Quantitative Modeling of Derivative Securities: From Theory to Practice

Description

Quantitative Modeling of Derivative Securities demonstrates how to take the basic ideas of arbitrage theory and apply them - in a very concrete way - to the design and analysis of financial products. Based primarily (but not exclusively) on the analysis of derivatives, the book emphasizes relative-value and hedging ideas applied to different financial instruments. Using a "financial engineering approach," the theory is developed progressively, focusing on specific aspects of pricing and hedging and with problems that the technical analyst or trader has to consider in practice. More than just an introductory text, the reader who has mastered the contents of this one book will have breached the gap separating the novice from the technical and research literature. Contents Dedication Introduction 1 Arbitrage Pricing Theory: The One-Period Model 2 The Binomial Option Pricing Model 3 Analysis of the Black-Scholes Formula 4 Refinements of the Binomial Model 5 American-Style Options. Early Exercise. and Time-Optionality 6 Trinomial Model and Finite-Difference Schemes 7 Brownian Motion and Ito Calculus 8 Introduction to Exotic Options: Digital and Barrier Options 9 Ito Processes. Continuous-Time Martingales and Girsanov’s Theorem 10 Continuous-Time Finance: An Introduction 11 Valuation of Derivative Securities 12 Fixed-Income Securities and the Term-Structure of Interest Rates 13 The Heath-Jarrow-Morton Theorem and Multidimensional Term-Structure Models 14 Exponential-Affine Models 15 Interest-Rate Options Index