Quantitative finance: a simulation-based introduction using excel
- Boca Raton CRC Press 2014
- xix, 511 p.
Table of Contents Introduction
Intuition about Uncertainty and Risk Introduction Individual Attitudes toward Risk The St. Petersburg Paradox Looking Forward to Chapter 3
The Classical Approach to Decision Making under Uncertainty Map to the Future
Valuing Investment Opportunities: The Discounted Cash Flow Method Discounted Cash Flow Method for Evaluating Investment Opportunities Conclusions
Repaying Loans Over Time Introduction Repaying a Loan over Time: Excel Repaying a Loan over Time: Mathematics First-Order Difference Equations Solving the Loan Repayment Difference Equation More Examples of Using Difference Equations to Find Loan Payments Writing the Difference Equation in Forward versus Backward Forms Bridges to the Future
Bond Pricing with Default: Using Simulations Modeling a Defaultable Bond or Loan Financial Insights Simulating Loan Portfolios What Happens if There Are a Large Number of Independent Loans? Bridge to the Future
Bond Pricing with Default: Using Difference Equations Risky Bonds Using Difference Equations to Find C Exploring the Insights Arising from Equation 7.5 Determining Recovery Rates Determining the Probability of Default A Bridge to the Future
Difference Equations for Life Annuities Introduction
Tranching and Collateralized Debt Obligations Collateralized Debt Obligations Tranched Portfolios The Detailed Calculation Correlation of Two Identical Bonds Conclusion
Bond CDOs: More Than Two Bonds, Correlation, and Simulation Introduction Using an Excel Simulation to Analyze CDOs with More Than Two Bonds Collateralized Debt Obligations: An Example of Financial Engineering The Binomial Simplification Correlated Defaults
Fundamentals of Fixed Income Markets What Are Bonds? Getting Down to Quantitative Details Simplest Bond Pricing Equation How Bonds Are Traded in Canada Clean and Dirty Bond Prices Conclusion and Bridge to the Next
Yield Curves and Bond Risk Measures Introduction Constructing Yield Curves from Bond Prices Bond Price Sensitivities to the Yield
Forward Rates Introduction Relationships between Forward Rates and the Yield Curve Yield Curves, Discount Factors, and Forward Rates Interpreting Forward Curves
Modeling Stock Prices What Are Stocks? Simple Statistical Analysis of Real Stock Data
Mean Variance Portfolio Optimization Selecting Portfolios CAPM and Markowitz
A Qualitative Introduction to Options Stock Option Definitions Uses for Put and Call Options Qualitative Behavior of Puts and Calls
Value at Risk (VaR) Introduction to Value at Risk Pitfalls of VaR Summary
Pricing Options Using Binomial Trees Introduction Binomia l Model Single-Period Binomial Tree Model for Option Pricing Extending the Binomial Model to Multiple Time Steps Multiple-Step Binomial Trees Summary
Random Walks Introduction Deriving the Diffusion Partial Differential Equation
Basic Stochastic Calculus Basics of Stochastic Calculus Stochastic Integration by Examples Conclusions and Bridge to Next Chapters
Simulating Geometric Brownian Motion Simulating GBM Stock Prices at a Single Future Time Simulating a Time Sequence of GBM Stock Prices Summary
Black Scholes PDE for Pricing Options in Continuous Time Introduction Hedging Argument Call Price Solution of the Black Scholes Equation Why Short Selling Is So Dangerous Summary and Bridge to the Future
Solving the Black Scholes PDE Solving the Black Scholes Partial PDE for a European Call General European Option Payoffs: Risk-Neutral Pricing Summary
Pricing Put Options Using Put Call Parity Summary
Some Approximate Values of the Black Scholes Call Formula Approximate Call Formulas at-the-Money Approximate Call Values Near-the-Money Approximate Call Values Far-from-the-Money
Simulating Delta Hedging Introduction How Does Delta Hedging Really Work? Understanding the Results of the Delta Hedging Process The Impact of Transaction Costs A Hedgers Perspective on Option Gamma or, "Big Gamma" = "Big Money" Bridge to the Future
Black Scholes with Dividends Modeling Dividends The Black Scholes PDE for the Continuously Paid Dividend Case Pricing the Prepaid Forward on a Continuous Dividend Paying Stock More Complicated Derivatives on Underlying Paying Continuous Dividends
American Options Introduction and Binomial Pricing American Puts American Calls
Pricing the Perpetual American Put and Call Perpetual Options: Underlying Pays No Dividends Basic Perpetual American Call Perpetual American Call/Put Model with Dividends The Perpetual American Call, Continuous Dividends
Options on Multiple Underlying Assets Exchange Options
Interest Rate Models Setting the Stage for Stochastic Interest Rate Models Pricing When You CANNOT Trade the Underlying Asset Hedging Bonds in Continuous Time Solving the Bond Pricing PDE Vasicek Model Summary
Incomplete Markets Introduction to Incomplete Markets Trying to Hedge Options on a Trinomial Tree Minimum Variance Hedging of a European Option with Default Binomial Tree Model with Default Risk
Appendix 1: Probability Theory Basics—Experiments, Sample Outcomes, Events, and Sample Space Appendix 2: Proof of De Moivre–Laplace Theorem Using MGF Appendix 3: Naming Variables in Excel Appendix 4: Building VBA Macros from Excel
Book Description Teach Your Students How to Become Successful Working Quants
Quantitative Finance: A Simulation-Based Introduction Using Excel provides an introduction to financial mathematics for students in applied mathematics, financial engineering, actuarial science, and business administration. The text not only enables students to practice with the basic techniques of financial mathematics, but it also helps them gain significant intuition about what the techniques mean, how they work, and what happens when they stop working.
After introducing risk, return, decision making under uncertainty, and traditional discounted cash flow project analysis, the book covers mortgages, bonds, and annuities using a blend of Excel simulation and difference equation or algebraic formalism. It then looks at how interest rate markets work and how to model bond prices before addressing mean variance portfolio optimization, the capital asset pricing model, options, and value at risk (VaR). The author next focuses on binomial model tools for pricing options and the analysis of discrete random walks. He also introduces stochastic calculus in a nonrigorous way and explains how to simulate geometric Brownian motion. The text proceeds to thoroughly discuss options pricing, mostly in continuous time. It concludes with chapters on stochastic models of the yield curve and incomplete markets using simple discrete models.
Accessible to students with a relatively modest level of mathematical background, this book will guide your students in becoming successful quants. It uses both hand calculations and Excel spreadsheets to analyze plenty of examples from simple bond portfolios. The spreadsheets are available on the book’s CRC Press web page.
9781439871683
Microsoft Excel (Computer file) Finance--Mathematical models Business enterprises--Finance