Korea Advanced Institute of Science and Technology
investment
FE 532

Summer 2016
Ethical Guidelines
for Statistical Practice
Prepared by the Committee
on Professional Ethics of the
American Statistical Association
Approved by the ASA Board in April 2016
Contents
Purpose of the Guidelines 1
A. Professional Integrity and
Accountabili
Korea Advanced Institute of Science and Technology
investment
FE 532

Summer 2016
FMB 506 & FE503
Assignment 1
(Due Date : 10/10/2016)
Student ID :
1.
Name :
Rank the following from highest average historical return to lowest average historical
return from 1926 to 2010.
I. Small stocks
II. Longterm bonds
III. Large stocks
IV. Tbills
Korea Advanced Institute of Science and Technology
investment
FE 532

Summer 2016
Trading Strategies involving
Options
Hypothesis
The underlying asset is a stock
Other underlying assets can apply to similar results
The options used in the strategies are European
American option may probably be exercised early that leading
to differ
Korea Advanced Institute of Science and Technology
investment
FE 532

Summer 2016
231
Properties of Stock Options
Putcall parity is a relationship between the price, c, of a European call option on a
stock and the price, p, of a European put option on a stock. For a nondividendpaying
stock, it is
c KerT p S0
For a dividendpaying sto
Korea Advanced Institute of Science and Technology
investment
FE 532

Summer 2016
Mechanics of Options Markets
211
Most option exchanges use market makers. A market maker is an individual who is
prepared to quote both a bid price (at which he or she is prepared to buy) and an oer
price (at which he or she is prepared to sell). Market m
Korea Advanced Institute of Science and Technology
investment
FE 532

Summer 2016
Financial Derivatives I
Lecture 1: Introduction
Hoon Cho
KAIST College of Business
1
Derivatives pricing theory is useful for.
trading marketed options and futures (of course)
pricing corporate claims like convertibles and warrants
pricing or choosing
Korea Advanced Institute of Science and Technology
investment
FE 532

Summer 2016
Properties of Stock Options
There are six factors affecting the price of a stock option:
1.The current stock price, S0
2.The strike price, K
3.The time to expiration, T
4.The volatility of the stock price,
5.The riskfree interest rate, r
6.The dividend
Korea Advanced Institute of Science and Technology
investment
FE 532

Summer 2016
Mechanics of Options Markets
What Are Options?
Options are securities which give the holder the right, but
not the obligation, to buy or sell another instrument at a
fixed price before or at a fixed expiration date.
Call Options: Options that grant the
Korea Advanced Institute of Science and Technology
security analysis
FE 527

Fall 2015
LongstaffSchwarz(2001) algorithm for American Options
Glasserman Ch 8 : Pricing American Options
Glasserman Ch 8, section 6 : Regression Based Methods
Longstaff, Schwartz (2001), Valuing american options by simulation: a simple
leastsquares approach, Re
Korea Advanced Institute of Science and Technology
security analysis
FE 527

Fall 2015
Mathematics for Financial Engineering
KAIST Graduate School of Finance and
Accounting
Jangkoo Kang
References
If you want to study financial mathematics rigorously, refer to:
Oksendal, B., 1992, Stochastic Differential Equations,3rd ed.,
SpringerVerlag.
Korea Advanced Institute of Science and Technology
security analysis
FE 527

Fall 2015
Introduction
Modelling in Financial Engineering
KAIST Graduate School of Finance
Jangkoo Kang
What Will be Covered in the Course?
This course will provide the framework to build up asset pricing
models in the continuoustime setting.
Basic Principles: No
Korea Advanced Institute of Science and Technology
security analysis
FE 527

Fall 2015
Portfolio Dynamics and Asset Pricing
KAIST Graduate School of Finance and
Accounting
Jangkoo Kang
Portfolio Dynamics
Finite Number of Trading Dates
X(t): an N1 vector that specifies the number of shares of each
of N different stocks to be held in a portfo
Korea Advanced Institute of Science and Technology
security analysis
FE 527

Fall 2015
Transaction Costs
Transaction costs lowers the fair value of the
option if you buy it, and raises the cost to you if
you sell it
Assume a simple transaction cost proportional to
the cost of the shares traded and hedge at
realized volatility
Two types o
Korea Advanced Institute of Science and Technology
security analysis
FE 527

Fall 2015
[Exercise Material]
GARCH: Understanding of Volatility Clustering
20151204
Task1: GARCH Modeling of Japanese Yen/US dollars (Class)
Data Description
1/02/1985 8/14/1997, daily return of Japanese Yen/US dollars exchange rate, 5 day a week, daily,
3292 ob
Korea Advanced Institute of Science and Technology
security analysis
FE 527

Fall 2015
Empirical Evidence on Security Returns
KAIST College of Business
Instructor: Lee, Changjun
Outline
Example of Conditional CAPM: Jagannathan and Wang (1996)
ICAPM
Example of APT: Chen, Roll, and Ross (1986)
The FamaFrench ThreeFactor Model
Behaviora