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Table of Contents
1. Introduction
2. Mechanics of Futures
and Forward Markets
3. Determination of Forward and Futures Prices
4.
Hedging Strategies Using Futures
5. Interest Rate Markets
6. Swaps
7. Mechanics of Options Markets
8. Properties of Stock Options
9.
Trading Strategies Involving Options
10. Introduction to Binomial Trees
11. Model of the Behavior of Stock Prices
12. The Black-Scholes Model
13. Options on Stock Indices, Currencies, and Futures
14. The Greek
Letters
15. Volatility Smiles
16. Value at Risk
17. Estimating
Volatilities and Correlations
18. Numerical Procedures
19. Exotic
Options
20. More on Models and Numerical Procedures
21. Martingales and
Measures
22. Interest Rate Derivatives: The Standard Market Models
23.
Interest Rate Derivatives: Models of the Short Rate
24. Interest Rate
Derivatives: More Advanced Models
25. Swaps Revisited
26. Credit Risk
27. Credit Derivatives
28. Real Options
29. Insurance, Weather, and
Energy Derivatives
30. Derivatives Mishaps and What We Can Learn from Them
HULL Solutions Manual: Options, Futures and Other Derivatives, 5th Edition
NEFTCI Introduction
to the Mathematics of Financial Derivatives
Table of Contents
Financial Derivatives: A Brief Introduction
A Primer on Arbitrage Theorem
Calculus in Deterministic and Stochastic
Environments
Pricing Derivatives: Models and Notation.
Tools in
Probability Theory
Martingales and Martingale Representations
Differentiation in Stochastic Environments
The Wiener Process and Rare
Events in Financial Markets
Integration in Stochastic Environments: The Ito
Integral
Ito's Lemma
The Dynamics of Derivative Prices: Stochastic
Differential Equations.
Pricing Derivative Products: Partial Differential
Equations
The Black-Scholes PDE: An Application
Pricing Derivative
Products: Equivalent Martingale Measures
Equivalent Martingale Measures:
Applications
New Results and Tools for Interest Sensitive Securities.
Arbitrage Theorem in a New Setting: Normalization and Random Interest Rates.
Modeling Term Structure and Related Concepts.
Classical and HJM
Approaches to Fixed Income.
Classical PDE Analysis for Interest Rate
Derivatives.
Relating Conditional Expectations to PDEs.
Stopping Times
and American-Type Securities.
Bibliography
Index
WILMOTT Paul
Wilmott on Quantitative Finance, 2 Volume Set
Table of Contents
Volume 1
Chapter 1: Products and Markets
Chapter 2: Derivatives
Chapter 3: The Random Behavior of Assets
Chapter 4: Elementary
Stochastic Calculus
Chapter 5: The Black-Scholes Model
Chapter 6:
Partial Differential Equations
Chapter 7: The Black-Scholes Formulae and the
'Greeks'
Chapter 8: Simple Generalizations of the Black-Scholes World
Chapter 9: Early Exercise and American Options
Chapter 10: Probability
Density Functions and First Exit Times
Chapter 11: Multi-asset Options
Chapter 12: The Binomial Model
Chapter 13: Predicting the Markets?
Chapter 14: The Trading Game
Chapter 15: An Introduction to Exotic and
Path-dependent Options
Chapter 16: Barrier Options
Chapter 17: Strongly
Path-dependent Options
Chapter 18: Asian Options
Chapter 19: Lookback
Options
Chapter 20: Derivatives and Stochastic Control
Chapter 21:
Miscellaneous Exotics
Chapter 22: Defects of the Black-Scholes Model
Chapter 23: Discrete Hedging
Chapter 24: Transaction Costs
Chapter
25: Volatility Smiles and Surfaces
Chapter 26: Stochastic Volatility
Chapter 21: Uncertain Parameters
Chapter 28: Empirical Analysis of
Volatility
Chapter 29: Jump Diffusion
Chapter 30: Crash Modeling
Chapter 31: Speculating With Options
Chapter 32: Static Hedging
Chapter 33: The Feedback Effect of Hedging in Illiquid Markets
Chapter
34: Utility Theory
Chapter 35: More About American Options and Related
Matters
Chapter 36: Stochastic Volatility and Mean-variance Analysis
Chapter 37: Advanced Dividend Modeling
Volume 2
Chapter 38: Fixed-income Products and Analysis: Yield,
Duration and Convexity
Chapter 39: Swaps
Chapter 40: One-factor Interest
Rate Modeling
Chapter 41: Yield Curve Fitting
Chapter 42: Interest Rate
Derivatives
Chapter 43: Convertible Bonds
Chapter 44: Mortgage-backed
Securities
Chapter 45: Multi-factor Interest Rate Modeling
Chapter 46:
Empirical Behavior of the Spot Interest Rate
Chapter 47: Heath, Jarrow and
Morton
Chapter 48: Interest-rate Modeling Without Probabilities
Chapter
49: Pricing and Optimal Hedging of Derivatives, the Non-probabilistic Model
Cont'd
Chapter 50: Extensions to the Non-probabilistic Interest-rate Model
Chapter 51: Portfolio Management
Chapter 52: Asset Allocation in
Continuous Time
Chapter 53: Value at Risk
Chapter 54: Value of the Firm
and the Risk of Default
Chapter 55: Credit Risk
Chapter 56: Credit
Derivatives
Chapter 57: RiskMetrics and CreditMetrics
Chapter 58:
CrashMetrics
Chapter 59: Derivatives **** Ups
Chapter 60: Bonus Time
Chapter 61: Real Options
Chapter 62: Energy Derivatives
Chapter 63:
Finite-difference Methods for One-factor Models
Chapter 64: Further
Finite-difference Methods for One-factor Models
Chapter 65:
Finite-difference Methods for Two-factor Models
Chapter 66: Monte Carlo
Simulation and Related Methods
Chapter 67: Finite-difference Programs
Appendix: All the Math You Need ... and No More (An Executive Summary)
JAECKEL Monte Carlo
Methods in Finance
Table of Contents
Introduction
The Mathematics behind
Monte Carlo methods
Correlation
Normal, Log-Normal and Other Processes
Applications in Risk Management
Option Pricing
Value at Risk
Faster Monte Carlo 1: Various Reduction Techniques
Faster Monte Carlo 2:
Low Discrepency Numbers
Monte Carlo and Professional Quantitative Research
More Hints and Tricks
New Monte Carlo Techniques
REBONATO Volatility
and Correlation : In the Pricing of Equity, Fx and Interest-Rate Options
Table of Contents
FOUNDATIONS
Volatility: Fundamental Concepts and Definitions
Variance and Mean Reversion in the Real and the Risk-Adjusted Worlds
Instantaneous and Terminal Correlations
DEALING WITH SMILES
Pricing Options in the Presence of Smiles
Tree Methodologies for
Smiley Option Prices
Efficient Extraction of the Future Local Volatility
from Plain-Vanilla Option Prices
Closed-Form Solutions for Smiley Option
Prices via Direct Modelling of the Density
Explaining Smiles by Means of
Mixed Jump-Diffusion Processes
INTEREST RATES
The Role of Mean
Reversion in Interest-Rate Models
Optimal Calibration of the
Brace-Gatarek-Musiela Model
Specifying the Instantaneous Volatility of
Forward Rates
References
Index
Table of Contents
Acknowledgements
Introduction and
outline of the book
List of symbols and abbreviations
1. Definition and
valuation of the underlying instruments
2. Yield curve models: a statistical
approach
3. A motivation for yield curve models
4. The analytic and
probabilistic tools
5. The conditions of no-arbitrage
6. Lattice
methodologies
7. The partial differential equation (PDE) approach
8.
Monte Carlo approaches
9. The CIR and Vasicek models
10. The Black
Derman and Toy model
11. The Hull and White approach
12. The Longstaff
and Schwartz model
13. The Brennan and Schwartz model
14. The Heath
Jarrow and Morton approach
15. Affine models
16. Markovian and
non-Markovian interest-rate models
Bibliography
Index
REBONATO Modern
Pricing of Interest-Rate Derivatives: The Libor Market Model and Beyond
Table of Contents
I. The Structure of the LIBOR Market Model
1. Putting the Modern Pricing Approach in Perspective
2. The
Mathematical and Financial Set-up
3. Describing the Dynamics of Forward
Rates
4. Characterizing and Valuing Complex LIBOR Products
5.
Determining the No-Arbitrage Drifts of Forward Rates
II. The Inputs to
the General Framework
6. Instantaneous Volatilities
7. Specifying
the Instantaneous Correlation Function
III Calibration of the LIBOR
Market Model
8. Fitting the Instantaneous Volatility Functions
9.
Simultaneous Calibration to Market Caplet Prices and to an Exogenous Correlation
Matrix
10 Calibrating a Forward-Rate-Based LIBOR Market Model to Swaption
Prices
IV. Beyond the Standard Approach: Accounting for Smiles
11. Extending the Standard Approach - I: CEV and Displaced Diffusion
12. Extending the Standard Approach - II: Stochastic Instantaneous
Volatilities
13. A Joint Empirical and Theoretical Analysis of the
Stochastic-Volatility LIBOR Market Model
HAUG The Complete
Guide to Option Pricing Formulas
Table of Contents
Plain Vanilla Options
Exotic Options
Numerical Methods in Options Pricing
Interest-Rate Options
Volatility and Correlation
Some Useful Formulas
Distributions
Partial Derivatives of the Black-Scholes
The Option-Pricing Software
Bibliography
Index
FABOZZI The
Handbook of Fixed Income Securities
Table of Contents
1 Overview of the Types and Features of
Fixed Income Securities 3
2 Risks Associated with Investing in Fixed Income
Securities 20
3 A Review of the Time Value of Money 28
4 Bond Pricing
and Return Measures 49
5 Price Volatility Characteristics of Fixed Income
Securities 83
6 The Structure of Interest Rates 113
7 Treasury and
Agency Securities 141
8 Municipal Bonds 155
9 Private Money Market
Instruments 186
10 Corporate Bonds 203
11 Medium-Term Notes 233
12
Domestic Floating-Rate and Adjustable-Rate Debt Securities 255
13
Nonconvertible Preferred Stock 265
14 Convertible Securities 290
15 The
High-Yield Corporate Bond Market 307
16 Eurocapital Markets 327
17
Stable Value Investments 354
18 Credit Analysis for Corporate Bonds 375
19 Credit Considerations in Evaluating High-Yield Bonds 411
20 Investing
in Chapter 11 and Other Distressed Companies 421
21 Guidelines in the Credit
Analysis of General Obligation and Revenue Municipal Bonds 443
22 Sovereign
Risk from a Corporate Bond Analyst Perspective 470
23 Mortgages 483
24
Mortgage Pass-Through Securities 502
25 Collateralized Mortgage Obligations
549
26 Asset-Backed Securities 583
27 Evaluating Credit Risk of
Asset-Backed Securities 602
28 Valuation of Bonds with Embedded Options 611
29 Option-Adjusted Spread Analysis 635
30 OAS and Effective Duration 665
31 New Duration Measures for Risk Management 682
32 Interest-Rate Risk
Models Used in the Banking and Thrift Industries 695
33 Risk Measures for
Foreign Bonds 709
34 Fixed Income Risk Modeling 720
35 Valuation and
Risk Analysis of International Bonds 733
36 Valuation and Analysis of
Convertible Securities 750
37 The Term Structure of Interest Rates 779
38 Bond Management: Past, Current, and Future 833
39 The Active
Decisions in the Selection of Passive Management and Performance Bogeys 840
40 A Sponsor's View of Benchmark Portfolios 864
41 Indexing Fixed Income
Assets 882
42 Bond Immunization: An Asset/Liability Optimization Strategy
896
43 Dedicated Bond Portfolios 927
44 Beyond Cash Matching 942
45
Improving Insurance Company Portfolio Returns 955
46 Asset/Liability
Management for Property/Casualty Insurers 971
47 The Management of
High-Yield Bond Portfolios 995
48 International Bond Investing and Portfolio
Management 1007
49 International Fixed Income Investing: Theory and Practice
1045
50 Introduction to Interest-Rate Futures and Options Contracts 1079
51 Pricing Futures and Portfolio Applications 1106
52 Treasury Bond
Futures Mechanics and Basis Valuation 1119
53 The Basics of Interest-Rate
Options 1145
54 An Overview of Fixed Income Option Models 1171
55
Hedging with Futures and Options 1204
56 Interest-Rate Swaps 1236
57
Interest-Rate Caps and Floors and Compound Options 1255
58 Forecasting
Interest Rates
JACKSON / STAUNTON Advanced Modelling in Finance Using Excel and VBA
Table of Contents
Preface
Acknowledgements
1
Introduction 1
Pt. 1 Advanced Modelling in Excel 7
2 Advanced
Excel functions and procedures 9
3 Introduction to VBA 39
4 Writing VBA
user-defined functions 73
Pt. 2 Equities 99
5 Introduction to
equities 101
6 Portfolio optimisation 103
7 Asset pricing 125
8
Performance measurement and attribution 139
Pt. 3 Options on Equities
155
9 Introduction to options on equities 157
10 Binomial trees 167
11 The Black-Scholes formula 185
12 Other numerical methods for European
options 197
13 Non-normal distributions and implied volatility 209
Pt. 4 Options on Bonds 221
14 Introduction to valuing options on
bonds 223
15 Interest rate models 231
16 Matching the term structure 243
App Other VBA functions 253
Index 259
TAVELLA Quantitative Methods in Derivatives Pricing : An Introduction to
Computational Finance
Table of Contents
Ch. 1 Arbitrage and Pricing 1
Ch. 2
Fundamentals of Stochastic Calculus 8
Ch. 3 Pricing in Continuous Time 41
Ch. 4 Scenario Generation 77
Ch. 5 European Pricing with Simulation 121
Ch. 6 Simulation for Early Exercise 177
Ch. 7 Pricing with Finite
Differences 207
Bibliography 273
Index 277
TAVELLA / RANDALL Pricing Financial Instruments : The Finite Difference Method
Table of Contents
1 Introduction 1
Stochastic
Processes 3
Markov Processes 5
Stochastic Differential Equations 8
Ito's Formula 9
Ito's Formula for Processes with Jumps 10
Arbitrage
Pricing Theory 13
Change of Measure 16
References 21
2 The
Pricing Equations 23
European Derivatives 24
Hedging Portfolio
Approach 24
Feynman-Kac Approach 27
The Pricing Equation in the Presence
of Jumps 30
An Application of Jump Processes: Credit Derivatives 34
Defaultable Bonds 37
Full Protection Credit Put 38
American
Derivatives 39
Relationship between European and American Derivatives 40
American Options as Dynamic Optimization Problems 42
Conditions at
Exercise Boundaries 43
Linear Complementarity Formulation of American Option
Pricing 44
Path Dependency 45
Discrete Sampling of Path Dependency 47
Dimensionality Reduction 48
Reformulating the Underlying Processes in a
Different Measure 49
Currency Translated Options 50
Equations for the
Hedging Parameters 56
Computation of Greeks by Direct Discretization 57
Computation of Greeks through Their Governing Equations 57
References 60
3 Analysis of Finite Difference Methods 61
Motivation 61
Constructing Finite Difference Approximations 67
Stability Analysis:
Matrix Approach 70
Space Discretization 71
Time Discretization 73
Analysis of Specific Algorithms 77
Eigenvalue Analysis of the
Black-Scholes Equation 86
Stability Analysis: Fourier Approach 90
Implementation of the Time Advancement 93
Solving Sparse Systems of
Linear Equations 94
Finite Difference Approach to American Options 100
The Linear Complementarity Problem 101
Distortions Induced by
Discretization 105
Strategies for Complex Derivative Structures 107
References 108
4 Special Issues 110
Effect of Payoff
Discontinuities on Convergence 110
Implementing Jump Conditions 114
Boundary Conditions 120
Boundary Conditions in One Dimension 121
Boundary Conditions in Multiple Dimensions 130
Continuous and Discrete
Sampling Models for Path-Dependent Options 132
Continuous Sampling 132
Discrete Sampling 136
Performance of Solvers for Multidimensional
Problems 141
Numerical Solution of PIDEs: Jump-Diffusion and Pure Jump
Models 147
References 155
5 Coordinate Transformations 156
One-Dimensional, Time-Independent Transformations 157
Transformations Place Grid Points at Selected Positions 160
Transformations That Concentrate Grid Points 167
One-Dimensional,
Time-Dependent Transformations 172
Multidimensional, Time-Independent
Transformations 173
Factored Multidimensional, Time-Independent
Transformations 174
General Multidimensional, Time-Independent
Transformations 175
Multidimensional Linear Transformations 177
References 182
6 Numerical Examples 183 Barrier Options 183
Time-Dependent Barriers 183
Nonuniform Grids and Discrete Sampling
187
Discretely Sampled Parisian Options 196
A Leveraged Knockin Put 202
Discretely Sampled Asian Options 206
Stochastic Volatility 212
Convertible Bond 214
Simple Fixed Income Instruments: Forward Swap 218
Credit Derivatives 223
References 228
Index 231
BROOKS Building
Financial Derivatives Applications with C++
Table of Contents
Preface
Introduction
Learning
Objectives
Introduction
The Case for C++
Derivative Technology and
Applications
Overview of C++
Summary
Appendix 1A: Brief Overview of
Borland C++ Builder
Hello World Program: Windows Graphical User
Interface (GUI)
File Types
Introduction to C++
Learning
Objectives
Introduction
Basic Features of C++
Object-Oriented
Programming
Bond Pricing Program: Console Application
Summary
Appendix 2A: User Inputs in C++Builder
Bond Pricing Program Without
Error Trapping
Bond Pricing Program With Error Trapping
Derivatives
Valuation
Learning Objectives
Introduction
Review of Valuation
Issues
Approaches to Valuation
Market Comparables Approach (MCA)
Cash Flow Adjusted Approach (CFAA)
Discount Factor Adjusted Approach
(DFAA)
Selecting the Best Approach to Valuation
Tools of the Trade
Learning Objectives
Introduction
Secant Method
Fitting the Term
Structure of Interest Rates
Monte Carlo Simulation
Lattice Procedures
Summary
Appendix 4A: C++ Builder Form for Yield to
Maturity
Valuing Forward Contracts and Interest Rate Swaps
Learning Objectives
Introduction
Valuing Forward Contracts
Valuing Futures Contracts
Valuing Interest Rate Swaps
Summary
Appendix 5A: C++Builder Form for
Valuing
Forward Contracts
Valuing Stock Options
Learning Objectives
Introduction
Black-Scholes Option Pricing Model and DLLs
Implied
Volatility
American-Style Option Valuation with the
Binomial Lattice
Summary
Building Interest Rate Trees
Learning Objectives
Introduction
Interest Rate Modeling
Equilibrium Swap Rates
Caps
and Floors Based on the Black, Derman, and Toy Model in C++
Summary
Appendix 7A: Forward Rates from Par Bond Yields
Appendix 7B: State
Contingent Claim Values
Mortgage-Backed Securities and Monte Carlo
Simulation
Learning Objectives
Introduction
Mortgage-Backed
Securities and Prepayment
Models
Monte Carlo Simulation
Mortgage-Backed Securities Valuation
Summary
Value-at-Risk and
Summary
Learning Objectives
Introduction
Value-at-Risk
Review
Summary
Selected Readings
Index
GRINOLD / KAHN Active Portfolio Management: A Quantitative Approach for Producing
Superior Returns and Controlling Risk
Table of Contents
Preface
Acknowledgments
Ch. 1
Introduction 1
Pt. 1 Foundations
Ch. 2 Consensus Expected
Returns: The Capital Asset Pricing Model 11
Ch. 3 Risk 41
Ch. 4
Exceptional Return, Benchmarks, and Value Added 87
Ch. 5 Residual Risk and
Return: The Information Ratio 109
Ch. 6 The Fundamental Law of Active
Management 147
Pt. 2 Expected Returns and Valuation
Ch. 7
Expected Returns and the Arbitrage Pricing Theory 173
Ch. 8 Valuation in
Theory 199
Ch. 9 Valuation in Practice 225
Pt. 3 Information
Processing
Ch. 10 Forecasting Basics 261
Ch. 11 Advanced Forecasting
295
Ch. 12 Information Analysis 315
Ch. 13 The Information Horizon 347
Pt. 4 Implementation
Ch. 14 Portfolio Construction 377
Ch.
15 Long/Short Investing 419
Ch. 16 Transactions Costs, Turnover, and Trading
445
Ch. 17 Performance Analysis 477
Ch. 18 Asset Allocation 517
Ch.
19 Benchmark Timing 541
Ch. 20 The Historical Record for Active Management
559
Ch. 21 Open Questions 573
Ch. 22 Summary 577
App. A:
Standard Notation 581
App. B: Glossary 583
App. C Return and Statistics
Basics 587
Index 591
CRACK Heard on
The Street : Quantitative Questions from Wall Street Job Interviews 
Table of Contents
1 Introduction 1
2 Purely Quantitative
& Logic Questions 7
3 Derivatives Questions 21
4 Other Financial
Economics Questions 35
5 Statistics and Programming Questions 41
5.1
Statistics Questions 41
5.2 Programming Questions 47
6 Non-Quantitative
Questions 49
6.1 Questions about You 50
6.2 Questions about Your Job
Awareness 54
6.3 Questions about the Markets or the Economy 56
6.4
Financial Management Questions 57
6.5 Thinking Questions 58
A Purely
Quantitative & Logic Answers 61
B Derivatives Answers 119
C Other
Financial Economics Answers 193
D Statistics Answers 215
E
Non-Quantitative Answers (Selected) 237
F Basic Option Pricing Theory 243
F.1 Logarithms and Exponentials 243
F.2 Normality and Lognormality 248
F.3 Prices, Returns and Compounding 253
F.4 Option Pricing 258
F.4.1
A Discussion of the Black-Scholes Formula 265
F.5 Deriving the Black-Scholes
Formula 268
F.5.1 A Derivation of the Black-Scholes Formula 268
F.5.2
Discussion of the Derivation 272
G HP 17B and 19B Source Code 275
G.1
Black-Scholes Call and Put Prices 275
G.2 Binomial Option Pricing 279
G.3 Macaulay Duration 281
G.4 Macaulay Convexity 281
References for
Further Research 285
Index 303
OSBORNE The Stock
Market and Finance From a Physicist's Viewpoint
MANTEGNA / STANLEY An Introduction to Econophysics: Correlations and Complexity in
Finance
Table of Contents
Preface
1 Introduction 1
2 Efficient
market hypothesis 8
3 Random walk 14
4 Levy stochastic processes and
limit theorems 23
5 Scales in financial data 34
6 Stationarity and time
correlation 44
7 Time correlation in financial time series 53
8
Stochastic models of price dynamics 60
9 Scaling and its breakdown 68
10
ARCH and GARCH processes 76
11 Financial markets and turbulence 88
12
Correlation and anticorrelation between stocks 98
13 Taxonomy of a stock
portfolio 105
14 Options in idealized markets 113
15 Options in real
markets 123
App. A Notation guide 130
App. B Martingales 136
References 137
Index 145
CAMPBELL / LO / MACKINLAY The
Econometrics of Financial Markets
Table of Contents
List of Figures
List of Tables
Preface
1 Introduction 3
2 The Predictability of Asset Returns 27
3 Market Microstructure 83
4 Event-Study Analysis 149
5 The Capital
Asset Pricing Model 181
6 Multifactor Pricing Models 219
7 Present-Value
Relations 253
8 Intertemporal Equilibrium Models 291
9 Derivative
Pricing Models 339
10 Fixed-Income Securities 395
11 Term-Structure
Models 427
12 Nonlinearities in Financial Data 467
App. A.1 Linear
Instrumental Variables 527
App. A.2 Generalized Method of Moments 532
App. A.3 Serially Correlated and Heteroskedastic Errors 534
App. A.4 GMM
and Maximum Likelihood 536
References 541
Author Index 587
Subject
Index 597
TALEB Dynamic Hedging :
Managing Vanilla and Exotic Options
Table of Contents
Introduction: Dynamic Hedging 1
1
Introduction to the Instruments 9
2 The Generalized Option 38
3 Market
Making and Market Using 48
4 Liquidity and Liquidity Holes 68
5
Arbitrage and the Arbitrageurs 80
6 Volatility and Correlation 88
7
Adapting Black-Scholes-Merton: The Delta 115
8 Gamma and Shadow Gamma 132
9 Vega and the Volatility Surface 147
10 Theta and Minor Greeks 167
11 The Greeks and Their Behavior 191
12 Fungibility, Convergence, and
Stacking 208
13 Some Wrinkles of Option Markets 222
14 Bucketing and
Topography 229
15 Beware the Distribution 238
16 Option Trading Concepts
256
17 Binary Options: European Style 273
18 Binary Options: American
Style 295
19 Barrier Options (I) 312
20 Barrier Options (II) 347
21
Compound, Choosers, and Higher Order Options 376
22 Multiasset Options 383
23 Minor Exotics: Lookback and Asian Options 403
Module A Brownian
Motion on a Spreadsheet, a Tutorial 415
Module B Risk Neutrality Explained
426
Module C Numeraire Relativity and the Two-Country Paradox 431
Module
D Correlation Triangles: A Graphical Case Study 438
Module E The
Value-at-Risk 445
Module F Probabilistic Rankings in Arbitrage 453
Module G Option Pricing 459
Notes 479
Bibliography 490
Index 499
ALEXANDER Market
Models : A Guide to Financial Data Analysis
Table of Contents
Preface
Acknowledgements
Pt. I
Volatility and Correlation Analysis
Ch. 1 Understanding Volatility and
Correlation 3
Ch. 2 Implied Volatility and Correlation 21
Ch. 3 Moving
Average Models 49
Ch. 4 GARCH Models 63
Ch. 5 Forecasting Volatility and
Correlation 117
Pt. II Modelling the Market Risk of Portfolios
Ch. 6 Principal Component Analysis 143
Ch. 7 Covariance Matrices 179
Ch. 8 Risk Measurement in Factor Models 229
Ch. 9 Value-at-Risk 249
Ch. 10 Modelling Non-normal Returns 285
Pt. III Statistical Models
for Financial Markets
Ch. 11 Time Series Models 315
Ch. 12
Cointegration 347
Ch. 13 Forecasting High-Frequency Data 389
Technical Appendices 409
References 453
Tables 467
Index 475
WILMOTT / HOWISON / DEWYNNE The Mathematics of Financial Derivatives : A Student
Introduction
Table of Contents
Preface
Pt. 1 Basic Option Theory
1 An Introduction to Options and Markets 3
2 Asset Price Random
Walks 18
3 The Black-Scholes Model 33
4 Partial Differential Equations
58
5 The Black-Scholes Formulae 71
6 Variations on the Black-Scholes
Model 90
7 American Options 106
Pt. 2 Numerical Methods 133
8 Finite-difference Methods 135
9 Methods for American Options 165
10 Binomial Methods 180
Pt. 3 Further Option Theory 195
11
Exotic and Path-dependent Options 197
12 Barrier Options 206
13 A
Unifying Framework for Path-dependent Options 213
14 Asian Options 222
15 Lookback Options 236
16 Options with Transaction Costs 252
Pt. 4 Interest Rate Derivative Products 263
17 Interest Rate
Derivatives 265
18 Convertible Bonds 286
Hints to Selected Exercises
295
Bibliography 308
Index 312
Table of Contents
About the Author
About the Contributors
Introduction
Acknowledgments
1 Philosophy of Technical Analysis 1
2 Dow Theory 23
3 Chart Construction 35
4 Basic Concepts of Trend 49
5 Major Reversal Patterns 99
6 Continuation Patterns 129
7 Volume
and Open Interest 157
8 Long Term Charts 181
9 Moving Averages 195
10 Oscillators and Contrary Opinion 225
11 Point and Figure Charting 265
12 Japanese Candlesticks 297
13 Elliott Wave Theory 319
14 Time
Cycles 343
15 Computers and Trading Systems 377
16 Money Management and
Trading Tactics 393
17 The Link Between Stocks and Futures: Intermarket
Analysis 413
18 Stock Market Indicators 433
19 Pulling It All Together -
A Checklist 453
A Advanced Technical Indicators 463
B Market Profile 475
C The Essentials of Building a Trading System 493
D Continuous Futures
Contracts 505
Glossary 511
Selected Bibliography 523
Selected
Resources 527
Index 531
WOLFRAM The
Mathematica Book
Table of Contents
A Tour of Mathematica 1
Pt. 1 A
Practical Introduction to Mathematica
1.0 Running Mathematica 26
1.1
Numerical Calculations 29
1.2 Building Up Calculations 38
1.3 Using the
Mathematica System 44
1.4 Algebraic Calculations 62
1.5 Symbolic
Mathematics 78
1.6 Numerical Mathematics 100
1.7 Functions and Programs
108
1.8 Lists 113
1.9 Graphics and Sound 133
1.10 Input and Output
in Notebooks 178
1.11 Files and External Operations 208
1.12 Special
Topic: The Internals of Mathematica 220
Pt. 2 Principles of Mathematica
2.1 Expressions 232
2.2 Functional Operations 242
2.3 Patterns
261
2.4 Transformation Rules and Definitions 285
2.5 Evaluation of
Expressions 310
2.6 Modularity and the Naming of Things 363
2.7 Strings
and Characters 391
2.8 Textual Input and Output 409
2.9 The Structure of
Graphics and Sound 472
2.10 Manipulating Notebooks 558
2.11 Files and
Streams 613
2.12 MathLink and External Program Communication 647
2.13
Global Aspects of Mathematica Sessions 692
Pt. 3 Advanced Mathematics in
Mathematica
3.1 Numbers 714
3.2 Mathematical Functions 736
3.3
Algebraic Manipulation 789
3.4 Manipulating Equations 811
3.5 Calculus
830
3.6 Series, Limits and Residues 860
3.7 Linear Algebra 871
3.8
Numerical Operations on Data 893
3.9 Numerical Operations on Functions 909
3.10 Mathematical and Other Notation 939
Formula Gallery 969
Graphics Gallery 979
Appendix Mathematica Reference Guide
Index 1381
BJORK Arbitrage Theory
in Continuous Time
Table of Contents
1 Introduction 1
2 The Binomial Model 6
3 Stochastic Integrals 27
4 Differential Equations 52
5 Portfolio
Dynamics 69
6 Arbitrage Pricing 76
7 Completeness and Hedging 99
8
Parity Relations and Delta Hedging 108
9 Several Underlying Assets 119
10 Incomplete Markets 135
11 Dividends 154
12 Currency Derivatives
167
13 Barrier Options 182
14 Stochastic Optimal Control 198
15
Bonds and Interest Rates 228
16 Short Rate Models 243
17 Martingale
Models for the Short Rate 253
18 Forward Rate Models 267
19 Change of
Numeraire 275
20 Forwards and Futures 298
References 304
Index 308
NICHOLAS Market-Neutral Investing : Long/Short Hedge Fund Strategies
Table of Contents
Acknowledgments
Foreword
Introduction 1
1 Investing in Relationships 5
2 Developments in the
Hedge Fund Industry 19
3 Making an Investment in Market-Neutral Strategies
27
4 Convertible Arbitrage 57
5 Fixed-Income Arbitrage 89
6
Mortgage-Backed Securities Arbitrage 119
7 Merger Arbitrage 145
8 Equity
Hedge 177
9 Equity Market-Neutral and Statistical Arbitrage 203
10
Relative Value Arbitrage 231
Afterword 247
Glossary 249
Index 255
NATENBERG Option
Volatility & Pricing : Advanced Trading Strategies and Techniques
Table of Contents
Preface to the First Edition
Preface to
the Second Edition
1 The Language of Options 1
2 Elementary Strategies
13
3 Introduction to Theoretical Pricing Models 35
4 Volatility 51
5
Using an Option's Theoretical Value 81
6 Option Values and Changing Market
Conditions 95
7 Introduction to Spreading 127
8 Volatility Spreads 137
9 Risk Considerations 173
10 Bull and Bear Spreads 199
11 Option
Arbitrage 213
12 Early Exercise of American Options 241
13 Hedging with
Options 257
14 Volatility Revisited 273
15 Stock Index Futures and
Options 301
16 Intermarket Spreading 331
17 Position Analysis 353
18
Models and the Real World 385
Appendix A A Glossary of Option and Related
Terminology 419
Appendix B The Mathematics of Option Pricing 431
Appendix C Characteristics of Volatility Spreads 449
Appendix D What's
the Right Strategy? 451
Appendix E Synthetic and Arbitrage Relationships 453
Appendix F Recommended Reading 457
Index 463
OKSENDAL Stochastic
Differential Equations : An Introduction With Applications
Table of Contents
I Introduction 1
II Some Mathematical
Preliminaries 5
III Ito Integrals 18
IV Ito Processes and the Ito
Formula 40
V Stochastic Differential Equations 59
VI The Filtering
Problem 75
VII Diffusions: Basic Properties 103
VIII Other Topics in
Diffusion Theory 124
IX Applications to Boundary Value Problems 160
X
Application to Optimal Stopping 183
XI Application to Stochastic Control 212
Appendix A: Normal Random Variables 236
Appendix B: Conditional
Expectations 239
Appendix C: Uniform Integrability and Martingale
Convergence 241
Solutions and additional hints to some of the exercises 244
Bibliography 252
List of Frequently Used Notation and Symbols 261
Index 265
PRISMAN Pricing
Derivative Securities: An Interactive, Dynamic Environment with Maple V and
Matlab
Table of Contents
Preface xv
Software xxii
1
Theory of Arbitrage 1
1.1 A Basic One-Period Model 1
1.2 Defining
the No-Arbitrage Condition 5
1.2.1 Identifying an Arbitrage Portfolio 8
1.2.2 Law of One Price 11
1.3 Pricing by Replication 13
1.3.1 Three
Special Contingent Cash Flows 14
1.4 Stochastic Discount Factors (SDFs) 18
1.4.1 SDFs and Risk-Neutral Probability 22
1.5 Concluding Remarks 28
1.6 Questions and Problems 29
1.7 Appendix 32
1.7.1 Complete Market
32
1.7.2 Incomplete Market 34
1.7.3 Incomplete Market and Arbitrage
Bounds 35
1.7.4 The No-Arbitrage Condition and Its Geometric Exposition 42
2 Arbitrage Pricing: Equity Markets 47
2.1 Market Structure and
the Risk-Free Rate 47
2.2 One-Period Binomial Model 50
2.3 Valuing Two
Propositions 57
2.4 Forwards: A First Look 61
2.4.1 Forward Contract on
a Security 62
2.4.2 Forward Contract on the Exchange Rate 67
2.5 Swaps:
A First Look 72
2.5.1 Currency Swaps 72
2.5.2 Equity (Asset) Swap 74
2.6 General Valuation 77
2.6.1 The Risk-Free Rate of Interest Implicit
in the Market 78
2.6.2 The Two Propositions 78
2.6.3 Forwards 79
2.6.4 Swaps 83
2.7 Concluding Remarks 86
2.8 Questions and Problems
87
3 Pricing by Arbitrage: Debt Markets 91
3.1 Setting the
Framework 91
3.2 Arbitrage in the Debt Market 94
3.2.1 Distinct Features
of the Debt Market 99
3.2.2 Defining the No-Arbitrage Condition 101
3.3
Discount Factors 104
3.4 Discount Factors and Continuous Compounding 108
3.4.1 Continuous Compounding 108
3.5 Concluding Remarks 110
3.6
Questions and Problems 111
3.7 Appendix 113
3.7.1 No-Arbitrage Condition
in the Bond Market 113
4 Fundamentals of Options 115
4.1
Extending the Simple Model 115
4.2 Two Types of Options 116
4.3 Trading
Strategies 125
4.3.1 Portfolios of Calls and Puts with the Same Maturity
Date 127
4.4 Payoff Diagrams and Relative Pricing 141
4.4.1 Pricing
Bounds Obtained by Relative Pricing Results 143
4.4.2 Put-Call Parity 148
4.5 From Payoffs to Portfolios 154
4.6 Concluding Remarks 164
4.7
Questions and Problems 165
4.8 Appendix 168
4.8.1 Explanation of Stripay
168
4.8.2 Procedural Issues 169
5 Risk-Neutral Probability and the
SDF 183
5.1 Infinite vs. Finite States of Nature 184
5.2 SDF for an
Infinite [Omega] 187
5.3 Risk-Neutral Probability and the SDF 191
5.4 A
First Look at Stock Prices 193
5.5 The Distribution of the Rate of Return
196
5.6 Paths of the Price Process 204
5.7 Specifying a Risk-Neutral
Probability 208
5.8 Lognormal Distributions and the SDF 213
5.9 The
Stochastic Discount Factor Function 215
5.10 Concluding Remarks 220
5.11
Questions and Problems 221
6 Valuation of European Options 223
6.1 Valuing a Call Option 224
6.2 Valuing a Put Option 230
6.3
Combinations across Time 234
6.4 Dividends and Option Pricing 255
6.5
Volatility and Implied Volatility 259
6.5.1 Estimating Volatility from
Historical Data 259
6.5.2 Implied Volatility 261
6.6 Concluding Remarks
265
6.7 Questions and Problems 266
6.8 Appendix 268
6.8.1 Estimating
Implied Volatility Using Trial and Error 268
7 Sensitivity Measures 271
7.1 The Theta Measure 272
7.2 The Delta Measure 281
7.3 The
Gamma Measure 288
7.4 The Vega Measure 293
7.5 The Rho Measure 298
7.6 Concluding Remarks 302
7.7 Questions and Problems 304
7.8
Appendix 307
7.8.1 Derivation of Sensitivity Measures 307
7.8.2
Sensitivities of Other Options 312
7.8.3 Signs of the Sensitivities 317
8 Hedging with the Greeks 323
8.1 Hedging: The General
Philosophy 323
8.2 Delta Hedging 326
8.2.1 Solving for a Delta Neutral
Portfolio 326
8.3 Delta Neutral Portfolios 341
8.4 General Hedging 347
8.5 Optimizing Hedged Portfolios 364
8.6 Concluding Remarks 370
8.7
Questions and Problems 371
9 The Term Structure and Its Estimation 373
9.1 The Term Structure of Interest Rates 374
9.1.1 Zero-Coupon,
Spot, and Yield Curves 377
9.2 Smoothing of the Term Structure 383
9.2.1
Smoothing and Continuous Compounding 389
9.3 Forward Rate 393
9.3.1
Forward Rate: A Classical Approach 393
9.3.2 Forward Rate: A Practical
Approach 396
9.4 A Variable Rate Bond 399
9.5 Concluding Remarks 402
9.6 Questions and Problems 404
9.7 Appendix 408
9.7.1 Theories of
the Shape of the Term Structure 408
9.7.2 Approximating Functions 411
10 Forwards, Eurodollars, and Futures 413
10.1 Forward
Contracts: A Second Look 414
10.2 Valuation of Forward Contracts 415
10.3 Forward Price of Assets 423
10.3.1 Forward Contracts, Prior to
Maturity, of Assets That Pay Known Cash Flows 427
10.3.2 Forward Price of a
Dividend-Paying Stock 430
10.4 Eurodollar Contracts 432
10.4.1 Forward
Rate Agreements (FRAs) 432
10.5 Futures Contracts: A Second Look 435
10.6 Deterministic Term Structure (DTS) 439
10.7 Futures Contracts in a
DTS Environment 441
10.8 Concluding Remarks 448
10.9 Questions and
Problems 449
11 Swaps: A Second Look 453
11.1 A Fixed-for-Float
Swap 453
11.1.1 Valuing an Existing Swap 458
11.2 Currency Swaps 461
11.3 Commodity and Equity Swaps 472
11.3.1 Equity Swaps 475
11.4
Forwards and Swaps: A Visualization 478
11.5 Concluding Remarks 479
11.6
Questions and Problems 481
12 American Options 485
12.1 American
Call Option 486
12.1.1 Arbitrage Bounds 486
12.1.2 Early Exercise
Decision 487
12.2 American Put Options 488
12.2.1 Arbitrage Bounds 488
12.2.2 Early Exercise Decision 490
12.3 Put--Call Parity 492
12.4
The Effect of Dividends 495
12.4.1 A Call Option 495
12.4.2 A Put Option
501
12.5 Concluding Remarks 502
12.6 Questions and Problems 502
13 Binomial Models I 505
13.1 Setting the Premises 505
13.2
No-Arbitrage and SDFs 511
13.2.1 No-Arbitrage 511
13.2.2 SDF 512
13.3 Valuation 521
13.3.1 Valuation with SDFs 521
13.3.2 Valuation
by Replication 522
13.4 Numerical Valuation 529
13.4.1 Price Evolution
529
13.4.2 European Call 530
13.4.3 European Put 539
13.4.4 American
Options 546
13.5 Concluding Remarks 554
13.6 Questions and Problems 555
14 Binomial Models II 557
14.1 Binomial Model and Black-Scholes
Formula 558
14.1.1 Binomial vs. Lognormal 558
14.1.2 Numerical
Implementations 562
14.1.3 The Effect of Dividends 568
14.2 Risk-Neutral
Probabilities 571
14.3 Futures and Forwards: A Symbolic Example 579
14.4
Brownian Motion 585
14.5 Concluding Remarks 590
14.6 Questions and
Problems 592
14.7 Appendix 593
14.7.1 The Black-Scholes Formula as a
Limit of the Binomial Formula 593
15 The Black-Scholes Formula 599
15.1 An Overview 599
15.2 The Price Process: A Second Look 602
15.2.1 Stochastic Evolution: The Discrete Case 605
15.3 Simulation of
Stochastic Evolution 608
15.4 Stochastic Evolution 615
15.5 Ito's Lemma
621
15.5.1 Heuristic Proofs of Ito's Lemma 623
15.5.2 Examples Utilizing
Ito's Lemma 628
15.6 The Black-Scholes Differential Equation 632
15.6.1
A Second Derivation 640
15.7 Reconciliation with Risk-Neutral Valuation 642
15.8 American vs. European 644
15.9 Concluding Remarks 649
15.10
Questions and Problems 651
15.11 Appendix 652
15.11.1 A Change over an
Instant 652
15.11.2 The Limit of a Random Variable 656
15.11.3 A More
Rigorous Insight into Ito's Lemma 666
16 Other Types of Options 673
16.1 Early Exercise, Dividends and Binomial Models 674
16.2 Indexes,
Foreign Currency, and Futures 677
16.2.1 Stock Index Options 677
16.2.2
Currency Options 679
16.2.3 Options on Futures Contracts 682
16.3
Examples of Exotic Options 688
16.3.1 Binary (Digital) Options 689
16.3.2 Combinations of Binary and Plain Vanilla Options 694
16.3.3 Gap
Options 695
16.3.4 Paylater (Cash on Delivery) Options 700
16.4 Interest
Rate Derivatives 704
16.4.1 Black's Model 705
16.4.2 The Black, Derman,
and Toy Model 714
16.5 Concluding Remarks 729
16.6 Questions and
Problems 731
17 The End or the Beginning? 735
Index 743
CLEWLOW / STRICKLAND Implementing Derivatives Models : Numerical Methods
Table of Contents
Preface
Acknowledgements
Notation
Pt. 1 Implementing Models in a Generalised Black-Scholes World
Ch. 1 The Black-Scholes World, Option Pricing and Numerical Techniques 3
Ch. 2 The Binomial Method 10
Ch. 3 Trinomial Trees and Finite Difference
Methods 52
Ch. 4 Monte Carlo Simulation 82
Ch. 5 Implied Trees and
Exotic Options 134
Pt. 2 Implementing Interest Rate Models
Ch. 6
Option Pricing and Hedging and Numerical Techniques for Pricing Interest Rate
Derivatives 181
Ch. 7 Term Structure Consistent Models 208
Ch. 8
Constructing Binomial Trees for the Short Rate 233
Ch. 9 Constructing
Trinomial Trees for the Short Rate 255
Ch. 10 The Heath, Jarrow and Morton
Model 290
References 300
Index 304
BAXTER / RENNIE Financial Calculus : An Introduction to Derivative Pricing
Table of Contents
Preface
The parable of the bookmaker 1
Ch. 1 Introduction 3
Ch. 2 Discrete processes 10
Ch. 3 Continuous
processes 44
Ch. 4 Pricing market securities 99
Ch. 5 Interest rates 128
Ch. 6 Bigger models 178
App. A1: Further reading 201
App. A2:
Notation 205
App. A3: Answers to exercises 209
App. A4: Glossary of
technical terms 216
Index 228
JAMES / WEBBER Interest Rate Modelling : Financial Engineering
Table of Contents
Part 1: Introduction to interest rate
modelling
1. Introduction to interest rates
1.1 Interest rate
behaviour
1.2 Basic concepts
1.3 Interest rate markets
1.4
Historical and current data
1.5 Uses of interest rate models
1.6
Conclusion
2. Interest rates in history
2.1 Interest rates in
monetary history
2.2 Characteristics of interest rate behaviour
3.
Introduction to interest rate modelling
3.1 Yield curve basics
3.2
Describing interest rate processes
3.3 Introducton to interest rate models
3.4 Categories of interest rate model
3.5 The role of the short rate
4. Interest rate models: theory
4.1 Summary of valuation
4.2
A theoretical market framework
4.3 Fundamentals of pricing
4.4 valuing
by change of numeraire
4.5 Derivatives in the extended Vasicek model
5. Basic modelling tools
5.1 Introduction to valuation
5.2
Introduction to estimation
5.3 Statistical tests
5.4 Yield curve
stripping
5.5 The convexity adjustment
6. Densities and
distributions
6.1 The density function
6.2 Kernel methods
6.3
Boundary behaviour
6.4 Interest rate models at extreme values of interest
rates
6.5 Tail distributions
Part II Interest rate models
7.
Affine models
7.1 Affine term structure models
7.2 Interpreting the
state variables
7.3 Types of affine model
7.4 Examples of one-factor
affine models
7.5 Examples of n-factor affine models
7.6 A general
framework for affine models
8. Market models and the Heath, Jarrow and
Morton framework
8.1 Introduction to the Heath, Jarrow and Morton model
8.2 Volatility functions in HJM
8.3 Market models
8.4 General
marketmodels
9. Other interest rate models
9.1 Consol models
9.2 Price kernet models
9.3 Positive interest rate models
9.4
Non-linear models
10. General formulations of interest rate models
10.1 Jump processes
10.2 Random field models
10.3 A general
model
10.4 Jump models
11. Economic models
11.1 Economics
and interest rates
11.2 An economically motivated financial model of
interest rates
11.3 An IS-LM based model
11.4 IS-LM, hyperinflation and
extended Vasicek
11.5 The general equilibrium framework
11.6
Interpreting the price kernel
Part III Valuation methods
12.
Finite difference methods
12.1 The Feynman-Kac Equation
12.2
Discretising the PDE
12.3 Simplifying the PDE
12.4 Explicit methods
12.5 Implicit methods
12.6 The Crank-Nicolson method
12.7 Comparison
of methods
12.8 Implicit boundary conditions
12.9 Fitting to an initial
term structure
12.10 Finite difference methods in N dimensions
12.11
Operator splitting
12.12 A two-dimensional PDE
12.13 Solving a PDDE
13. Valuation: the Monte Carlo method
13.1 The basic Monte Carlo
method
13.2 Speed-up methods
13.3 Sampling issues
13.4 Simulation
methods for HJM models
14. Lattice methods
14.1 Introduction to
lattice methods
14.2 Issues in constructing a lattice
14.3 Examples of
lattice methods
14.4 Calibration to market prices
14.5 The explicit
finite difference method
14.6 Lattices and the Monte Carlo method
14.7
Non-recombining lattices
14.8 Conclusions
Part IV Calibration and
estimation
15. Modelling the yield curve
15.1 Stripping the
yield curve
15.2 Fitting using parameterised curves
15.3 Fitting the
yield curve using splines
15.4 Nelson and Siegel curves
15.5 Comparison
of families of curves
15.6 Kernel methods of yield curve estimations
15.7 LP and regression methods
16. Principal components analysis
16.1 Volatility structures
16.2 Identifying empirical volatility
factors
16.3 Calibrating whole yield curve methods
16.4 Processes on
manifolds
16.5 Analysis of dynamical systems
16.6 Conclusions
17. Estimation methods: GMM and ML
17.1 GMM estimation
17.2
Implementation issues
17.3 The efficient method of moments (EMM)
17.4
Maximum likelihood methods
17.5 Hierarchy of procedures
18. Further
estimation methods
18.1 Introduction
18.2 Filtering approaches to
estimation
18.3 The extended Kalman Filter
18.4 GARCH models
18.5
Extensions of GARCH
18.6 Interest rate models and GARCH
18.7 Artificial
neural nets (ANNs)
19. Interest rates and implied pricing
19.1
Problems with interest rate models
19.2 Key relationships
19.3 The
interest rate case
19.4 The implied pricing method
19.5 Regularisation
functions
19.6 Patching tails onto pricing densities
Afterword
Notation
Glossary of mathematical, market and model terms
References
Author Index
Subject Index
CBOT OPTIONS INSTITUTE Options : Essential Concepts and Trading Strategies
Table of Contents
Preface
Acknowledgments
About the
Authors
Ch. 1 The History of Options 1
Pt. 1 Essential Concepts
Ch. 2 Fundamentals of Options 19
Ch. 3 Volatility Explained 57
Ch. 4 Options Strategies: Analysis and Selection 79
Pt. 2 Investing
and Trading Strategies
Ch. 5 Investing and Trading Strategies for the
Individual Investor 139
Ch. 6 Strategies for Institutional Investors 171
Ch. 7 How the Trading Floor Operates 229
Ch. 8 How Market Makers Trade
253
Pt. 3 Real-Time Applications
Ch. 9 Institutional Case
Studies 277
Ch. 10 The Predictive Power of Options 357
Ch. 11 Electronic
Resources 389
Glossary 409
Index 425
NIELSEN Pricing and
Hedging of Derivative Securities
Table of Contents
1. Stochastic Processes
2. Ito Calculus
3. Gaussian Processes
4. Securities and Trading Strategies
5. The
Martingale Valuation Principle
6. The Black-Scholes Model
7. Gaussian
Term Structure Models
Appendix A Measure and Probability
Appendix B
Lebesgue Integrals and Expectations
Appendix C The Heat Equation
Appendix D Suggested Solutions to Exercises for Chapters 1-7
Appendix E
Suggested Solutions to Exercises for Appendix A and B
BENNINGA Financial
Modeling
Table of Contents
Preface
Preface to the First Edition
I Corporate Finance Models 1
1 Basic Financial Calculations 3
2 Calculating the Cost of Capitol 27
App. 1 A Rule of Thumb for
Calculating Debt Betas 49
App. 2 Why Is [beta] Such a Good Measure of Risk?
Portfolio [beta] versus Individual Stock [beta] 51
App. 3 Getting Data from
the Internet 52
3 Financial Statement Modeling 57
App. 1 Calculating the
Free Cash Flows When There Are Negative Profits 83
App. 2 Accelerated
Depreciation in Pro Forma Models 84
4 Using Financial Statement Models for
Valuation 89
5 The Financial Analysis of Leasing 101
App The Tax and
Accounting Treatment of Leases 111
6 The Financial Analysis of Leveraged
Leases 115
II Portfolio Models 129
7 Portfolio Models -
Introduction 131
App. 1 Adjusting for Dividends 146
App. 2 Continuously
Compounded versus Geometric Returns 148
8 Calculating the
Variance-Covariance Matrix 151
9 Calculating Efficient Portfolios When There
Are No Short-Sale Restrictions 161
Appendix 179
10 Estimating Betas and
the Security Market Line 185
11 Efficient Portfolios without Short Sales 199
12 Value at Risk (VaR) 209
App How to Bootstrap: Making a Bingo Card in
Excel 219
III Option-Pricing Models 229
13 An Introduction to
Options 231
14 The Binomial Option-Pricing Model 253
15 The Lognormal
Distribution 277
16 The Black-Scholes Model 297
17 Portfolio Insurance
311
18 Real Options 329
19 Early Exercise Boundaries 343
App Proof
358
IV Bonds and Duration 361
20 Duration 363
21
Immunization Strategies 381
22 Modeling the Term Structure 393
23
Calculating Default-Adjusted Expected Bond Returns 401
24 Duration and the
Cheapest-to-Deliver Problem for Treasury Bond Futures Contracts 417
V
Technical Considerations 429
25 Random Numbers 431
26 Data Tables
443
27 Matrices 449
28 The Gauss-Seidel Method 457
29 Excel
Functions 461
30 Some Excel Hints 479
VI Introduction to Visual
Basic for Applications 491
31 User-Defined Functions with Visual Basic
for Applications 493
App Cell Errors in Excel and VBA 516
32 Types and
Loops 519
33 Macros and User Interaction 539
34 Arrays 557
35
Objects 581
App Excel Object Hierarchy 601
References 603
Index 611
BOUCHAUD / POTTERS Theory of Financial Risks: From Statistical Physics to Risk
Management
Table of Contents
Foreword
Preface
1 Probability
theory: basic notions 1
2 Statistics of real prices 47
3 Extreme risks
and optimal portfolios 91
4 Futures and options: fundamental concepts 130
5 Options: some more specific problems 186
Short glossary of financial
terms 209
Index of symbols 211
Index 217
DEROSA Options on
Foreign Exchange
Table of Contents
Preface
Ch. 1 Introduction to
Currency Options 1
The Currency Option Market 1
Option Basics 3
The Variety of Currency Options 3
The Variety of Market Participants 5
Some Additional Option Terminology 6
Ch. 2 Foreign Exchange Basics 9
The International Monetary System 9
Foreign Exchange Transactions
and Market Conventions 13
The Interest Parity Theorem 14
Spot and
Forward Contracts 18
Currency Futures 19
Ch. 3 Trading Currency
Options 35
Over The Counter Currency Options 35
Listed Options on
Actual Currency 37
Currency Futures Options 47
Listed Currency Warrants
51
Options on the USDX Futures 53
Ch. 4 Payoff Patterns at
Expiration 55
Option Values at Expiration 55
Basic Analytical
Concepts 56
Long and Short Positions in Futures Options 57
Option
Strategies for Currency Risk Management 63
Directional Strategies 68
Volatility Biased Strategies 72
Writing Covered Calls for Income
Enhancement 84
Ch. 5 Arbitrage and Parity Theorems 89
Elementary
Arbitrage Theorems 89
Put-Call Parity for Currency Options 93
The
Triangular Option Arbitrage Theorem 98
Synthetic Forward Contracts 98
Ch. 6 Valuation of European Currency Options 101
The
Black-Scholes-Garman-Kohlhagen Model 101
Sensitivity of Option Premiums to
Input Parameters 110
Remarks on Volatility 123
Ch. 7 Practical
Applications of the European Currency Option Pricing Model 125
Valuation
of European Currency Calls and Puts 125
Using Option Partial Derivatives 129
Topics on Volatility 138
An Example of the Analysis of a Trading
Strategy 151
Ch. 8 American Currency Options 157
The General
Theory of American Currency Option Pricing 157
The Economics of Early
Exercise 159
The Binomial Model for American Currency Options 166
The
Binomial Model for European Currency Options 175
American Option Valuation
by Analytical Approximation 177
Empirical Tests of the Currency Option
Pricing Model and the Behavior of Exchange Rates 180
Extensions of the
Currency Option Model 188
Ch. 9 Currency Futures Options and Listed
Currency Warrants 197
The Nature of Currency Futures Contracts and Their
Relationships to Spot and Forward Prices 198
Arbitrage and Parity Theorems
for Currency Futures Options 203
Black's Model for European Currency Futures
Options 210
Synthetic Futures Contracts 216
The Valuation of American
Currency Futures Options 216
Empirical Tests of the Currency Futures Option
Model 221
Listed Currency Warrants 222
Ch. 10 An Introduction to
Exotic Currency Options 227
Knock-out Currency Options 227
Lookback
Currency Options 234
The Margrabe Option 239
Average or "Asian" Currency
Options 246
Compound Options 251
Other Exotic Options 253
Selected
Bibliography 257
Index 267
ROSS An Introduction to
Mathematical Finance : Options and Other Topics
Table of Contents
Introduction and Preface
1 Probability 1
2 Normal Random Variables 20
3 Geometric Brownian Motion 32
4
Interest Rates and Present Value Analysis 38
5 Pricing Contracts via
Arbitrage 61
6 The Arbitrage Theorem 72
7 The Black-Scholes Formula 85
8 Valuing by Expected Utility 103
9 Exotic Options 129
10 Beyond
Geometric Brownian Motion Models 146
11 Autogressive Models and Mean
Reversion 166
Index 183
HAMILTON Time
Series Analysis
Table of Contents
Preface
1 Difference Equations 1
2
Lag Operators 25
3 Stationary ARMA Processes 43
4 Forecasting 72
5
Maximum Likelihood Estimation 117
6 Spectral Analysis 152
7 Asymptotic
Distribution Theory 180
8 Linear Regression Models 200
9 Linear Systems
of Simultaneous Equations 233
10 Covariance-Stationary Vector Processes 257
11 Vector Autoregressions 291
12 Bayesian Analysis 351
13 The Kalman
Filter 372
14 Generalized Method of Moments 409
15 Models of
Nonstationary Time Series 435
16 Processes with Deterministic Time Trends
454
17 Univariate Processes with Unit Roots 475
18 Unit Roots in
Multivariate Time Series 544
19 Cointegration 571
20 Full-Information
Maximum Likelihood Analysis of Cointegrated Systems 630
21 Time Series
Models of Heteroskedasticity 657
22 Modeling Time Series with Changes in
Regime 677
A Mathematical Review 704
B Statistical Tables 751
C
Answers to Selected Exercises 769
D Greek Letters and Mathematical Symbols
Used in the Text 786
Author Index 789
Subject Index 792
TAVAKOLI Credit Derivatives: A Guide to Instruments and Applications
Table of Contents
Introduction
Ch. 1 Credit Derivatives
Markets Overview 5
Ch. 2 Total Rate of Return Swaps - Synthetic Financing 19
Ch. 3 Credit Default Swaps of Options 73
Ch. 4 Exotic Structures 141
Ch. 5 Sovereign Risk and Emerging Markets 189
Ch. 6 Credit-Linked Notes
223
Ch. 7 Synthetic Collateralized Loan Obligations 237
Ch. 8 Selected
Documentation, Regulatory, Booking, and Legal Issues 265
Ch. 9 Future of the
Global Market 283
Selected Bibliography 289
Index 302
KAMINSKI (ENRON) Managing Energy Price Risk, 2nd Edition
Table of Contents
Preface
Contributors
Introduction
ENERGY INSTRUMENTS
1. Energy Swaps
2. Energy Options
3.
Energy Exotic Options
4. Derivatives in Energy Project Finance
DEVELOPMENTS IN ENERGY MARKETS
5. The Oil Market
6. The
Natural Gas Market
7. Competitive Electricity Markets Around the World:
Aproaches to Prices Risk Managment
8. Regulatory and Legal Issues
RISK MEASUREMENT AND REPORTING
9. VAR, Stress-Testing and
Supplementary Methodologies: Uses and Constraints in Energy Risk Managment
10. Credit Risk in Liberalised Power and Natural Gas Markets
11.
Accounting for Derivative Contracts in an Energy Environment
TOOLS FOR
RISK ANALYSIS
12. Power Forward Curves: A Managerial Perspective Shankar
Nagarajan of Deloitte & Touche L.L.P.
13. Arbitrage-Free Valuation of
Energy Derivatives
14. Volatility in Energy Prices
15. Correlation and
Cointegration in Energy Markets
CHRISS Black-Scholes and Beyond : Option Pricing Models
Table of Contents
1 Stocks, Options, and Futures 11
2
Fundamental Mathematical Concepts 57
3 The Geometric Brownian Motion Model
of Price Movements 93
4 The Black-Scholes Formula 119
5 More on the
Black-Scholes Formula 185
6 Binomial Trees 219
7 Basic Option Pricing
With Binomial Trees 273
8 The Volatility Smile 327
9 Implied Volatility
Trees 361
10 Implied Binomial Trees 411
11 Pricing Barrier Options in
the Presence of the Smile 433
Bibliography 477
Author Index 484
Index 486
DUFFIE Dynamic Asset
Pricing Theory, Third Edition
Table of Contents
Preface
Pt. I Discrete-Time Models 1
1 Introduction to State Pricing 3
2 The Basic Multiperiod Model 21
3 The Dynamic Programming Approach 49
4 The Infinite-Horizon Setting 65
Pt. II Continuous-Time Models 81
5 The Black-Scholes Model 83
6 State Prices and Equivalent Martingale Measures 101
7 Term-Structure
Models 135
8 Derivative Pricing 167
9 Portfolio and Consumption Choice
203
10 Equilibrium 235
11 Corporate Securities 259
12 Numerical
Methods 293
Appendixes 321
A Finite-State Probability 323
B
Separating Hyperplanes and Optimality 326
C Probability 329
D Stochastic
Integration 334
E SDE, PDE, and Feynman-Kac 340
F Ito's Formula with
Jumps 347
G Utility Gradients 351
H Ito's Formula for Complex Functions
355
I Counting Processes 357
J Finite-Difference Code 363
Bibliography 373
Symbol Glossary 445
Author Index 447
Subject Index 457
KATZ / MCCORMICK The Encyclopedia of Trading Strategies
Table of Contents
Preface
Part One: Tools of the Trade
Chapter 1: Dat.
Chapter 2: Simulators
Chapter 3: Optimizers and
Optimazation
Chapter 4: Statistics
Part Two: The Study of Entries
Chapter 5: Breakout Models
Chapter 6: Moving-Average Models
Chapter 7: Oscillator-Based Entries
Chapter 8: Seasonality
Chapter
9: Lunar and Solar Rhythms
Chapter 10: Cycle-Based Entries
Chapter 11:
Neural Networks
Chapter 12: Genetic Algorithms
Part Three: The Study
of Exits
Chapter 13: The Standard Exit Strategy
Chapter 14:
Improvements on the Standard Exit
Chapter 15: Adding Artificial Intelligence
to Exits
Conclusion
Notice
Appendix
Index
BEST Implementing Value at Risk
Table of Contents
Preface
Acknowledgements
1 Defining
risk and VAR 1
2 Covariance 14
3 Calculating VAR using simulation 32
4 Measurement of volatility and correlation 57
5 Implementing value at
risk 103
6 Stress testing 128
7 Managing risk with VAR 141
8 Risk
adjusted performance measurement 149
9 Regulators and risk management 174
10 Introduction to the spreadsheets 197
References and further reading
199
Index 201
PRING Introduction to Technical Analysis
Table of Contents
Basic Principles
Trendlines, Support,
and Resistance
Volume
Price Patterns for Traders
Moving Averages
Momentum
A Primer on Candlestick Charting
SHAW Modeling Financial Derivatives With Mathematica (Includes CD-ROM)
Table of Contents
Preface
1 Advanced Tools for Rocket
Science 1
2 An Introduction to Mathematica 12
3 Mathematical Finance
Preliminaries 68
4 Mathematical Preliminaries 85
5 Log and Power
Contracts 127
6 Binary Options and the Normal Distribution 136
7 Vanilla
European Calls and Puts 151
8 Barrier Options - a Case Study in Rapid
Development 167
9 Analytical Models of Lookbacks 189
10 Vanilla Asian
Options - Analytical Methods 200
11 Vanilla American Options - Analytical
Methods 215
12 Double Barrier, Compound, Quanto Options and other Exotics
237
13 The Discipline of the Greeks and Overview of Finite-Difference
Schemes 258
14 Finite-Difference Schemes for the Diffusion Equation with
Smooth Initial Conditions 266
15 Finite-Difference Schemes for the
Black-Scholes Equation with Nonsmooth Payoff Initial Conditions 279
16 SOR
and PSOR Schemes for the Three-Time-Level Douglas Scheme and Applications to
American Options 306
17 Linear Programming Alternatives to PSOR and
Regression 331
18 Traditional and Supersymmetric Trees 344
19 Tree
Implementation in Mathematica and Basic Tree Pathology 363
20 Turbo-charged
Trees with the Mathematica Compiler 387
21 Monte Carlo and Wozniakowski
Sampling 400
22 Basic Applications of Monte Carlo 420
23 Monte Carlo
Simulation of Basket Options 437
24 Getting Jumpy over Dividends 454
25
Simple Deterministic and Stochastic Interest Rate Models 470
26 Building
Yield Curves from Market Data 482
27 Simple Interest Rate Options 504
28
Modelling Volatility by Elasticity 515
Index 534
KARATZAS / SHREVE Brownian Motion and Stochastic Calculus 
STEELE Stochastic
Calculus and Financial Applications
MERTON Continuous-Time Finance
Table of Contents
Foreward: Paul Samuelson
Part I:
Introduction to Finance and the Mathematics of Continuous-time Models:
1.
Modern Finance
2. Introduction to Portfolio Selection and Capital Market
Theory: Static Analysis
3. On the Mathematics and Economic Assumptions of
Continuous-time Financial Models
Part II: Optimum Consumption and
Portfolio Selection in Continuous-time Models:
4. Lifetime Portfolio
Selection under Uncertainty: The Continuous-time Case
5. Optimum Consumption
and Portfolio Rules in a Continuous-time Model
6. Further Developments in
Theory of Optimal Consumption and Portfolio Selection
Part III: Warrant
and Option Pricing Theory:
7. A Complete Model of Warrant Pricing that
Maximizes Utility
8. Theory of Rational Option Pricing
9. Option Pricing
when Underlying Stock Returns are Discontinuous
10. Further Developments in
Option Pricing Theory
Part IV: Contingent-Claims Analysis in the Theory
of Corporate Finance and Financial Intermediation:
11. A Dynamic General
Equilibrium Model of the Asset Market and its Application to the Pricing of the
Capital Structure of the Firm
12. On the Pricing of Corporate Debt: The Risk
Structure of Interest Rates
13. On the Pricing of Contingent Claims and the
Modigliani-Miller Theorem
14. Contingent Claims Analysis in the Theory of
Corporate Finance and Financial Intermediation
Part V: An
Intertemporal-Equilibrium Theory of Finance:
15. An Intertemporal Capital
Asset Pricing Model
16. A General Equilibrium Theory of Finance in
Continuous Time
Part VI: Applications of the Continuous-Time Model to
Selected Issues in Public Finance:
17. An Asymptotic Theory of Growth
Under Uncertainty
18. On Consumption-Indexed Public Pension Plans
19. An
Analytic Derivation of the Cost of Loan Guarantees and Deposit Insurance
20.
On the Cost of Deposit Insurance when there are Surveillance Costs
WILLIAMS Probability With Martingales
ABRAMOWITZ / STEGUN Handbook of Mathematical Functions, With Formulas, Graphs, and
Mathematical Tables