Book description
- In-depth analysis of probability theory and stochastic calculus as well as alternative approaches for products that cannot be valued within these frameworks
- Provides a practical approach for hedging equity products beyond delta hedging and discusses in detail practical software implementation issues
Book details
- ISBN
- 9781899332342
- Publish date
- 1 Jun 1999
- Format
- Size
- A4
Author biography
Oliver Brockhaus, Andrew Ferraris, Christoph Gallus, Douglas Long, Reiner Martin and Marcus Overhaus
Table of contents
Introduction
Mathematical Fundamentals
A Review of Probability Theory and Stochastic Calculus
The Black-Scholes Equity Model
Extensions to Black-Scholes
The Clark Formula
The Hybrid Model
The Multi-Currency Hybrid Model
Closed-Form Solutions for Standard Products
Basic Products
American Options
Digital Options
Barrier Options
Asian Options
Closed-Form Solutions for Non-Standard Products
Lookback Options
Fade-In Options
Fade-In Barrier Options
Chooser Options
Prolongation Options
Improving Options
Power and Powered Options
Compound Options
Closed-Form Solutions for Multi-Asset Products
Exchange Options
Relative Digital Options
Relative Outperformance Options
Outperformance options
European Digital Option on Best or Worst of Two Assets
Best or Worst of Several Assets
Basket Options
Hindsight Options
Outside Barrier Options
Outside Digital Options
Closed-Form Fixed Income and Hybrid Products
Bond Options and Swaptions
Caps and Floors
European Options (Merton Formula)
Equity/Bond Outperformance Options
The Tree Approach
Setting up the Tree
Option Pricing Using Trees
Barrier Options
Bermudan Asian Options
Convertible Bonds
Monte Carlo Methods
The Basic Method
Speeding Up Monte Carlo
Generic Monte Carlo Pricing
Hybrid Monte Carlo
Monte Carlo for American Options
A Partial Differential Equation Solver
Discretisation of the PDE
Boundary Conditions
Moving Barriers
Range and Fade-In Options
American Options
Discrete Dividends
Model Calibration
Further Modelling Issues
Calibration of the Extended Vasicek Model
Basket and Asian Underlyings
Volatility Smile
Hedging
Hedging and Risk Management
Pricing and Hedging European Options Under Transaction Costs
Hedging of Specific Products
Implementation Issues
The Context of a Model Library
Library Interface Design
Internal design
Appendix: Useful Formulas
Bibliography
Testimonials
“The mathematical discussions are sophisticated, practical and insightful. Anyone who is or wants to be a financial engineer in the equity markets must read this book.“
Glyn Holton, Contingency Analysis
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