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Risk Management, Numerical Methods And Option Pricing

In: Derivatives, Risk Management & Value

Author

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  • Mondher Bellalah

    (Université de Cergy-Pontoise, France)

Abstract

The following sections are included:Chapter OutlineIntroductionNumerical Analysis and Simulation Techniques: An Introduction to Finite Difference MethodsThe implicit difference schemeExplicit difference schemeAn extension to account for information costsApplication to European Options on Non-Dividend Paying StocksThe analytic solutionThe numerical solutionAn application to European calls on non-dividend paying stocks in the presence of information costsValuation of American Options with a composite VolatilityThe effect of interest rate volatility on the index volatilityValuation of index options with a composite volatilityNumerical solutions and simulationsSimulation Methods: Monte–Carlo MethodSimulation of Gaussian variablesRelationship between option values and simulation methodsSummaryQuestionsAppendix A: Simple Concepts in Numerical AnalysisThe heat transfer equationSome simple numerical schemes for the heat transfer equationAppendix B: An Algorithm for a European CallAppendix C: The Algorithm for the Valuation of American Long-term Index Options with a Composite VolatilityExercisesSolutionAppendix D: The Monte–Carlo Method and the Dynamics of Asset PricesReferences

Suggested Citation

  • Mondher Bellalah, 2009. "Risk Management, Numerical Methods And Option Pricing," World Scientific Book Chapters, in: Derivatives, Risk Management & Value, chapter 19, pages 801-831, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812838636_0019
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