Modelling and Hedging Equity Derivatives

Modelling and Hedging Equity Derivatives


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Product Details

ISBN-13: 9781899332342
Publisher: Risk Books
Publication date: 01/06/1999
Pages: 287
Product dimensions: 8.27(w) x 11.69(h) x (d)

Table of Contents

Modelling and Hedging Equity Derivatives

Mathematical Fundamentals
A Review of Probability Theory and Stochastic Calculus
The Black-Scholes Equity Model
Extensions to Black-Scholes
The Clark Formula
The Hybrid Model
The Multi-Currency Hybrid Model
Closed-Form Solutions for Standard Products
Basic Products
American Options
Digital Options
Barrier Options
Asian Options
Closed-Form Solutions for Non-Standard Products
Lookback Options
Fade-In Options
Fade-In Barrier Options
Chooser Options
Prolongation Options
Improving Options
Power and Powered Options
Compound Options
Closed-Form Solutions for Multi-Asset Products
Exchange Options
Relative Digital Options
Relative Outperformance Options
Outperformance options
European Digital Option on Best or Worst of Two Assets
Best or Worst of Several Assets
Basket Options
Hindsight Options
Outside Barrier Options
Outside Digital Options
Closed-Form Fixed Income and Hybrid Products
Bond Options and Swaptions
Caps and Floors
European Options (Merton Formula)
Equity/Bond Outperformance Options

The Tree Approach
Setting up the Tree
Option Pricing Using Trees
Barrier Options
Bermudan Asian Options
Convertible Bonds
Monte Carlo Methods
The Basic Method
Speeding Up Monte Carlo
Generic Monte Carlo Pricing
Hybrid Monte Carlo
Monte Carlo for American Options
A Partial Differential Equation Solver
Discretisation of the PDE
Boundary Conditions
Moving Barriers
Range and Fade-In Options
American Options
Discrete Dividends
Model Calibration
Further Modelling Issues
Calibration of the Extended Vasicek Model
Basket and Asian Underlyings
Volatility Smile

Hedging and Risk Management
Pricing and Hedging European Options Under Transaction Costs
Hedging of Specific Products

Implementation Issues
The Context of a Model Library
Library Interface Design
Internal design
Appendix: Useful Formulas

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