoff 1 ifS>Kotherwise 0 Val ...

304 Frequently Asked Questions In Quantitative Finance Table 6.4:Formulæ for European binary put. Binary Put Payoff 1 ifS<Kot ...

Chapter 7 CommonContracts ...

306 Frequently Asked Questions In Quantitative Finance Things to Look Out for in Exotic Contracts There are six important featur ...

Chapter 7: Common Contracts 307 Cashflows are when money changes hands during the life of the contract (as opposed to an initial ...

308 Frequently Asked Questions In Quantitative Finance Weak path dependency means that wedon’thave to work in higher dimensions ...

Chapter 7: Common Contracts 309 options, for example, a call option giving the holder the right to buy a put option. When an op ...

310 Frequently Asked Questions In Quantitative Finance Examples Accrual is a generic term applied to contracts in which an amoun ...

Chapter 7: Common Contracts 311 exposed to prices over a long period of time, and hence their exposure is to the average price. ...

312 Frequently Asked Questions In Quantitative Finance Basket option has a payoff that depends on more than one underlying. A mo ...

Chapter 7: Common Contracts 313 Call option is an option to buy the underlying asset for a specified price, the strike or exerci ...

314 Frequently Asked Questions In Quantitative Finance Chooser option is an option on an option, therefore a second- order optio ...

Chapter 7: Common Contracts 315 Collateralized Debt Obligation (CDO) is a pool of debt instru- ments securitized into one financ ...

316 Frequently Asked Questions In Quantitative Finance CMOs are interest rate risk and prepayment risk, therefore it is importan ...

Chapter 7: Common Contracts 317 also risk of default. It is common to make risk of default depend on the asset value, so the low ...

318 Frequently Asked Questions In Quantitative Finance typically have a spread in excess of a government interest rate, and this ...

Chapter 7: Common Contracts 319 amount. Although the option comes into being at a specified date in the future it is usually pai ...

320 Frequently Asked Questions In Quantitative Finance according to the value of some financial quantity or index over the life ...

Chapter 7: Common Contracts 321 Knock-in/out option are types of barrier option for which the payoff is contingent on a barrier ...