Option Theory with Stochastic Analysis

Option Theory with Stochastic Analysis

Author: Fred Espen Benth

Publisher: Springer Science & Business Media

Published: 2012-12-06

Total Pages: 172

ISBN-13: 3642187862

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This is a very basic and accessible introduction to option pricing, invoking a minimum of stochastic analysis and requiring only basic mathematical skills. It covers the theory essential to the statistical modeling of stocks, pricing of derivatives with martingale theory, and computational finance including both finite-difference and Monte Carlo methods.


Option Theory

Option Theory

Author: Peter James

Publisher: John Wiley & Sons

Published: 2003-04-04

Total Pages: 388

ISBN-13: 0470857951

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A unified development of the subject, presenting the theory of options in each of the different forms and stressing the equivalence between each of the methodologies. * Demystifies some of the more complex topics. * Derives practical, tangible results using the theory, to help practitioners in problem solving. * Applies the results obtained to the analysis and pricing of options in the equity, currency, commodity and interest rate markets. * Gives the reader the analytical tools and technical jargon to understand the current technical literature available. * Provides a user-friendly reference on option theory for practicing investors and traders.


Introduction to Option Pricing Theory

Introduction to Option Pricing Theory

Author: Gopinath Kallianpur

Publisher: Springer Science & Business Media

Published: 2012-12-06

Total Pages: 266

ISBN-13: 1461205115

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Since the appearance of seminal works by R. Merton, and F. Black and M. Scholes, stochastic processes have assumed an increasingly important role in the development of the mathematical theory of finance. This work examines, in some detail, that part of stochastic finance pertaining to option pricing theory. Thus the exposition is confined to areas of stochastic finance that are relevant to the theory, omitting such topics as futures and term-structure. This self-contained work begins with five introductory chapters on stochastic analysis, making it accessible to readers with little or no prior knowledge of stochastic processes or stochastic analysis. These chapters cover the essentials of Ito's theory of stochastic integration, integration with respect to semimartingales, Girsanov's Theorem, and a brief introduction to stochastic differential equations. Subsequent chapters treat more specialized topics, including option pricing in discrete time, continuous time trading, arbitrage, complete markets, European options (Black and Scholes Theory), American options, Russian options, discrete approximations, and asset pricing with stochastic volatility. In several chapters, new results are presented. A unique feature of the book is its emphasis on arbitrage, in particular, the relationship between arbitrage and equivalent martingale measures (EMM), and the derivation of necessary and sufficient conditions for no arbitrage (NA). {\it Introduction to Option Pricing Theory} is intended for students and researchers in statistics, applied mathematics, business, or economics, who have a background in measure theory and have completed probability theory at the intermediate level. The work lends itself to self-study, as well as to a one-semester course at the graduate level.


A Game Theory Analysis of Options

A Game Theory Analysis of Options

Author: Alexandre C. Ziegler

Publisher: Springer Science & Business Media

Published: 2004-03-15

Total Pages: 200

ISBN-13: 9783540206682

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Modern option pricing theory was developed in the late sixties and early seventies by F. Black, R. e. Merton and M. Scholes as an analytical tool for pricing and hedging option contracts and over-the-counter warrants. How ever, already in the seminal paper by Black and Scholes, the applicability of the model was regarded as much broader. In the second part of their paper, the authors demonstrated that a levered firm's equity can be regarded as an option on the value of the firm, and thus can be priced by option valuation techniques. A year later, Merton showed how the default risk structure of cor porate bonds can be determined by option pricing techniques. Option pricing models are now used to price virtually the full range of financial instruments and financial guarantees such as deposit insurance and collateral, and to quantify the associated risks. Over the years, option pricing has evolved from a set of specific models to a general analytical framework for analyzing the production process of financial contracts and their function in the financial intermediation process in a continuous time framework. However, very few attempts have been made in the literature to integrate game theory aspects, i. e. strategic financial decisions of the agents, into the continuous time framework. This is the unique contribution of the thesis of Dr. Alexandre Ziegler. Benefiting from the analytical tractability of contin uous time models and the closed form valuation models for derivatives, Dr.


Real Options Theory

Real Options Theory

Author: Jeffrey J. Reuer

Publisher: Emerald Group Publishing

Published: 2007-07-05

Total Pages: 520

ISBN-13: 1849504946

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Examines the ways in which real options theory can contribute to strategic management. This volume offers conceptual pieces that trace out pathways for the theory to move forward and presents research on the implications of real options for strategic investment, organization, and firm performance.


Nonlinear Option Pricing

Nonlinear Option Pricing

Author: Julien Guyon

Publisher: CRC Press

Published: 2013-12-19

Total Pages: 480

ISBN-13: 1466570342

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New Tools to Solve Your Option Pricing ProblemsFor nonlinear PDEs encountered in quantitative finance, advanced probabilistic methods are needed to address dimensionality issues. Written by two leaders in quantitative research-including Risk magazine's 2013 Quant of the Year-Nonlinear Option Pricing compares various numerical methods for solving hi


Options Theory and Trading

Options Theory and Trading

Author: Ron Ianieri

Publisher: John Wiley & Sons

Published: 2009-05-27

Total Pages: 373

ISBN-13: 0470502894

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When used correctly, options can greatly enhance your profits. The leverage they provide allows small accounts to trade like big ones, without the normally associated risks. And, in times of financial turmoil, options can keep you from incurring catastrophic losses. There are many ways in which options can both protect your portfolio and help you profit but in order to take advantage of these opportunities, you have to learn how to properly use options in your investment endeavors. As the cofounder and former chief options strategist for the Options University, and now as founder of ION Options, author Ron Ianieri is one of the most well-respected, and well-informed, individuals in this field. Over the course of his successful twenty-plus-year career in the options market, he has trained many professional traders, as well as numerous active investors. Now, with Options Theory and Trading, he shares his extensive experience with you. Based on a proven option-trading course created by Ianieri, which follows a logical step-by-step progression, this book opens with an in-depth explanation of option terms and theory in Part One because learning the language and understanding the theory is the foundation upon which successful option strategies are built. Continuing along these lines, Ianieri takes the time to explore the unique risks and rewards of call and put options, and introduces you to the option pricing model, the "Greeks," and synthetic positions. In Part Two, Ianieri moves on to basic trading strategies involving stock and options, including the covered call/buy-write strategy, the covered put/sell-write strategy, the protective put strategy, the synthetic put/protective call strategy, and lastly, the collar strategy. In addition to this, you'll also discover the role of the "lean" in options trading and how to "roll" your position to establish a stream of income. While Ianieri demonstrates how well options function in unison with a stock position enhancing potential gains, providing profit protection, and limiting the risk of the entire investment he also examines how they can be even more effective when traded against each other. In Part Three, you'll gain an in-depth understanding of how to use vertical, diagonal, and time spreads in this way, and discover how straddles and strangles which both feature the use of options in unison with one other can help you achieve strong premium collection. Rounding out this detailed discussion of options is a close look at combination strategies. Part Four of Options Theory and Trading takes you through fully hedged strategies known as the Butterfly and the Condor, and offers practical advice on how and when to use them. In an environment of increasing volatility, there's great risk of market corrections endangering the capital of individual investors around the world. What you need to achieve long-term success in today's market is the right guidance. With Options Theory and Trading, you'll quickly discover how to use options to increase your portfolio's profit potential and reduce the risks you'll inevitably face.


Real Options

Real Options

Author: Lenos Trigeorgis

Publisher: MIT Press

Published: 1996-03-14

Total Pages: 452

ISBN-13: 9780262201025

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Comprehensive in scope, Real Options reviews current techniques of capital budgeting and details an approach (based on the pricing of options) that provides a means of quantifying the elusive elements of managerial flexibility in the face of unexpected changes in the market. In the 1970s and the 1980s, developments in the valuation of capital-investment opportunities based on options pricing revolutionized capital budgeting. Managerial flexibility to adapt and revise future decisions in order to capitalize on favorable future opportunities or to limit losses has proven vital to long-term corporate success in an uncertain and changing marketplace. In this book Lenos Trigeorgis, who has helped shape the field of real options, brings together a wealth of previously scattered knowledge and research on the new flexibility in corporate resource allocation and in the evaluation of investment alternatives brought about by the shift from static cash-flow approaches to the more dynamic paradigm of real options—an approach that incorporates decisions on whether to defer, expand, contract, abandon, switch use, or otherwise alter a capital investment. Comprehensive in scope, Real Options reviews current techniques of capital budgeting and details an approach (based on the pricing of options) that provides a means of quantifying the elusive elements of managerial flexibility in the face of unexpected changes in the market. Also discussed are the strategic value of new technology, project interdependence, and competitive interaction. The ability to value real options has so dramatically altered the way in which corporate resources are allocated that future textbooks on capital budgeting will bear little resemblance to those of even the recent past. Real Options is a pioneer in this area, coupling a coherent picture of how option theory is used with practical insights in into real-world applications.