Derivatives in Financial Markets with Stochastic Volatility

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Cambridge University Press, Jul 3, 2000 - Business & Economics - 201 pages
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This important work addresses problems in financial mathematics of pricing and hedging derivative securities in an environment of uncertain and changing market volatility. These problems are important to investors from large trading institutions to pension funds. The authors present mathematical and statistical tools that exploit the volatile nature of the market. The mathematics is introduced through examples and illustrated with simulations and the modeling approach that is described is validated and tested on market data. The material is suitable for a one-semester course for graduate students with some exposure to methods of stochastic modeling and arbitrage pricing theory in finance. The volume is easily accessible to derivatives practitioners in the financial engineering industry.
 

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Contents

Introduction to Stochastic Volatility Models
33
Scales in MeanReverting Stochastic Volatility
58
Tools for Estimating the Rate of Mean Reversion
77
Asymptotics for Pricing European Derivatives
87
Implementation and Stability
108
Application to Exotic Derivatives
124
Application to American Derivatives
132
Generalizations
145
Applications to InterestRate Models
174
Bibliography
195
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