1 financial market l. 1 market and Mathl.2 stocks and their derivatives l. 2. 1 forward stock contract l.2.2 call option l.2.3 put option l.2.4 short selling10.3 futures contract pricing10.4 bond market L. Rate of return l.4.2 American bond market l.4.3 interest rate and forward interest rate 1. 4. 4 yield curve l.5 interest rate futures l. 5. 1 Three methods to determine the pricing of futures and arbitrage 2.l derivatives 2.2 game theory 2. 2. 1 Eliminating Uncertainty 2.2.2 Option Valuation 2.2.3 Arbitrage 2.2.4 Game Theory Method-General Formula 2.3 Copy Portfolio 2.3. 1 Context 2.3.2 Portfolio Matching 2.3.3 Expected Value Pricing Method 2.3.4 How to Remember Pricing Probability 2.4 Probability Method 2.5 Risk 2.6 Duplicate Binary Tree and Arbitrage 2.7 Appendix E Tree Model 3.3 Pricing American Options 3.4 Pricing exotic options-Excluding Options 3.5 Pricing exotic options-Looking Back Options 3.6 Adjusting Binary Tree Model Based on Real Data 3.7 Hedging and Pricing N-Period Binary Tree Model 4 Using Electronics. Calculating stock and option tree in tables 4. 1 Some spreadsheet foundations 4.2 Calculating European option tree 4.3 Calculating American option tree 4.4 Calculating Baeder option tree 4.5 Calculating N-step option tree 5 C continuous model and Black-Scholes formula 5. 1 Continuous-time stock Black-Scholes formula 5.5 Derivation of Black-Scholes formula 5.5./ Kloc-0/ Correlation Model 5.5.2 Expected Value 5.5.3 Two Integrals 5.5.4 Piece together 5.6 Put Option Parity 5.7 Tree and Continuous Model 5.7. 1 Binomial Probability 5.7.2 Approximate the tree with a big tree 5.7.3 Scaling the tree to match GBM Model 5.8 GBM Stock Price Model-Warning Note 5.9 6.4 Finding Portfolio 6.5 Solving Black-Scholes Differential Equation 6.5 l Cash or No Option 6.5.2 Stock or No Option 6.5.3 European Call Option 6.6 Call Option of Futures Contract 6.6.2 Partial Differential Equation of Futures Option 6.7 Appendix: Portfolio Difference 7 Hedging Delta Hedging 7.l.l Hedging, Dynamic Programming, And the proof that Black-Scholes is really effective in the ideal world 7.l.2 Why the above argument doesn't hold water in the real world 7.l.3 Early hedging 7.2 Ways to hedge stocks or portfolios 7. 2. 1 Hedge option 7.2.2 Hedge option 8.l.3 Hedge matching transaction 7.2.4 Correlation-based H-side 7.2.5 Hedging in the real vield 7.3 Implied volatility 7. 3. 1 Calculating volatility with Maple 7.3.2 Smile 7.4 Parameter Ao7.5 Derivation of Delta Hedge Rule 7.6 DeIta Hedge A Stock Purchase 8 Bond Model and Interest Rate Option 8. 8. 1. 4 Forward interest rate 8.2 Zero coupon bonds 8.2. 1 Forward interest rate and ZCBs8.2.2 Calculation based on Y(t) or P(t) 8.3 Swap 8.3. 1 Another change of payment 8.3.2 More realistic situation 8.3.2 L Arithmetic interest rate 8.4.2 Geometric interest rate 8.5 Interest rate model 8.5.l Discrete interest rate model 8.5.2 Pricing from interest rate model ZCBs 8. 5. 3 Bond price paradox 8.5.4 Can the expected value pricing method be ragged by HRBIT? 8.5.5 Continuous Model 8.5.6 Bond Price Model 8.5.7 A Simple Example 8. 5. 8 vasi cek Model 8.6 Bond Price Dynamics 8.7 Bond Price Formula 8.8 Bond Pricing, Spot Interest Rate and HJM8.8. 1 Example: Hall-White Model 8.9 HJM Derivatives Method: HJM Miracle 8.lO Appendix: Forward Interest Rate Drift 9 Bond Calculation Method 9.l Tree Model of Bond Price 9.l. 1 The Fair and Unfair Game 9. l. 2 Ho-Lee Model 9.2 Binomial Vasicek Model: Mean Regression Model el9.2.l Basic Case 9.2.2 General Induction Steps 10 Money Market and 4 Guaranteed Exchange Rate and quanto lo. 4. l Bond Hedging 10. 4. 2 German Forward Pricing of Stocks/Kloc 5 Hedging or not hedging and how much to hedge 1 1 Analysis of international political risks ll. 1 Introduction ll.2 Types of international risks ll. 2. 1 Political risks ll.2.2 Managing international risks 1 L.2.3 Decentralization ll.2.4 Political Risk and Export Credit Insurance ll.3 Management of Credit Derivatives and Political Risk ll. 3. 1 Foreign Currency and Derivatives ll.3.2 Credit Default Risk and Derivatives 1l