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119 relations: Arbitrage, Autoregressive conditional heteroskedasticity, Berkshire Hathaway, Binary option, Binomial options pricing model, Black model, Black Shoals, Black's approximation, Black–Scholes equation, Black–Scholes model, Bond (finance), Boston University, Brownian model of financial markets, Call option, Chicago Board Options Exchange, Closed-form expression, Compound interest, Conditional probability, Consistency, Coordinate system, Cumulative distribution function, Datar–Mathews method for real option valuation, Delta neutral, Derivative, Derivative (finance), Differential calculus, Discounting, Dividend, Dividend yield, Edward O. Thorp, Emanuel Derman, Espen Gaarder Haug, Expected value, Feynman–Kac formula, Financial market, Finite difference methods for option pricing, Fischer Black, Forward price, Frictionless market, Fuzzy pay-off method for real option valuation, Geometric Brownian motion, George Szpiro, Greeks (finance), Heat equation, Heaviside step function, Hedge (finance), Hedge fund, Ian Stewart (mathematician), Implied volatility, INSEAD, ..., Investment banking, Journal of Political Economy, Jump diffusion, Lattice model (finance), Liquidity risk, Log-normal distribution, Long-Term Capital Management, Louis Bachelier, Martingale (probability theory), Mathematical finance, Mathematical model, Measure (mathematics), Moneyness, Monotonic function, Monte Carlo methods for option pricing, Myron Scholes, Nassim Nicholas Taleb, Neoclassical economics, No-arbitrage bounds, Nobel Memorial Prize in Economic Sciences, Normal distribution, Numéraire, Numerical analysis, Numerical method, Optimal stopping, Option (finance), Option style, Partial derivative, Partial differential equation, Paul Wilmott, Portfolio (finance), Prentice Hall, Probability density function, Probability measure, Pull to par, Put option, Put–call parity, Quadratic equation, Quadratic variation, Random walk, Rational pricing, Real options valuation, Risk management, Risk neutral preferences, Risk-free interest rate, Risk-neutral measure, Robert C. Merton, Root-finding algorithm, Sharpe ratio, Sheen T. Kassouf, Short (finance), Simulation, Skewness, Spot contract, Stochastic drift, Stochastic volatility, Stress testing, Strike price, Tail risk, Terence Tao, The Observer, Transaction cost, Underlying, Valuation of options, Volatility (finance), Volatility risk, Volatility smile, Warren Buffett, Yield curve. Expand index (69 more) »
Arbitrage
In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices.
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Autoregressive conditional heteroskedasticity
In econometrics, the autoregressive conditional heteroskedasticity (ARCH) model is a statistical model for time series data that describes the variance of the current error term or innovation as a function of the actual sizes of the previous time periods' error terms; often the variance is related to the squares of the previous innovations.
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Berkshire Hathaway
Berkshire Hathaway Inc. is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States.
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Binary option
A binary option is a financial option in which the payoff is either some fixed monetary amount or nothing at all.
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Binomial options pricing model
In finance, the binomial options pricing model (BOPM) provides a generalizable numerical method for the valuation of options.
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Black model
The Black model (sometimes known as the Black-76 model) is a variant of the Black–Scholes option pricing model.
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Black Shoals
Black Shoals is an artificial ecosystem linked to the real time dynamics of the stock market.
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Black's approximation
In finance, Black's approximation is an approximate method for computing the value of an American call option on a stock paying a single dividend.
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Black–Scholes equation
In mathematical finance, the Black–Scholes equation is a partial differential equation (PDE) governing the price evolution of a European call or European put under the Black–Scholes model.
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Black–Scholes model
The Black–Scholes or Black–Scholes–Merton model is a mathematical model for the dynamics of a financial market containing derivative investment instruments.
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Bond (finance)
In finance, a bond is an instrument of indebtedness of the bond issuer to the holders.
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Boston University
Boston University (commonly referred to as BU) is a private, non-profit, research university in Boston, Massachusetts.
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Brownian model of financial markets
The Brownian motion models for financial markets are based on the work of Robert C. Merton and Paul A. Samuelson, as extensions to the one-period market models of Harold Markowitz and William F. Sharpe, and are concerned with defining the concepts of financial assets and markets, portfolios, gains and wealth in terms of continuous-time stochastic processes.
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Call option
A call option, often simply labeled a "call", is a financial contract between two parties, the buyer and the seller of this type of option.
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Chicago Board Options Exchange
The Chicago Board Options Exchange, located at 400 South LaSalle Street in Chicago, is the largest U.S. options exchange with annual trading volume that hovered around 1.27 billion contracts at the end of 2014.
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Closed-form expression
In mathematics, a closed-form expression is a mathematical expression that can be evaluated in a finite number of operations.
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Compound interest
Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest.
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Conditional probability
In probability theory, conditional probability is a measure of the probability of an event (some particular situation occurring) given that (by assumption, presumption, assertion or evidence) another event has occurred.
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Consistency
In classical deductive logic, a consistent theory is one that does not contain a contradiction.
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Coordinate system
In geometry, a coordinate system is a system which uses one or more numbers, or coordinates, to uniquely determine the position of the points or other geometric elements on a manifold such as Euclidean space.
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Cumulative distribution function
In probability theory and statistics, the cumulative distribution function (CDF, also cumulative density function) of a real-valued random variable X, or just distribution function of X, evaluated at x, is the probability that X will take a value less than or equal to x. In the case of a continuous distribution, it gives the area under the probability density function from minus infinity to x. Cumulative distribution functions are also used to specify the distribution of multivariate random variables.
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Datar–Mathews method for real option valuation
The Datar–Mathews method (DM method) is a method for real options valuation.
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Delta neutral
In finance, delta neutral describes a portfolio of related financial securities, in which the portfolio value remains unchanged when small changes occur in the value of the underlying security.
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Derivative
The derivative of a function of a real variable measures the sensitivity to change of the function value (output value) with respect to a change in its argument (input value).
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Derivative (finance)
In finance, a derivative is a contract that derives its value from the performance of an underlying entity.
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Differential calculus
In mathematics, differential calculus is a subfield of calculus concerned with the study of the rates at which quantities change.
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Discounting
Discounting is a financial mechanism in which a debtor obtains the right to delay payments to a creditor, for a defined period of time, in exchange for a charge or fee.
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Dividend
A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits.
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Dividend yield
The dividend yield or dividend-price ratio of a share is the dividend per share, divided by the price per share.
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Edward O. Thorp
Edward Oakley Thorp (born August 14, 1932) is an American mathematics professor, author, hedge fund manager, and blackjack player.
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Emanuel Derman
Emanuel Derman (born 1945) is a South African-born academic, businessman and writer.
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Espen Gaarder Haug
Espen Gaarder Haug (born 1966) is a Norwegian author, quantitative trader specializing in options and other derivatives.
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Expected value
In probability theory, the expected value of a random variable, intuitively, is the long-run average value of repetitions of the experiment it represents.
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Feynman–Kac formula
The Feynman–Kac formula named after Richard Feynman and Mark Kac, establishes a link between parabolic partial differential equations (PDEs) and stochastic processes.
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Financial market
A financial market is a market in which people trade financial securities and derivatives such as futures and options at low transaction costs.
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Finite difference methods for option pricing
Finite difference methods for option pricing are numerical methods used in mathematical finance for the valuation of options.
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Fischer Black
Fischer Sheffey Black (January 11, 1938 – August 30, 1995) was an American economist, best known as one of the authors of the famous Black–Scholes equation.
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Forward price
The forward price (or sometimes forward rate) is the agreed upon price of an asset in a forward contract.
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Frictionless market
In economic theory a frictionless market is a financial market without transaction costs.
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Fuzzy pay-off method for real option valuation
The fuzzy pay-off method for real option valuation (FPOM or pay-off method) is a new method for valuing real options, created in 2008.
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Geometric Brownian motion
A geometric Brownian motion (GBM) (also known as exponential Brownian motion) is a continuous-time stochastic process in which the logarithm of the randomly varying quantity follows a Brownian motion (also called a Wiener process) with drift.
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George Szpiro
George Geza Szpiro (born 18 February 1950 in Vienna) is an Israeli–Swiss author, journalist, and mathematician.
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Greeks (finance)
In mathematical finance, the Greeks are the quantities representing the sensitivity of the price of derivatives such as options to a change in underlying parameters on which the value of an instrument or portfolio of financial instruments is dependent.
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Heat equation
The heat equation is a parabolic partial differential equation that describes the distribution of heat (or variation in temperature) in a given region over time.
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Heaviside step function
The Heaviside step function, or the unit step function, usually denoted by or (but sometimes, or), is a discontinuous function named after Oliver Heaviside (1850–1925), whose value is zero for negative argument and one for positive argument.
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Hedge (finance)
A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment.
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Hedge fund
A hedge fund is an investment fund that pools capital from accredited individuals or institutional investors and invests in a variety of assets, often with complex portfolio-construction and risk-management techniques.
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Ian Stewart (mathematician)
Ian Nicholas Stewart (born 24 September 1945) is a British mathematician and a popular-science and science-fiction writer.
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Implied volatility
In financial mathematics, the implied volatility of an option contract is that value of the volatility of the underlying instrument which, when input in an option pricing model (such as Black–Scholes) will return a theoretical value equal to the current market price of the option.
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INSEAD
INSEAD is a graduate and proprofit business school with campuses in Europe (Fontainebleau, France), Asia (Singapore), and the Middle East (Abu Dhabi).
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Investment banking
An investment bank is typically a private company that provides various finance-related and other services to individuals, corporations, and governments such as raising financial capital by underwriting or acting as the client's agent in the issuance of securities.
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Journal of Political Economy
The Journal of Political Economy is a bimonthly peer-reviewed academic journal published by the University of Chicago Press.
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Jump diffusion
Jump diffusion is a stochastic process that involves jumps and diffusion.
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Lattice model (finance)
In finance, a lattice model is a technique applied to the valuation of derivatives, where a discrete time model is required.
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Liquidity risk
Liquidity risk is a financial risk that for a certain period of time a given financial asset, security or commodity cannot be traded quickly enough in the market without impacting the market price.
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Log-normal distribution
In probability theory, a log-normal (or lognormal) distribution is a continuous probability distribution of a random variable whose logarithm is normally distributed.
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Long-Term Capital Management
Long-Term Capital Management L.P. (LTCM) was a hedge fund management firmA financial History of the United States Volume II: 1970–2001, Jerry W. Markham, Chapter 5: "Bank Consolidation", M. E. Sharpe, Inc., 2002 based in Greenwich, Connecticut that used absolute-return trading strategies combined with high financial leverage.
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Louis Bachelier
Louis Jean-Baptiste Alphonse Bachelier (March 11, 1870 – April 28, 1946) was a French mathematician at the turn of the 20th century.
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Martingale (probability theory)
In probability theory, a martingale is a sequence of random variables (i.e., a stochastic process) for which, at a particular time in the realized sequence, the expectation of the next value in the sequence is equal to the present observed value even given knowledge of all prior observed values.
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Mathematical finance
Mathematical finance, also known as quantitative finance, is a field of applied mathematics, concerned with mathematical modeling of financial markets.
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Mathematical model
A mathematical model is a description of a system using mathematical concepts and language.
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Measure (mathematics)
In mathematical analysis, a measure on a set is a systematic way to assign a number to each suitable subset of that set, intuitively interpreted as its size.
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Moneyness
In finance, moneyness is the relative position of the current price (or future price) of an underlying asset (e.g., a stock) with respect to the strike price of a derivative, most commonly a call option or a put option.
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Monotonic function
In mathematics, a monotonic function (or monotone function) is a function between ordered sets that preserves or reverses the given order.
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Monte Carlo methods for option pricing
In mathematical finance, a Monte Carlo option model uses Monte Carlo methods Although the term 'Monte Carlo method' was coined by Stanislaw Ulam in the 1940s, some trace such methods to the 18th century French naturalist Buffon, and a question he asked about the results of dropping a needle randomly on a striped floor or table.
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Myron Scholes
Myron Samuel Scholes (born July 1, 1941) is a Canadian-American financial economist.
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Nassim Nicholas Taleb
Nassim Nicholas Taleb (نسيم نقولا طالب., alternatively Nessim or Nissim, born 1960) is a Lebanese–American essayist, scholar, statistician, former trader, and risk analyst, whose work focuses on problems of randomness, probability, and uncertainty.
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Neoclassical economics
Neoclassical economics is an approach to economics focusing on the determination of goods, outputs, and income distributions in markets through supply and demand.
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No-arbitrage bounds
In financial mathematics, no-arbitrage bounds are mathematical relationships specifying limits on financial portfolio prices.
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Nobel Memorial Prize in Economic Sciences
The Nobel Memorial Prize in Economic Sciences (officially Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne, or the Swedish National Bank's Prize in Economic Sciences in Memory of Alfred Nobel), commonly referred to as the Nobel Prize in Economics, is an award for outstanding contributions to the field of economics, and generally regarded as the most prestigious award for that field.
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Normal distribution
In probability theory, the normal (or Gaussian or Gauss or Laplace–Gauss) distribution is a very common continuous probability distribution.
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Numéraire
The numéraire (or numeraire) is a basic standard by which value is computed.
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Numerical analysis
Numerical analysis is the study of algorithms that use numerical approximation (as opposed to general symbolic manipulations) for the problems of mathematical analysis (as distinguished from discrete mathematics).
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Numerical method
In numerical analysis, a numerical method is a mathematical tool designed to solve numerical problems.
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Optimal stopping
In mathematics, the theory of optimal stopping or early stopping is concerned with the problem of choosing a time to take a particular action, in order to maximise an expected reward or minimise an expected cost.
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Option (finance)
In finance, an option is a contract which gives the buyer (the owner or holder of the option) the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price on a specified date, depending on the form of the option.
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Option style
In finance, the style or family of an option is the class into which the option falls, usually defined by the dates on which the option may be exercised.
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Partial derivative
In mathematics, a partial derivative of a function of several variables is its derivative with respect to one of those variables, with the others held constant (as opposed to the total derivative, in which all variables are allowed to vary).
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Partial differential equation
In mathematics, a partial differential equation (PDE) is a differential equation that contains unknown multivariable functions and their partial derivatives.
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Paul Wilmott
Paul Wilmott (born 8 November 1959) is a researcher, consultant and lecturer in quantitative finance.
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Portfolio (finance)
In finance, a portfolio is a collection of investments held by an investment company, hedge fund, financial institution or individual.
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Prentice Hall
Prentice Hall is a major educational publisher owned by Pearson plc.
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Probability density function
In probability theory, a probability density function (PDF), or density of a continuous random variable, is a function, whose value at any given sample (or point) in the sample space (the set of possible values taken by the random variable) can be interpreted as providing a relative likelihood that the value of the random variable would equal that sample.
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Probability measure
In mathematics, a probability measure is a real-valued function defined on a set of events in a probability space that satisfies measure properties such as countable additivity.
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Pull to par
Pull to Par is the effect in which the price of a bond converges to par value as time passes.
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Put option
In finance, a put or put option is a stock market device which gives the owner of a put the right, but not the obligation, to sell an asset (the underlying), at a specified price (the strike), by a predetermined date (the expiry or maturity) to a given party (the seller of the put).
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Put–call parity
In financial mathematics, put–call parity defines a relationship between the price of a European call option and European put option, both with the identical strike price and expiry, namely that a portfolio of a long call option and a short put option is equivalent to (and hence has the same value as) a single forward contract at this strike price and expiry.
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Quadratic equation
In algebra, a quadratic equation (from the Latin quadratus for "square") is any equation having the form where represents an unknown, and,, and represent known numbers such that is not equal to.
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Quadratic variation
In mathematics, quadratic variation is used in the analysis of stochastic processes such as Brownian motion and other martingales.
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Random walk
A random walk is a mathematical object, known as a stochastic or random process, that describes a path that consists of a succession of random steps on some mathematical space such as the integers.
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Rational pricing
Rational pricing is the assumption in financial economics that asset prices (and hence asset pricing models) will reflect the arbitrage-free price of the asset as any deviation from this price will be "arbitraged away".
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Real options valuation
Real options valuation, also often termed real options analysis,Adam Borison (Stanford University).
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Risk management
Risk management is the identification, evaluation, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives) followed by coordinator and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events or to maximize the realization of opportunities.
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Risk neutral preferences
In economics and finance, risk neutral preferences are preferences that are neither risk averse nor risk seeking.
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Risk-free interest rate
The risk-free interest rate is the rate of return of a hypothetical investment with no risk of financial loss, over a given period of time.
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Risk-neutral measure
In mathematical finance, a risk-neutral measure (also called an equilibrium measure, or equivalent martingale measure) is a probability measure such that each share price is exactly equal to the discounted expectation of the share price under this measure.
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Robert C. Merton
Robert Cox Merton (born July 31, 1944) is an American economist, Nobel Memorial Prize in Economic Sciences laureate, and professor at the MIT Sloan School of Management, known for his pioneering contributions to continuous-time finance, especially the first continuous-time option pricing model, the Black–Scholes formula.
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Root-finding algorithm
In mathematics and computing, a root-finding algorithm is an algorithm for finding roots of continuous functions.
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Sharpe ratio
In finance, the Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) is a way to examine the performance of an investment by adjusting for its risk.
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Sheen T. Kassouf
Sheen T. Kassouf (1929–2006) was an economist known for research in financial mathematics.
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Short (finance)
In finance, a short sale (also known as a short, shorting, or going short) is the sale of an asset (securities or other financial instrument) that the seller does not own.
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Simulation
Simulation is the imitation of the operation of a real-world process or system.
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Skewness
In probability theory and statistics, skewness is a measure of the asymmetry of the probability distribution of a real-valued random variable about its mean.
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Spot contract
In finance, a spot contract, spot transaction, or simply spot, is a contract of buying or selling a commodity, security or currency for immediate settlement (payment and delivery) on the spot date, which is normally two business days after the trade date.
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Stochastic drift
In probability theory, stochastic drift is the change of the average value of a stochastic (random) process.
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Stochastic volatility
In statistics, stochastic volatility models are those in which the variance of a stochastic process is itself randomly distributed.
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Stress testing
Stress testing (sometimes called torture testing) is a form of deliberately intense or thorough testing used to determine the stability of a given system or entity.
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Strike price
In finance, the strike price (or exercise price) of an option is the fixed price at which the owner of the option can buy (in the case of a call), or sell (in the case of a put), the underlying security or commodity.
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Tail risk
Tail risk is the additional risk of an asset or portfolio of assets moving more than 3 standard deviations from its current price, above the risk of a normal distribution.
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Terence Tao
Terence Chi-Shen Tao (born 17 July 1975) is an Australian-American mathematician who has worked in various areas of mathematics.
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The Observer
The Observer is a British newspaper published on Sundays.
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Transaction cost
In economics and related disciplines, a transaction cost is a cost in making any economic trade when participating in a market.
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Underlying
In finance, the underlying of a derivative is an asset, basket of assets, index, or even another derivative, such that the cash flows of the (former) derivative depend on the value of this underlying.
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Valuation of options
In finance, a price (premium) is paid or received for purchasing or selling options.
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Volatility (finance)
In finance, volatility (symbol σ) is the degree of variation of a trading price series over time as measured by the standard deviation of logarithmic returns.
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Volatility risk
Volatility risk is the risk of a change of price of a portfolio as a result of changes in the volatility of a risk factor.
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Volatility smile
Volatility smiles are implied volatility patterns that arise in pricing financial options.
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Warren Buffett
Warren Edward Buffett (born August 30, 1930) is an American business magnate, investor, and philanthropist who serves as the chairman and CEO of Berkshire Hathaway.
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Yield curve
In finance, the yield curve is a curve showing several yields or interest rates across different contract lengths (2 month, 2 year, 20 year, etc....) for a similar debt contract.
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References
[1] https://en.wikipedia.org/wiki/Black–Scholes_model
