Download Advanced Equity Derivatives: Volatility and Correlation by Sebastien Bossu, Peter Carr PDF

By Sebastien Bossu, Peter Carr

In Advanced fairness Derivatives: Volatility and Correlation, Sébastien Bossu studies and explains the complicated recommendations used for pricing and hedging fairness unique derivatives.  Designed for monetary modelers, alternative investors and complicated traders, the content material covers an important theoretical and useful extensions of the Black-Scholes model.

Each bankruptcy comprises various illustrations and a brief number of difficulties, overlaying key themes corresponding to implied volatility floor versions, pricing with implied distributions, neighborhood volatility versions, volatility derivatives, correlation measures, correlation buying and selling, neighborhood correlation versions and stochastic correlation.

The writer has a twin expert and educational history, making Advanced fairness Derivatives: Volatility and Correlation the proper reference for quantitative researchers and mathematically savvy finance execs seeking to collect an in-depth knowing of fairness unique derivatives pricing and hedging.

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Additional resources for Advanced Equity Derivatives: Volatility and Correlation

Example text

Compute the probability that ST > 14 using the implied distribution. ii. Compute the value of the “capped quadratic” option conditional upon {ST > 14}. Is this an arbitrage price? ’s stock since 1980. 5 Path-Dependent Payoff Consider an option whose payoff at maturity T2 is a nonlinear function f (ST1 , ST2 ) of the future underlying spot price observed at times T1 < T2 . (a) Give two classical examples of such an option. (b) Write the pseudo-code to price this option in the Black-Scholes model using the Monte Carlo method.

Based on this graph, you reckon that the stock price will remain above $14 within the next three years. i. Compute the probability that ST > 14 using the implied distribution. ii. Compute the value of the “capped quadratic” option conditional upon {ST > 14}. Is this an arbitrage price? ’s stock since 1980. 5 Path-Dependent Payoff Consider an option whose payoff at maturity T2 is a nonlinear function f (ST1 , ST2 ) of the future underlying spot price observed at times T1 < T2 . (a) Give two classical examples of such an option.

REFERENCES Baxter, Martin, and Andrew Rennie. 1996. Financial Calculus: An Introduction to Derivative Pricing. New York: Cambridge University Press. Broadie, Mark, Paul Glasserman, and Steven Kou. 1997. ” Mathematical Finance 7 (4): 325–348. Hull, John C. 2012. Option, Futures, and Other Derivatives, 8th ed. New York: Prentice Hall. 1 “Free” Option Consider a European call option on an underlying asset S with strike K and maturity T where “you only pay the premium if you win,” that is, if ST > K.

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