Quantitative Analysis.
Trading Platform.
Python for Excel.
Author.

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I.Basic math.
II.Pricing and Hedging.
1.Basics of derivative pricing I.
A.Single step binary tree argument. Risk neutral probability. Delta hedging.
B.Why Ito process?
C.Existence of the risk neutral measure via Girsanov's theorem.
D.Self-financing strategy.
E.Existence of the risk neutral measure via backward Kolmogorov's equation. Delta hedging.
a.An economy with one risky asset.
b.An economy with two risky assets.
F.Optimal utility function based interpretation of delta hedging.
2.Change of numeraire.
3.Basics of derivative pricing II.
4.Market model.
5.Currency Exchange.
6.Credit risk.
7.Incomplete markets.
III.Explicit techniques.
IV.Data Analysis.
V.Implementation tools.
VI.Basic Math II.
VII.Implementation tools II.
Bibliography.
Forum Notation Index Contents

An economy with two risky assets.

uppose the economy has the two risky assets $S_{1},$ $S_{2}$ given by the SDEsMATHMATH and the MMA $r_{t}$. Similarly to the previous section we again assume that MATH is deterministic and MATH MATH that allows to state that the price of the derivative $V_{t}$ with the payoff MATH at $T$ has the functional form MATH. We construct the portfolio $\Sigma$MATH and compute the incrementMATHMATHMATHMATH Similarly to the previous section, set MATH thenMATHMATH orMATH We introduce the function MATH:MATH thenMATHMATH Hence,MATHMATHMATH





Forum Notation Index Contents


















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