Advanced Derivatives Pricing and Risk Management: Theory, Tools and Hands-on Programming Application
Written by leading academics and practitioners in the field of financial mathematics, the purpose of this book is to provide a unique combination of some of the most important and relevant theoretical and practical tools from which any advanced undergraduate and graduate student, professional quant and researcher will benefit. This book stands out from all other existing books in quantitative finance from the sheer impressive range of ready-to-use software and accessible theoretical tools that are provided as a complete package. By proceeding from simple to complex, the authors cover core topics in derivative pricing and risk management in a style that is engaging, accessible and self-instructional. The book contains a wide spectrum of problems, worked-out solutions, detailed methodologies and applied mathematical techniques for which anyone planning to make a serious career in quantitative finance must master. In fact, core portions of the book's material originated and evolved after years of classroom lectures and computer laboratory courses taught in a world-renowned professional Master's program in mathematical finance. As a bonus to the reader, the book also gives a detailed exposition on new cutting-edge theoretical techniques with many results in pricing theory that are published here for the first time.
*Includes easy-to-implement VB/VBA numerical software libraries
*Proceeds from simple to complex in approaching pricing and risk management problems
*Provides analytical methods to derive cutting-edge pricing formulas for equity derivatives
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American option analytical approximation arbitrage assumed barrier options barrier-free Bessel Bessel process Black–Scholes boundary conditions calibration call option cash flow components computed consider constant corresponding covariance matrix defined denoted derivative differential equation discount drift and volatility early-exercise European call expectation Figure finite follows forward price forward rates geometric Brownian motion given by equation gives Green’s function Gx x0 hedging hence integral interest rate linear lognormal martingale maturity method nodes Note numeraire numeraire asset obtained option price parameters Parzen pay-off payoff function portfolio positive pricing formula pricing kernel probability density Problem put option put-call parity random variable replication returns risk factors risk-neutral measure satisfies scenarios short rate solution stock price strategy swaption theorem transition density transition probability trinomial lattice ux x0 value-at-risk variance swap vector volatility function volatility model Wiener process x-space zero zero-boundary conditions zero-coupon bond