Download or read book Theory of Rational Option Pricing written by Robert C Merton and published by Legare Street Press. This book was released on 2022-10-27 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This work has been selected by scholars as being culturally important, and is part of the knowledge base of civilization as we know it. This work is in the "public domain in the United States of America, and possibly other nations. Within the United States, you may freely copy and distribute this work, as no entity (individual or corporate) has a copyright on the body of the work. Scholars believe, and we concur, that this work is important enough to be preserved, reproduced, and made generally available to the public. We appreciate your support of the preservation process, and thank you for being an important part of keeping this knowledge alive and relevant.

Download or read book Contingency Approaches to Corporate Finance written by Dan Galai and published by World Scientific Publishing Company. This book was released on 2019-01-30 with total page 2036 pages. Available in PDF, EPUB and Kindle. Book excerpt: Black and Scholes (1973) and Merton (1974) (hereafter referred to as BSM) introduced the contingent claim approach (CCA) to the valuation of corporate debt and equity. The BSM modeling framework is also named the 'structural' approach to risky debt valuation. The CCA approach considers all stakeholders of the corporation as holding contingent claims on the assets of the corporation. Each claim holder has different priorities, maturities and conditions for payouts. It is based on the principle that all the assets belong to all the liability holders.In the structural approach the arrival of the default event relies on economic arguments for why firms default as it is explicitly related to the dynamics of the economic value of the firm. A standard structural model of default timing assumes that a corporation defaults when its assets drop to a sufficiently low level relative to its liabilities.The BSM modeling framework gives the basic fundamental version of the structural model where default is assumed to occur when the net asset value of the firm at the maturity of the pure-discount debt becomes negative, i.e., market value of the assets of the firm falls below the market value of the firm's liabilities. In a regime of limited liability, the shareholders of the firm have the option to default on the firm's debt. Equity can be viewed as a European call option on the firm's assets with a strike price equal to the face value of the firm's debt. Actually, CCA can be used to value all the components of the firm's liabilities. Option pricing models are used to value stocks, bonds, and many other types of corporate claims.Different versions of the model correspond to different assumptions about the conditions when a firm defaults. Merton (1974) assumes that the firm only defaults at the maturity date of the firm's outstanding debt when the net asset value of the firm, in market value terms, is negative. Others introduce other conditions for default. Also, different authors introduce more complicated capital structure with different kinds of bonds (e.g. senior and junior), warrants, corporate taxes, ESOP, and more. Volume 1: Foundations of CCA and Equity ValuationVolume 1 presents the seminal papers of Black and Scholes (1973) and Merton (1973, 1974). This volume also includes papers that specifically price equity as a call option on the corporation. It introduces warrants, convertible bonds and taxation as contingent claims on the corporation. It highlights the strong relationship between the CCA and the Modigliani-Miller (M&M) Theorems, and the relation to the Capital Assets Pricing Model (CAPM). Volume 2: CCA Approach to Corporate Debt ValuationVolume 2 concentrates on corporate bond valuation by introducing various types of bonds with different covenants as well as introducing various conditions that trigger default. While empirical evidence indicates that the simple Merton's model underestimates the credit spreads, additional risk factors like jumps can be used to resolve it. Volume 3: Issues in Corporate Finance with CCA ApproachVolume 3 includes papers that look at issues in corporate finance that can be explained with the CCA approach. These issues include the effect of dividend policy on the valuation of debt and equity, the pricing of employee stock options and many other issues of corporate governance. Volume 4: CCA Approach to Banking and Financial IntermediationVolume 4 focuses on the application of the contingent claim approach to banks and other financial intermediaries. Regulation of the banking industry led to the creation of new financial securities (e.g., CoCos) and new types of stakeholders (e.g., deposit insurers).

Download or read book Introduction to Option Pricing Theory written by Gopinath Kallianpur and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 266 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since the appearance of seminal works by R. Merton, and F. Black and M. Scholes, stochastic processes have assumed an increasingly important role in the development of the mathematical theory of finance. This work examines, in some detail, that part of stochastic finance pertaining to option pricing theory. Thus the exposition is confined to areas of stochastic finance that are relevant to the theory, omitting such topics as futures and term-structure. This self-contained work begins with five introductory chapters on stochastic analysis, making it accessible to readers with little or no prior knowledge of stochastic processes or stochastic analysis. These chapters cover the essentials of Ito's theory of stochastic integration, integration with respect to semimartingales, Girsanov's Theorem, and a brief introduction to stochastic differential equations. Subsequent chapters treat more specialized topics, including option pricing in discrete time, continuous time trading, arbitrage, complete markets, European options (Black and Scholes Theory), American options, Russian options, discrete approximations, and asset pricing with stochastic volatility. In several chapters, new results are presented. A unique feature of the book is its emphasis on arbitrage, in particular, the relationship between arbitrage and equivalent martingale measures (EMM), and the derivation of necessary and sufficient conditions for no arbitrage (NA). {\it Introduction to Option Pricing Theory} is intended for students and researchers in statistics, applied mathematics, business, or economics, who have a background in measure theory and have completed probability theory at the intermediate level. The work lends itself to self-study, as well as to a one-semester course at the graduate level.

Download or read book Option Pricing written by Menachem Brenner and published by Free Press. This book was released on 1983 with total page 264 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Introduction to Option Pricing Theory written by G. Kallianpur and published by . This book was released on 2000 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Since the appearance of seminal works by R. Merton, and F. Black and M. Scholes, stochastic processes have assumed an increasingly important role in the development of the mathematical theory of finance. This work examines, in some detail, that part of stochastic finance pertaining to option pricing theory. Thus the exposition is confined to areas of stochastic finance that are relevant to the theory, omitting such topics as futures and term-structure." "Introduction to Option Pricing Theory is intended for students and researchers in statistics, applied mathematics, business, or economics, who have a background in measure theory and have completed probability theory at the intermediate level. The work lends itself to self-study, as well as to a one-semester course at the graduate level."--BOOK JACKET.Title Summary field provided by Blackwell North America, Inc. All Rights Reserved

Download or read book Rational Theory of International Politics written by Charles L. Glaser and published by Princeton University Press. This book was released on 2010-04-26 with total page 329 pages. Available in PDF, EPUB and Kindle. Book excerpt: Within the realist school of international relations, a prevailing view holds that the anarchic structure of the international system invariably forces the great powers to seek security at one another's expense, dooming even peaceful nations to an unrelenting struggle for power and dominance. Rational Theory of International Politics offers a more nuanced alternative to this view, one that provides answers to the most fundamental and pressing questions of international relations. Why do states sometimes compete and wage war while at other times they cooperate and pursue peace? Does competition reflect pressures generated by the anarchic international system or rather states' own expansionist goals? Are the United States and China on a collision course to war, or is continued coexistence possible? Is peace in the Middle East even feasible? Charles Glaser puts forward a major new theory of international politics that identifies three kinds of variables that influence a state's strategy: the state's motives, specifically whether it is motivated by security concerns or "greed"; material variables, which determine its military capabilities; and information variables, most importantly what the state knows about its adversary's motives. Rational Theory of International Politics demonstrates that variation in motives can be key to the choice of strategy; that the international environment sometimes favors cooperation over competition; and that information variables can be as important as material variables in determining the strategy a state should choose.

Download or read book Dynamic Hedging written by Nassim Nicholas Taleb and published by John Wiley & Sons. This book was released on 1997-01-14 with total page 536 pages. Available in PDF, EPUB and Kindle. Book excerpt: Destined to become a market classic, Dynamic Hedging is the only practical reference in exotic options hedgingand arbitrage for professional traders and money managers Watch the professionals. From central banks to brokerages to multinationals, institutional investors are flocking to a new generation of exotic and complex options contracts and derivatives. But the promise of ever larger profits also creates the potential for catastrophic trading losses. Now more than ever, the key to trading derivatives lies in implementing preventive risk management techniques that plan for and avoid these appalling downturns. Unlike other books that offer risk management for corporate treasurers, Dynamic Hedging targets the real-world needs of professional traders and money managers. Written by a leading options trader and derivatives risk advisor to global banks and exchanges, this book provides a practical, real-world methodology for monitoring and managing all the risks associated with portfolio management. Nassim Nicholas Taleb is the founder of Empirica Capital LLC, a hedge fund operator, and a fellow at the Courant Institute of Mathematical Sciences of New York University. He has held a variety of senior derivative trading positions in New York and London and worked as an independent floor trader in Chicago. Dr. Taleb was inducted in February 2001 in the Derivatives Strategy Hall of Fame. He received an MBA from the Wharton School and a Ph.D. from University Paris-Dauphine.

Download or read book Vinzenz Bronzin s Option Pricing Models written by Wolfgang Hafner and published by Springer Science & Business Media. This book was released on 2009-11-18 with total page 553 pages. Available in PDF, EPUB and Kindle. Book excerpt: In 1908, Vinzenz Bronzin, a professor of mathematics at the Accademia di Commercio e Nautica in Trieste, published a booklet in German entitled Theorie der Prämiengeschäfte (Theory of Premium Contracts) which is an old type of option contract. Almost like Bachelier’s now famous dissertation (1900), the work seems to have been forgotten shortly after it was published. However, almost every element of modern option pricing can be found in Bronzin’s book. He derives option prices for an illustrative set of distributions, including the Normal. - This volume includes a reprint of the original German text, a translation, as well as an appreciation of Bronzin's work from various perspectives (economics, history of finance, sociology, economic history) including some details about the professional life and circumstances of the author. The book brings Bronzin's early work to light again and adds an almost forgotten piece of research to the theory of option pricing.

Download or read book Theory of Valuation written by Sudipto Bhattacharya and published by World Scientific. This book was released on 2005 with total page 387 pages. Available in PDF, EPUB and Kindle. Book excerpt: The first edition of Theory of Valuation is a collection of important papers in the field of theoretical financial economics published from 1973 to 1986, and original accompanying essays contributed by eminent researchers including Robert C Merton, Edward C Prescott, Stephen A Ross, and Joseph E Stiglitz. Since then, with the perspective of major theoretical strides in the field, the book has more than fulfilled its original expectations. The realization that it remains today a compendium of classic articles and a must-read for any serious student in theoretical financial economics, has prompted the publication of a new edition. This second edition presents a summary statement of significant research in theoretical financial economics for both the specialist and non-specialist financial economist. It also provides material for PhD-level courses covering valuation theory, and elective reading for advanced MasterOCOs and undergraduate courses. In addition to reproducing the original contributions, this edition includes the seminal paper by Edward C Prescott and Rajnish Mehra, OC Recursive Competitive Equilibrium: The Case of Homogeneous Households, OCO originally published in Econometrica in 1980."

Download or read book Exotic Derivatives and Risk written by Mondher Bellalah and published by World Scientific. This book was released on 2009 with total page 617 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book discusses in detail the workings of financial markets and over-the-counter (OTC) markets, focusing specifically on standard and complex derivatives. The subjects covered range from the fundamental products in OTC markets, standard and exotic options, the concepts of value at risk, credit derivatives and risk management, to the applications of option pricing theory to real assets.To further elucidate these complex concepts and formulas, this book also explains in each chapter how theory and practice go hand-in-hand. This volume, a culmination of the author's 12 years of professional experience in the field of finance, derivative analysis and risk management, is a valuable guide for postgraduate students, academics and practitioners in the field of finance.

Download or read book Stochastic Dominance Option Pricing written by Stylianos Perrakis and published by Springer. This book was released on 2019-05-03 with total page 277 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book illustrates the application of the economic concept of stochastic dominance to option markets and presents an alternative option pricing paradigm to the prevailing no arbitrage simultaneous equilibrium in the frictionless underlying and option markets. This new methodology was developed primarily by the author, working independently or jointly with other co-authors, over the course of more than thirty years. Among others, it yields the fundamental Black-Scholes-Merton option value when markets are complete, presents a new approach to the pricing of rare event risk, and uncovers option mispricing that leads to tradeable strategies in the presence of transaction costs. In the latter case it shows how a utility-maximizing investor trading in the market and a riskless bond, subject to proportional transaction costs, can increase his/her expected utility by overlaying a zero-net-cost portfolio of options bought at their ask price and written at their bid price, irrespective of the specific form of the utility function. The book contains a unified presentation of these methods and results, making it a highly readable supplement for educators and sophisticated professionals working in the popular field of option pricing. It also features a foreword by George Constantinides, the Leo Melamed Professor of Finance at the Booth School of Business, University of Chicago, USA, who was a co-author in several parts of the book.

Download or read book Telegraph Processes and Option Pricing written by Alexander D. Kolesnik and published by Springer Science & Business Media. This book was released on 2013-10-18 with total page 138 pages. Available in PDF, EPUB and Kindle. Book excerpt: The telegraph process is a useful mathematical model for describing the stochastic motion of a particle that moves with finite speed on the real line and alternates between two possible directions of motion at random time instants. That is why it can be considered as the finite-velocity counterpart of the classical Einstein-Smoluchowski's model of the Brownian motion in which the infinite speed of motion and the infinite intensity of the alternating directions are assumed. The book will be interesting to specialists in the area of diffusion processes with finite speed of propagation and in financial modelling. It will also be useful for students and postgraduates who are taking their first steps in these intriguing and attractive fields.

Download or read book Exotic Option Pricing and Advanced L vy Models written by Andreas Kyprianou and published by John Wiley & Sons. This book was released on 2006-06-14 with total page 344 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since around the turn of the millennium there has been a general acceptance that one of the more practical improvements one may make in the light of the shortfalls of the classical Black-Scholes model is to replace the underlying source of randomness, a Brownian motion, by a Lévy process. Working with Lévy processes allows one to capture desirable distributional characteristics in the stock returns. In addition, recent work on Lévy processes has led to the understanding of many probabilistic and analytical properties, which make the processes attractive as mathematical tools. At the same time, exotic derivatives are gaining increasing importance as financial instruments and are traded nowadays in large quantities in OTC markets. The current volume is a compendium of chapters, each of which consists of discursive review and recent research on the topic of exotic option pricing and advanced Lévy markets, written by leading scientists in this field. In recent years, Lévy processes have leapt to the fore as a tractable mechanism for modeling asset returns. Exotic option values are especially sensitive to an accurate portrayal of these dynamics. This comprehensive volume provides a valuable service for financial researchers everywhere by assembling key contributions from the world's leading researchers in the field. Peter Carr, Head of Quantitative Finance, Bloomberg LP. This book provides a front-row seat to the hottest new field in modern finance: options pricing in turbulent markets. The old models have failed, as many a professional investor can sadly attest. So many of the brightest minds in mathematical finance across the globe are now in search of new, more accurate models. Here, in one volume, is a comprehensive selection of this cutting-edge research. Richard L. Hudson, former Managing Editor of The Wall Street Journal Europe, and co-author with Benoit B. Mandelbrot of The (Mis)Behaviour of Markets: A Fractal View of Risk, Ruin and Reward

Download or read book Option Pricing Interest Rates and Risk Management written by Elyès Jouini and published by Cambridge University Press. This book was released on 2001 with total page 324 pages. Available in PDF, EPUB and Kindle. Book excerpt: This 2001 handbook surveys the state of practice, method and understanding in the field of mathematical finance. Every chapter has been written by leading researchers and each starts by briefly surveying the existing results for a given topic, then discusses more recent results and, finally, points out open problems with an indication of what needs to be done in order to solve them. The primary audiences for the book are doctoral students, researchers and practitioners who already have some basic knowledge of mathematical finance. In sum, this is a comprehensive reference work for mathematical finance and will be indispensable to readers who need to find a quick introduction or reference to a specific topic, leading all the way to cutting edge material.

Download or read book An Introduction to Exotic Option Pricing written by Peter Buchen and published by CRC Press. This book was released on 2012-02-03 with total page 298 pages. Available in PDF, EPUB and Kindle. Book excerpt: In an easy-to-understand, nontechnical yet mathematically elegant manner, An Introduction to Exotic Option Pricing shows how to price exotic options, including complex ones, without performing complicated integrations or formally solving partial differential equations (PDEs). The author incorporates much of his own unpublished work, including ideas and techniques new to the general quantitative finance community. The first part of the text presents the necessary financial, mathematical, and statistical background, covering both standard and specialized topics. Using no-arbitrage concepts, the Black–Scholes model, and the fundamental theorem of asset pricing, the author develops such specialized methods as the principle of static replication, the Gaussian shift theorem, and the method of images. A key feature is the application of the Gaussian shift theorem and its multivariate extension to price exotic options without needing a single integration. The second part focuses on applications to exotic option pricing, including dual-expiry, multi-asset rainbow, barrier, lookback, and Asian options. Pushing Black–Scholes option pricing to its limits, the author introduces a powerful formula for pricing a class of multi-asset, multiperiod derivatives. He gives full details of the calculations involved in pricing all of the exotic options. Taking an applied mathematics approach, this book illustrates how to use straightforward techniques to price a wide range of exotic options within the Black–Scholes framework. These methods can even be used as control variates in a Monte Carlo simulation of a stochastic volatility model.

Download or read book Fourier Transform Methods in Finance written by Umberto Cherubini and published by John Wiley & Sons. This book was released on 2010-01-05 with total page 326 pages. Available in PDF, EPUB and Kindle. Book excerpt: In recent years, Fourier transform methods have emerged as one of the major methodologies for the evaluation of derivative contracts, largely due to the need to strike a balance between the extension of existing pricing models beyond the traditional Black-Scholes setting and a need to evaluate prices consistently with the market quotes. Fourier Transform Methods in Finance is a practical and accessible guide to pricing financial instruments using Fourier transform. Written by an experienced team of practitioners and academics, it covers Fourier pricing methods; the dynamics of asset prices; non stationary market dynamics; arbitrage free pricing; generalized functions and the Fourier transform method. Readers will learn how to: compute the Hilbert transform of the pricing kernel under a Fast Fourier Transform (FFT) technique characterise the price dynamics on a market in terms of the characteristic function, allowing for both diffusive processes and jumps apply the concept of characteristic function to non-stationary processes, in particular in the presence of stochastic volatility and more generally time change techniques perform a change of measure on the characteristic function in order to make the price process a martingale recover a general representation of the pricing kernel of the economy in terms of Hilbert transform using the theory of generalised functions apply the pricing formula to the most famous pricing models, with stochastic volatility and jumps. Junior and senior practitioners alike will benefit from this quick reference guide to state of the art models and market calibration techniques. Not only will it enable them to write an algorithm for option pricing using the most advanced models, calibrate a pricing model on options data, and extract the implied probability distribution in market data, they will also understand the most advanced models and techniques and discover how these techniques have been adjusted for applications in finance. ISBN 978-0-470-99400-9

Download or read book Applied Real Option Valuation written by Kaveh Sheibani and published by ORLAB Analytics. This book was released on 2010-06-30 with total page 81 pages. Available in PDF, EPUB and Kindle. Book excerpt: Supporting investment profitability analysis and decision-making with real option analysis is an issue of increasing interest among both practitioners and managers. This special issue of the Journal of Applied Operational Research (JAOR) presents some new progress in applying real option analysis and valuation to real world problems in a number of industries.