An introduction to equity derivatives : theory and practice by Sebastien Bossu, Philippe Henrotte, Olivier Bossard

By Sebastien Bossu, Philippe Henrotte, Olivier Bossard

Everything you want to get a grip at the advanced international of derivatives

Written through the the world over revered academic/finance expert writer crew of Sebastien Bossu and Philipe Henrotte, An advent to fairness Derivatives is the totally up to date and multiplied moment variation of the preferred Finance and Derivatives. It covers the entire basics of quantitative finance basically and concisely with out going into pointless technical element. Designed for either new practitioners and scholars, it calls for no earlier heritage in finance and contours twelve chapters of steadily expanding hassle, starting with uncomplicated rules of rate of interest and discounting, and finishing with complicated innovations in derivatives, volatility buying and selling, and unique items. each one bankruptcy contains a number of illustrations and workouts followed through the appropriate monetary thought. issues lined comprise current worth, arbitrage pricing, portfolio thought, derivates pricing, delta-hedging, the Black-Scholes version, and more.

  • An accompanying web site positive factors supplementary fabric for readers
  • An first-class source for finance pros and traders trying to gather an knowing of monetary derivatives thought and practice
  • Completely revised and up to date with new chapters, together with insurance of state of the art techniques in volatility buying and selling and unique products
  • New foreword via Professor Olivier Bossard, one of the world's most precious Derivatives and monetary Markets experts

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An introduction to equity derivatives : theory and practice

Every little thing you want to get a grip at the advanced global of derivatives Written by way of the the world over revered academic/finance specialist writer crew of Sebastien Bossu and Philipe Henrotte, An creation to fairness Derivatives is the totally up to date and elevated moment variation of the preferred Finance and Derivatives.

Extra resources for An introduction to equity derivatives : theory and practice

Example text

E) Suppose –1 < ρ < 1. (i) What is the shape of σP2 (the portfolio’s variance) as a function of w? σ B (σ B − σ A ρ) . (ii) Show that the optimal value of w which minimizes σ P is: w∗ = 2 σ A + σ B2 − 2σ A σ B ρ Find the value of w* when σ A = σ B . (iii) Calculate the value of w* in the case of Kroger Co. 41). (f) Suppose A is the risk-free asset. Can you simplify the expression for σ P from question (c)? Find the optimal portfolio of A and B which minimizes σ P . Problem 8* : Portfolio optimization on n correlated assets Consider n assets all having the same volatility of 100% and pairwise correlation ρ.

2 This way, market participants may buy and sell securities at any time according to their views, and the law of supply and demand is continuously verified. Note that a short-seller must pay all the security cash flows to the buyer. Example After a corporate announcement, Sarah believes that the stock price of Bust Inc. will go down but she does not possess it in inventory. In the market, Bob is showing a bid price which is 5% lower than the last traded price. Sarah decides to short-sell the stock to Bob.

Problem 5: Return and inflation An apartment in Paris is listed at €425,000. You reckon that you could rent out the apartment at €1,500 per month for the next 20 years, and that its value in 20 years would be the same or higher. (a) What would your IRR be if there is no real estate inflation? 5% annual inflation (monthly rent and resale price)? Problem 6: Impact of corporate announcement On 31 December 2011 the stock price of MetroTech SpA is €150 and analysts predict the following earnings per share (EPS) for the next 5 years: 2011 20 2012 40 2013 47 2014 55 2015 15 2016 12 P1: TIX JWBK540-c02 JWBK540-Bossu February 22, 2012 16:48 Printer: Yet to come Classical Investment Rules 17 Analysts also estimate that MetroTech SpA will make no profits after 2016.

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