THE UNIVERSITY OF HONG KONG
DEPARTMENT OF STATISTICS AND ACTUARIAL SCIENCE
STAT2812
Financial Economics I
Chapter 3 Overview of Probability Theory
Sample space
A , A is called an event.
A, B , we can dene
A B = cfw_ : A or B
A B = cfw_ : A and B
A \ B
14-15
The University of Hong Kong
Department of Statistics and Actuarial Science
STAT2812-3910 Financial Economics I
Assignment #1 Due date: Oct 7, 2014
1. Show that in a arbitrage-free market, if two assets have the same terminal value, they
must have th
14/15
THE UNIVERSITY OF HONG KONG
DEPARTMENT OF STATISTICS AND ACTUARIAL SCIENCE
STAT2812 Financial Economics I
Assignment 3
Due: November 11, 2014
1. Show that if Xn is a martingale with respect to Fn , then
E[X1 ] = E[X2 ] = .
2
2. Let cfw_n be sequenc
14/15
THE UNIVERSITY OF HONG KONG
DEPARTMENT OF STATISTICS AND ACTUARIAL SCIENCE
STAT2812 Financial Economics I
Assignment 4
Due: November 28, 2014 (Friday)
1. Consider a 40-strike 180-day call with S = 40, = 30%, r = 8%, and = 0. Compute
a delta-gamma-th
STAT2812: 12-13
Chapter 7. Exotic options
1. Asian options
An Asian option has a payo that is based on the average price over some period of time.
Arithmetic average: Suppose we record the stock price every h periods from time 0 to T ;
there are then N =
12-13
The University of Hong Kong
Department of Statistics and Actuarial Science
STAT2812 Financial Economics I
Chapter 6. Market-Marking and Delta-Hedging
A market-maker stands ready to sell to buyers and to buy from sellers.
The bid price is the price
12-13
The University of Hong Kong
Department of Statistics and Actuarial Science
STAT2812 Financial Economics I
Chapter 5. The Black-Scholes Formula
1. The Black-Scholes formula
Suppose the stock price dynamic is given by
d St = St dt + St d Wt
S0 = S ,
w
THE UNIVERSITY OF HONG KONG
201213
DEPARTMENT OF STATISTICS AND ACTUARIAL SCIENCE
STAT2812
Financial Economics I
Chapter 4 Discrete Time Stochastic Process
(, F , P ) probability space
F0 F1 F , F0 , F1 , . . . are sub -elds of F . We call cfw_Fi a ltrat
12-13
The University of Hong Kong
Department of Statistics and Actuarial Science
STAT2812 Financial Economics I
Chapter 2. Binomial Option Pricing: II
Understanding Early Exercise:
There are three economic considerations governing the decision to exercise
12-13
The University of Hong Kong
Department of Statistics and Actuarial Science
STAT2812 Financial Economics I
Chapter 1. Binomial Option Pricing: I
Two basic types of options: call option and put option.
Denition 1. A call option contract provides optio
14-15
The University of Hong Kong
Department of Statistics and Actuarial Science
STAT2812 Financial Economics I
Assignment #2 Due date: Oct 31, 2014
1. Let an urn contain M same balls numbered 1, 2, , M . We draw an ordered sample
of size n with replaceme