62 binomial model 63 concrete examples

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Unformatted text preview: es . . . . . 6.4 Capital Asset Pricing Model 6.5 American Options . . . . . 6.6 Black-Scholes formula . . . 6.7 Calls and Puts . . . . . . . 6.8 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 179 183 187 191 194 198 201 203 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A Review of Probability 207 A.1 Probabilities, Independence . . . . . . . . . . . . . . . . . . . . . 207 A.2 Random Variables, Distributions . . . . . . . . . . . . . . . . . . 211 A.3 Expected Value, Moments . . . . . . . . . . . . . . . . . . . . . . 215 Chapter 1 Markov Chains 1.1 Definitions and Examples The importance of Markov chains comes from two facts: (i) there are a large number of physical, biological, economic, and social phenomena that can be modeled in this way, and (ii) there is a well-developed theory that allows us to do computations. We begin with a famous example, then describe the property that is the defining...
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This document was uploaded on 03/06/2014 for the course MATH 4740 at Cornell University (Engineering School).

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