1 DISCRETE PROBABILITY SPACE (BAPM)
1
1.1
Discrete Probability Space (BAPM)
Discrete
In the binomial asset pricing model, we have dealt with two different sets
of probabilities. On the one hand, we ha
1 SIMPLE INTEGRANDS
1
1.1
Simple Integrands
Construction
Now that we have the fundamentals established, we can begin talking about
stochastic integration. In particular, we will be looking at equation
Zheheng Qiu Fe545
Final report
Question 1 How do you design your Market Data system?
We decided to use Yahoo API from downloading stocks data into this market system,
we use two of the strategies, whi
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2017
Stevens Institute of Technology
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2017
Stevens Institute of Technology
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2017
Stevens Institute of Technology
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Stevens Institute of Technology
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Stevens Institute of Technolo
Black-Scholes The Put-Call Parity Multiple Brownian Motions It Formula for Multiple Processes Recognizing a Brownian Motion
Black-Scholes-Merton Model
Thomas Lonon
Division of Financial Engineering
St
1 BLACK-SCHOLES
1
1.1
Black-Scholes
Evolution of Portfolio Value
In this section, we observe how the value of a portfolio consisting of a position
in an asset (stock) and a position in a money market
Simple Integrands
General Integrands
Stochastic Calculus(Integrands)
Thomas Lonon
Division of Financial Engineering
Stevens Institute of Technology
November 3, 2015
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2015
The Trustees of Stevens Inst
FORMULAS
1 ITO
1
1.1
It
o Formulas
Formula for Brownian Motion
If f (x) is a differentiable function, we would like to discuss how to find the
derivative of f (W (t). If W (t) were a differentiable p
Radon-Nikodym
Risk-Neutral Measure
Fundamental Theorems and Definitions
Risk-Neutral Measure and Girsanov
Thomas Lonon
Division of Financial Engineering
Stevens Institute of Technology
April 25, 2016
Instructor: Dragos Bozdog
Email: [email protected]
Office: Babbio 429A
FE620-Dragos Bozdog
1
A derivative is an instrument whose value
depends on, or is derived from, the value of
another asset.
Exa
Instructor: Dragos Bozdog
Email: [email protected]
Office: Babbio 429A
FE620-Dragos Bozdog
1
A swap is an agreement to exchange
cash flows at specified future times
according to certain specified ru
Instructor: Dragos Bozdog
Email: [email protected]
Office: Babbio 429A
FE620-Dragos Bozdog
1
Defines:
the period of time to which the interest rate applies
The period of time used to calculate acc
Instructor: Dragos Bozdog
Email: [email protected]
Office: Babbio 429A
FE620-Dragos Bozdog
1
Investment assets are assets held by
significant numbers of people purely for
investment purposes (Exampl
Instructor: Dragos Bozdog
Email: [email protected]
Office: Babbio 429A
FE620-Dragos Bozdog
1
A long futures hedge is appropriate
when you know you will purchase an
asset in the future and want to lo
Instructor: Dragos Bozdog
Email: [email protected]
Office: Babbio 429A
FE620-Dragos Bozdog
1
A call is an option to buy
A put is an option to sell
A European option can be exercised only at the
end
Instructor: Dragos Bozdog
Email: [email protected]
Office: Babbio 429A
FE620-Dragos Bozdog
1
c:
European call
option price
C:
p:
American call
option price
European put
option price
P:
American put
Instructor: Dragos Bozdog
Email: [email protected]
Office: Babbio 429A
FE620-Dragos Bozdog
1
Available on a wide range of assets
Exchange traded
Specifications need to be defined:
What can be deliv
Lecture 1
1. A one-year forward contract is an agreement where
A. One side has the right to buy an asset for a certain price in one years time.
B. One side has the obligation to buy an asset for a cer
Instructor: Dragos Bozdog
Email: [email protected]
Office: Babbio 429A
FE620-Dragos Bozdog
1
Bond plus option to create principal protected
note
Stock plus option
Two or more options of the same typ
Instructor: Dragos Bozdog
Email: [email protected]
Office: Babbio 429A
FE620-Dragos Bozdog
1
Traditionally banks have funded loans with
deposits
Securitization is a way that loans can increase
much
Problem 6.6.
The 350-day LIBOR rate is 3% with continuous compounding and the forward rate calculated
from a Eurodollar futures contract that matures in 350 days is 3.2% with continuous
compounding. E