By A. Reghai

ISBN-10: 1137414502

ISBN-13: 9781137414502

ISBN-10: 1349490288

ISBN-13: 9781349490288

The sequence of modern monetary crises have thrown open the realm of quantitative finance and fiscal modeling. This e-book brings jointly confirmed and new methodologies from finance, physics and engineering, in addition to years of and educational event to supply a cookbook of versions for facing the demanding situations of trendy markets.

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This analysis is easy to perform numerically. Implementation of the Black & Scholes model is relatively simple and robust. In many cases, we may be able to derive closed-form formulae. In other cases, it is possible to solve numerically using a partial differential equation (PDE). In general, the Monte Carlo technique offers high flexibility and can price almost any path-dependent option. For our first analysis, we look at products where analytical formulae exist. We shall not derive them in this book.

Typically, averages can be relatively well predicted. In other words, nobody can predict the future direction of the market with certainty but we can reasonably predict risk, the market regime and other global indicators. Another very successful use of models is their ability to create synthetic indicators that summarize situations or business conditions. It must be remembered that the results of these models are based on certain assumptions which, unlike the situation in physics, can change from day to day and must always be kept in mind.

The algorithm that links inputs (observables and assumptions) to outputs (allocations and performances) is then checked and verified to see if it is correct or not. To a certain extent, it is the trend for the treasury account, or the asset manager’s equity line and its ability to explain the evolution that is key in the financial modeling field. What is the purpose of financial models in derivatives? The answer we give to this question is pragmatic. In our opinion, above all, models provide financial operators who manage derivative positions, with an explanation for the shift in their profit and loss accounts.

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Quantitative Finance: Back to Basic Principles by A. Reghai

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