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Thesis - KTH DiVA
Thesis - KTH DiVA

Download paper (PDF)
Download paper (PDF)

... Inference for parameters and state variables in nonlinear, non-Gaussian state space models is difficult, for the reasons mentioned above. If the parameters were known and the state space model were linear and Gaussian, the Kalman filter provides the posterior distribution of the state variables, p (X| ...
Black and Scholes (1973) and Sharpe (1976) provide an earlier
Black and Scholes (1973) and Sharpe (1976) provide an earlier

Report on the Secondary Market for RGGI CO 2 Allowances
Report on the Secondary Market for RGGI CO 2 Allowances

Interest Rate Variance Swaps and the Pricing of
Interest Rate Variance Swaps and the Pricing of

... naturally lends itself as the basis of a benchmark index for income market and serves as the underlying for standardized futures and options contracts for volatility trading. A model-free options-based volatility pricing methodology prices and exchange rates) was branded and popularized as the ogy h ...
AcSB Implementation Guide Hedging Relationships Typescript
AcSB Implementation Guide Hedging Relationships Typescript

... Answer: In general paragraph 15 of AcG-13 states that synthetic instrument accounting can only be applied if the conditions outlined in paragraph 6 of AcG-13 are met. Paragraph 6(c) states that “both at the inception of the hedging relationship and throughout its term, the entity should have reasona ...
Generating South African Volatility Surface
Generating South African Volatility Surface

... Traders say volatilities are “skewed” when options of a given asset trade at increasing or decreasing levels of implied volatility as you move through the strikes. The volatility skew (smile) was first observed and mentioned by Black and Scholes in a paper that appeared in 1972 [BS 72]. It was then ...
Bubbles
Bubbles

... that everybody knows the price exceeds the value of any possible dividend stream, but it is not the case that everybody knows that all the other investors also know this fact. It is this lack of higher-order mutual knowledge that makes it possible for finite bubbles to exist under certain necessary ...
Master`s Thesis Pricing Constant Maturity Swap Derivatives
Master`s Thesis Pricing Constant Maturity Swap Derivatives

... be for example a LIBOR rate, on a given notional principal. The amount of the notional, however, is never exchanged. In a standard swap, we exchange a floating short term rate, like a LIBOR rate, against a fixed rate. In a CMS swap, the floating rate is no longer a short term rate, but a swap rate w ...
Finance
Finance

... of simple interest is called an add-on loan. An add-on loan is a loan in which the future value of the loan is calculated and then payments are determined by dividing this by the number of payments to be made. The following example demonstrates this type of loan. Example 3. The Perez family buys a b ...
NBER WORKING PAPER SERIES RESOLVING MACROECONOMIC UNCERTAINTY IN STOCK AND BOND MARKETS
NBER WORKING PAPER SERIES RESOLVING MACROECONOMIC UNCERTAINTY IN STOCK AND BOND MARKETS

Energy Derivatives
Energy Derivatives

advanced cotton futures and options strategies
advanced cotton futures and options strategies

Advanced Cash-Flow Techniques in Product Pricing
Advanced Cash-Flow Techniques in Product Pricing

A new approach for option pricing under stochastic volatility
A new approach for option pricing under stochastic volatility

... proxy for business time and hence affects both volatilities. However, in contrast to other work on option pricing with stochastic time change, we do not specify the dynamics of σ under P. The next section shows that we can nonetheless hedge path-independent claims perfectly and hence price them uniq ...
More Than You Ever Wanted to Know About
More Than You Ever Wanted to Know About

... illegal. Certain transactions, including those involving futures, options and high yield securities, give rise to substantial risk and are not suitable for all investors. Opinions expressed are our present opinions only. The material is based upon information that we consider reliable, but we do not ...
Maximum Market Price of Longevity Risk under Solvency
Maximum Market Price of Longevity Risk under Solvency

Hedging Barrier Options - Homepages of UvA/FNWI staff
Hedging Barrier Options - Homepages of UvA/FNWI staff

Stock option plans for non-executive employees
Stock option plans for non-executive employees

... both as a substitute for cash compensation and to make adjustments to aggregate incentive levels. Because grants of equity require no contemporaneous cash payout, firms with cash constraints are expected to use these forms of compensation as a substitute for cash pay (Yermack, 1995; Dechow et al., 19 ...
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NBER WORKING PAPER SERIES REVERSE ENGINEERING THE YIELD CURVE David K. Backus

Gain, Loss and Asset Pricing
Gain, Loss and Asset Pricing

Volatility Derivatives
Volatility Derivatives

Iuuuiu
Iuuuiu

... constant during the sale period. Schwarz [1] discussed the finite horizon EOQ model, the costs of the model were static and the optimal ordering number can be found during the finite horizon. In real life, there are many reasons for suppliers offer a temporarily price discount to retailers. The reta ...
Title The Restoration of the Gold Standard after the US Civil War: A
Title The Restoration of the Gold Standard after the US Civil War: A

Modelling Stock Prices
Modelling Stock Prices

... due to manifold influences which determine the layout of a stock price (such as e.g. value of the future prospects of the company, general economic situation, political decisions, consumer behaviour, etc.). The first indications of the future development of a stock price can provide us with estimati ...
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Black–Scholes model

The Black–Scholes /ˌblæk ˈʃoʊlz/ or Black–Scholes–Merton model is a mathematical model of a financial market containing derivative investment instruments. From the model, one can deduce the Black–Scholes formula, which gives a theoretical estimate of the price of European-style options. The formula led to a boom in options trading and legitimised scientifically the activities of the Chicago Board Options Exchange and other options markets around the world. lt is widely used, although often with adjustments and corrections, by options market participants. Many empirical tests have shown that the Black–Scholes price is ""fairly close"" to the observed prices, although there are well-known discrepancies such as the ""option smile"".The Black–Scholes model was first published by Fischer Black and Myron Scholes in their 1973 paper, ""The Pricing of Options and Corporate Liabilities"", published in the Journal of Political Economy. They derived a partial differential equation, now called the Black–Scholes equation, which estimates the price of the option over time. The key idea behind the model is to hedge the option by buying and selling the underlying asset in just the right way and, as a consequence, to eliminate risk. This type of hedging is called delta hedging and is the basis of more complicated hedging strategies such as those engaged in by investment banks and hedge funds.Robert C. Merton was the first to publish a paper expanding the mathematical understanding of the options pricing model, and coined the term ""Black–Scholes options pricing model"". Merton and Scholes received the 1997 Nobel Memorial Prize in Economic Sciences for their work. Though ineligible for the prize because of his death in 1995, Black was mentioned as a contributor by the Swedish Academy.The model's assumptions have been relaxed and generalized in many directions, leading to a plethora of models that are currently used in derivative pricing and risk management. It is the insights of the model, as exemplified in the Black-Scholes formula, that are frequently used by market participants, as distinguished from the actual prices. These insights include no-arbitrage bounds and risk-neutral pricing. The Black-Scholes equation, a partial differential equation that governs the price of the option, is also important as it enables pricing when an explicit formula is not possible.The Black–Scholes formula has only one parameter that cannot be observed in the market: the average future volatility of the underlying asset. Since the formula is increasing in this parameter, it can be inverted to produce a ""volatility surface"" that is then used to calibrate other models, e.g. for OTC derivatives.
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