Buch, Englisch, 256 Seiten, Format (B × H): 176 mm x 250 mm, Gewicht: 618 g
Reihe: Wiley Finance Series
Buch, Englisch, 256 Seiten, Format (B × H): 176 mm x 250 mm, Gewicht: 618 g
Reihe: Wiley Finance Series
ISBN: 978-0-470-99400-9
Verlag: John Wiley & Sons
This is the first book written on the application of Fourier transform to finance. Written by an academic and practitioner team, it is an accessible and practical guide to the subject providing an introduction to the mathematics and applications of Fourier transform. Starting with a thorough introduction to the topic, it then looks at recent developments within statistics and finance (jumps, time changes etc) and the problems these have raised in derivatives pricing and risk management. The book then moves onto the technical concepts and application of Fourier transform. It shows practitioners how to apply the tool to price financial instruments such as derivatives, (plain vanilla, barrier options, exotic options etc), to price credit risk applications and manage risk.
Contents
Chapter 1. From diffusive processes to Lévy processes.
A review of the most recent developments of the statistics of financial markets, the inclusion of jumps, time changes and the like, and the problems raised for pricing and risk evaluation
Chapter 2. Calculus on complex domain: a primer
The reader is introduced to the main technical concepts from complex analysis that will be used throughout the book. Particularly, the reader will be introduced to the concept of path integral in the complex domain.
Chapter 3. Option pricing by Fourier transforms
The use of Fourier transform in asset pricing is introduced for the simplest products, namely digital products. This enables the reader to learn the basic principles of integration in the complex domain, using Heavyside step functions and Dirac delta function, and applying that directly to solve the basic pricing problem of a Arrow-Debreu securities
Chapter 4. Pricing plain vanilla options
Fourier transform methods are applied to the price of plain vanilla options. The reader is introduced to the problem first in the standard Black and Scholes model, and then in the Heston model, allowing for stochastic volatility. Some points that are left unexplained in the literature are also tackled.
Chapter 5. Pricing barrier options
The reader is introduced to frontier issues in the use of Fourier transforms for pricing barrier options. As in the previous chapter, the analysis is first performed in the standard model and then in a more general one. The chapter introduces the reader to Wiener-Hopf factorization techniques.
Chapter 6. Pricing exotic options
Several applications are proposed for standard classes of univariate exotic options, such as Asian options, lookback, and the like.
Chapter 7. Credit risk pricing applications
Factor copula models and the generating function technique is introduced, and the Fourier transform approach used in the market is investigated in detail.
Chapter 8. Multivariate pricing application
The chapter introduces frontiers issues in the topic. The analysis touches upon new results on multivariate analysis for Levy processes and introduces original research and results on the subject, that the group will be developing next year.
Autoren/Hrsg.
Fachgebiete
Weitere Infos & Material
Preface.
1 Fourier Pricing Methods.
1.1 Introduction.
1.2 A general representation of option prices.
1.3 The dynamics of asset prices.
1.4 A generalized function approach to Fourier pricing.
1.5 Hilbert transform.
1.6 Pricing via FFT.
1.7 Related literature.
2 The Dynamics of Asset Prices.
2.1 Introduction.
2.2 Efficient markets and Lévy processes.
2.3 Construction of Lévy markets.
2.4 Properties of Lévy processes.
3 Non Stationary Market Dynamics.
3.1 Non-stationary processes.
3.2 Time changes.
3.3 Simulation of Lévy processes.
4 Arbitrage Free Pricing.
4.1 Introduction.
4.2 Equilibrium and arbitrage.
4.3 Arbitrage-free pricing.
4.4 Derivatives.
4.5 Lévy martingale Processes.
4.6 Lévy markets.
5 Generalized Functions.
5.1 Introduction.
5.2 The vector space of test functions.
5.3 Distributions.
5.4 The calculus of distributions.
5.5 Slow growth distributions.
5.6 Function convolution.
5.7 Distributional convolution.
5.8 The convolution of distributions in S.
6 The Fourier Transform.
6.1 Introduction.
6.2 The Fourier transformation of functions.
6.3 Fourier transform and option pricing.
6.4 Fourier transform for a generalized functions.
6.5 Exercises.
6.6 Fourier option pricing with generalized functions.
7 Fourier Transforms at Work.
7.1 Introduction.
7.2 The Black-Scholes model.
7.3 Finite activity models.
7.4 Infinite activity models.
7.5 Stochastic volatility.
7.6 FFT at work.
Appendices.
A Elements of probability.
A.1 Elements of measure theory.
A.2 Elements of stochastic processes theory.
B Elements of Complex Analysis.
B.1 Complex numbers.
B.2 Functions of complex variables.
C Complex Integration.
C.1 Definitions.
C.2 The Cauchy-Goursat theorem.
C.3 Consequences of Cauchy's theorem.
C.4 Principal value.
C.5 Laurent series.
C.6 Complex residue.
C.7 Residue theorem.
C.8 Jordan's Lemma.
D Vector Spaces and Function Spaces.
D.1 Definitions.
D.2 Inner product space.
D.3 Topological vector spaces.
D.4 Functionals and dual space.
E The Fast Fourier Transform (FFT).
E.1 Discrete Fourier transform.
E.2 Fast Fourier transform.
F The Fractional Fourier Transform.
F.1 Circular matrix.
F.2 Toepliz matrix.
F.3 Some numerical results.
G Affine models: The path integral approach.
G.1 The problem.
G.2 Solution of the Riccati equations.
Index.
