This book describes the principles of model building in financial engineering. It explains those models as designs and working implementations for Java-based applications. The book provides software professionals with an accessible source of numerical methods or ready-to-use code for use in business applications. It is the first book to cover the topic of Java implementations for finance/investment applications and is written specifically to be accessible to software practitioners without prior accountancy/finance training. The book develops a series of packaged classes explained and designed to allow the financial engineer complete flexibility. …mehr
This book describes the principles of model building in financial engineering. It explains those models as designs and working implementations for Java-based applications. The book provides software professionals with an accessible source of numerical methods or ready-to-use code for use in business applications. It is the first book to cover the topic of Java implementations for finance/investment applications and is written specifically to be accessible to software practitioners without prior accountancy/finance training. The book develops a series of packaged classes explained and designed to allow the financial engineer complete flexibility.
Phil Barker has considerable experience in both software engineering and in finance and investment having taught courses at the National Alvey HCI centre, a government funded organisation transferring university based research into commercial applications. Prior to this he lectured at Heriot-Watt University where he taught undergraduate and postgraduate courses in computer science and accountancy. His research focused on neural networks and cognitive modelling involving the use of software simulations. He is currently an independent consultant to the financial and investment sector.
Inhaltsangabe
INTRODUCTION.- Numerical Accuracy & Errors.- Core math s Classes.- Root Finding - Interval Bisection.- Newton s method.-STATISTICAL CLASSES.- Measures of Dispersion.- APPLICATION CLASSES.- Internal Rate of Return.- Deriving yield approximations- Bisection method.-Deriving yield approximations -the Newton-Raphson method.- Porfolio management. Porfolio Risk measurement.-INTEREST RATE CALCULATIONS.- Compounding interest.- Nominal and effective interest.- PRESENT VALUE (PV).-Compounding cashflows.-Perpetuiy and Annuity.INTERNAL RATE of RETURN.- TERM STRUCTURES.-Rate Interchanges.- Spot Rates.- Deriving the Spot Curve.-BONDS.-BONDS - Fixed Interest.-BOND PRICES.-STATIC SPREAD.-CREDIT SPREADS.-BOND VOLATILITY MEASURES.-Price value of a basis point.-BOND PRICING CHARACTERISTICS.-DURATION.-MacAULAY DURATION.-EFFECTIVE DURATION.-FUTURES.-FORWARD & FUTURES PRICING.-FORWARD PRICE.-PRICING ON DIFFERENT MARKETS.-Stock Index.-Currencies.-COMMODITY FUTURES.-OPTIONS.-OPTION TYPES.-OPTION SPECIFICATIONS.-PRICING SPECIFICATION.-Dividends and Stock Splits.-Option Quotes.-Margin accounts.-ARBITRAGE IN OPTION PRICES.-Main components of pricing.-Limits for pricing.-EARLY EXERCISE of AMERICAN OPTIONS.-OPTION CONVEXITY.-PUT CALL PARITY.-STRATEGIES.-Hedge with a protected put.-Reverse protected put hedge.-Hedge with a covered call.-Reverse covered call hedge.-PROFIT DIAGRAMS.-MODELLING STOCK PRICES.-THE STOCHASTIC PROCESS.-Random Walks.-Brownian Motion.-Wiener Process.-IIto Differential.-LOGNORMAL MODELLING OF STOCK PRICES.-Handling Empirical data.-Simulation with Monte Carlo.-THE LOGNORMAL PROPERTY.-BINOMIAL MODEL.-STOCK PRICE.-Cox Ross Rubinstein (CRR) Model.-Binomial Tree.-TREES for AMERICAN & EUROPEAN PRICING.-ANALYTICAL OPTION PRICING METHODS.-BLACK-SCHOLES-MERTON.-PRICING with BLACK-SCHOLES.-Pricing without dividends.-Effects of Dividends.-Options Paying a Yield.-Stock Index Options.-Options on Futures.-Currency Options.-ANALYTICAL APPROXIMATIONS for AMERICAN OPTIONS.-Roll Geske Whaley (RGW) Approximation.-Bjerksund and Stensland (B&S) Approximation.-Quadratic Approximation (Barone-Adesi Whaley derivation).-SENSITIVITY MEASURES (The GREEKS ).-THE BLACK-SCHOLES PDE.-DELTA SENSITIVITY.-GAMMA SENSITIVITY.-THETA SENSITIVITY.-VEGA SENSITIVITY.-RHO SENSITIVITY.-OPTION EXTENSIONS.-Elasticity.-Cost of Carry.-INTEREST RATE DERIVATIVES.-MARKET PRICE of RISK.-MARTINGALES.-INTEREST RATE CAPS & FLOORS.-SWAP OPTIONS.-Adjusting rates for Convexity.-Zero coupon Bond as the asset.-Valuation of Bond Options.-SHORT RATE MODELLING.-Rendleman and Bartter.-The Vasicek Model.- Cox Ingersoll Ross (C.I.R) model.-ARBITRAGE FREE MODELS.-The Ho and Lee Model.-Hull and White model.-CONDITIONAL OPTIONS.-EXECUTIVE STOCK OPTIONS.-Forward Start Option.- Indexed stock options.-TIME SWITCH OPTION.-CHOOSER OPTION.-Simple Chooser.-Complex Chooser Options.-OPTIONS on OPTIONS.-Call on Call.-Put on Call.-EXTENDIBLE OPTIONS.-Extendible Call.-Extendible Put.-WRITER EXTENDIBLE.-RAINBOW OPTIONS.-Two Asset Correlated.-Exchange Assets Option.-American exchange option.-SEQUENTIAL EXCHANGE OPTIONS.-COMPLEX CONDITIONAL OPTIONS.-LOOK BACK OPTIONS.-Fixed Strike Look back call.-Fixed Strike Lookback Put.-FLOATING STRIKE LOOK BACK OPTIONS.-Floating Strike Lookback Put.-Floating Strike Lookback Call.-PARTIAL TIME FIXED STRIKE LOOK BACK.-Partial Time Fixed Strike Call.-Partial Time Fixed Strike Put.-PARTIAL TIME FLOATING STRIKE LOOK BACK.-Partial Time Floating Strike Call.-Partial Time Floating Strike Put.-MIN or MAX of TWO RISKY ASSETS.-Minimum of Two Risky Assets.-Maximum of Two Risky Assets.-SPREAD OPTION APPROXIMATION.-Analytical Spread Approximation.-EXTREME SPREADS.-Extreme Spread.-Reverse Extreme Spread.-VALUE OR NOTHING OPTIONS.-Cash-or-Nothing Option.-Asset-or-Nothing Option.-SINGLE BARRIER TYPE OPTIONS.-IN BARRIER VALUATION.-Valuation with a Rebate.-Down and In Call valuation.-Up and In Call valuation.-Down and In Put valuation.-Up and In Put valuation.-OUT BARRIER VALUATION.-Down and Out
INTRODUCTION.- Numerical Accuracy & Errors.- Core math s Classes.- Root Finding - Interval Bisection.- Newton s method.-STATISTICAL CLASSES.- Measures of Dispersion.- APPLICATION CLASSES.- Internal Rate of Return.- Deriving yield approximations- Bisection method.-Deriving yield approximations -the Newton-Raphson method.- Porfolio management. Porfolio Risk measurement.-INTEREST RATE CALCULATIONS.- Compounding interest.- Nominal and effective interest.- PRESENT VALUE (PV).-Compounding cashflows.-Perpetuiy and Annuity.INTERNAL RATE of RETURN.- TERM STRUCTURES.-Rate Interchanges.- Spot Rates.- Deriving the Spot Curve.-BONDS.-BONDS - Fixed Interest.-BOND PRICES.-STATIC SPREAD.-CREDIT SPREADS.-BOND VOLATILITY MEASURES.-Price value of a basis point.-BOND PRICING CHARACTERISTICS.-DURATION.-MacAULAY DURATION.-EFFECTIVE DURATION.-FUTURES.-FORWARD & FUTURES PRICING.-FORWARD PRICE.-PRICING ON DIFFERENT MARKETS.-Stock Index.-Currencies.-COMMODITY FUTURES.-OPTIONS.-OPTION TYPES.-OPTION SPECIFICATIONS.-PRICING SPECIFICATION.-Dividends and Stock Splits.-Option Quotes.-Margin accounts.-ARBITRAGE IN OPTION PRICES.-Main components of pricing.-Limits for pricing.-EARLY EXERCISE of AMERICAN OPTIONS.-OPTION CONVEXITY.-PUT CALL PARITY.-STRATEGIES.-Hedge with a protected put.-Reverse protected put hedge.-Hedge with a covered call.-Reverse covered call hedge.-PROFIT DIAGRAMS.-MODELLING STOCK PRICES.-THE STOCHASTIC PROCESS.-Random Walks.-Brownian Motion.-Wiener Process.-IIto Differential.-LOGNORMAL MODELLING OF STOCK PRICES.-Handling Empirical data.-Simulation with Monte Carlo.-THE LOGNORMAL PROPERTY.-BINOMIAL MODEL.-STOCK PRICE.-Cox Ross Rubinstein (CRR) Model.-Binomial Tree.-TREES for AMERICAN & EUROPEAN PRICING.-ANALYTICAL OPTION PRICING METHODS.-BLACK-SCHOLES-MERTON.-PRICING with BLACK-SCHOLES.-Pricing without dividends.-Effects of Dividends.-Options Paying a Yield.-Stock Index Options.-Options on Futures.-Currency Options.-ANALYTICAL APPROXIMATIONS for AMERICAN OPTIONS.-Roll Geske Whaley (RGW) Approximation.-Bjerksund and Stensland (B&S) Approximation.-Quadratic Approximation (Barone-Adesi Whaley derivation).-SENSITIVITY MEASURES (The GREEKS ).-THE BLACK-SCHOLES PDE.-DELTA SENSITIVITY.-GAMMA SENSITIVITY.-THETA SENSITIVITY.-VEGA SENSITIVITY.-RHO SENSITIVITY.-OPTION EXTENSIONS.-Elasticity.-Cost of Carry.-INTEREST RATE DERIVATIVES.-MARKET PRICE of RISK.-MARTINGALES.-INTEREST RATE CAPS & FLOORS.-SWAP OPTIONS.-Adjusting rates for Convexity.-Zero coupon Bond as the asset.-Valuation of Bond Options.-SHORT RATE MODELLING.-Rendleman and Bartter.-The Vasicek Model.- Cox Ingersoll Ross (C.I.R) model.-ARBITRAGE FREE MODELS.-The Ho and Lee Model.-Hull and White model.-CONDITIONAL OPTIONS.-EXECUTIVE STOCK OPTIONS.-Forward Start Option.- Indexed stock options.-TIME SWITCH OPTION.-CHOOSER OPTION.-Simple Chooser.-Complex Chooser Options.-OPTIONS on OPTIONS.-Call on Call.-Put on Call.-EXTENDIBLE OPTIONS.-Extendible Call.-Extendible Put.-WRITER EXTENDIBLE.-RAINBOW OPTIONS.-Two Asset Correlated.-Exchange Assets Option.-American exchange option.-SEQUENTIAL EXCHANGE OPTIONS.-COMPLEX CONDITIONAL OPTIONS.-LOOK BACK OPTIONS.-Fixed Strike Look back call.-Fixed Strike Lookback Put.-FLOATING STRIKE LOOK BACK OPTIONS.-Floating Strike Lookback Put.-Floating Strike Lookback Call.-PARTIAL TIME FIXED STRIKE LOOK BACK.-Partial Time Fixed Strike Call.-Partial Time Fixed Strike Put.-PARTIAL TIME FLOATING STRIKE LOOK BACK.-Partial Time Floating Strike Call.-Partial Time Floating Strike Put.-MIN or MAX of TWO RISKY ASSETS.-Minimum of Two Risky Assets.-Maximum of Two Risky Assets.-SPREAD OPTION APPROXIMATION.-Analytical Spread Approximation.-EXTREME SPREADS.-Extreme Spread.-Reverse Extreme Spread.-VALUE OR NOTHING OPTIONS.-Cash-or-Nothing Option.-Asset-or-Nothing Option.-SINGLE BARRIER TYPE OPTIONS.-IN BARRIER VALUATION.-Valuation with a Rebate.-Down and In Call valuation.-Up and In Call valuation.-Down and In Put valuation.-Up and In Put valuation.-OUT BARRIER VALUATION.-Down and Out
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From the reviews: "This is a book that aims to provide software professionals with an accessible source of numerical methods and/or a 'ready-to-use' code for use in business applications. Anyone working in management sciences, in modeling or software development will want to peruse this text. ... 'it is the first book to cover the topic of Java implementations for finance investment applications.' The book sets out to describe the principles of model building in financial engineering and to explain those models as designs for Java-based applications." (C.J.H. Mann, Kybernetes, Vol. 37 (1), 2008)
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