Financial Numerical Recipes in C++

Contents......Page 2 Compiling and linking......Page 6 The structure of a C++ program......Page 7 concept.......Page 10 concepts......Page 17 Matrix Tools......Page 18 Linear algebra......Page 19 Solving linear equations......Page 23 Function definitions m files Flow control Plotting......Page 25 Libraries References......Page 26 Present value......Page 27 One interest rate with annual compounding......Page 28 Continously compounded interest......Page 35 Further readings......Page 36 Bond Pricing with a flat term structure......Page 37 Flat term structure with discrete, annual compounding......Page 38 Continously compounded interest......Page 48 Further readings......Page 51 The term structure of interest rates and an object lesson......Page 52 The interchangeability of discount factors, spot interest rates and forward interest rates......Page 53 The term structure as an object......Page 56 Using the currently observed term structure.......Page 59 Bond calculations with a general term structure and continous compound- ing......Page 65 Setup......Page 68 Calculation of frontier portfolios......Page 70 Efficient portfolios......Page 73 Allowing for a riskless asset.......Page 74 Efficient sets with risk free assets.......Page 75 The Sharpe Ratio......Page 76 Working with Mean Variance and CAPM......Page 77 Mean variance analysis using matrix libraries......Page 78 Pricing of futures contract.......Page 82 Pricing......Page 83 Multiperiod binomial pricing......Page 86 Basic Option Pricing, the Black Scholes formula......Page 90 The formula......Page 91 Understanding the why’s of the formula......Page 93 Partial derivatives.......Page 94 References......Page 99 Warrant value in terms of assets......Page 100 Valuing warrants when observing the stock value......Page 101 Readings......Page 102 Adjusting for payouts of the underlying.......Page 103 American options......Page 105 Options on futures......Page 109 Foreign Currency Options......Page 110 Perpetual puts and calls......Page 111 Readings......Page 112 Introduction......Page 113 Pricing of options in the Black Scholes setting......Page 114 How good is the binomial approximation?......Page 120 Adjusting for payouts for the underlying......Page 124 Pricing options on stocks paying dividends using a binomial approximation......Page 125 Option on futures......Page 129 Foreign Currency options......Page 131 References......Page 132 European Options.......Page 133 American Options.......Page 135 American Options......Page 138 European Options......Page 141 References......Page 142 Option pricing by simulation......Page 143 Pricing of European Call options......Page 144 Hedge parameters......Page 145 More general payoffs. Function prototypes......Page 147 Improving the efficiency in simulation......Page 148 More exotic options......Page 152 References......Page 153 The Johnson (1983) approximation......Page 154 An approximation to the American Put due to Geske and Johnson (1984)......Page 157 A quadratic approximation to American prices due to Barone–Adesi and Whaley.......Page 160 An alternative approximation to american options due to Bjerksund and Stensland (1993)......Page 163 Readings......Page 166 Bermudan options......Page 167 Asian options......Page 170 Lookback options......Page 171 Monte Carlo Pricing of options whose payoff depend on the whole price path......Page 173 Control variate......Page 176 References......Page 177 Introduction......Page 178 Delta calculation......Page 183 Implementation......Page 184 Further reading......Page 186 Merton’s Jump diffusion model.......Page 187 Hestons pricing formula for a stochastic volatility model......Page 189 Black Scholes bond option pricing......Page 192 Binomial bond option pricing......Page 194 The Merton Model......Page 196 Issues in implementation......Page 197 Term Structure Models......Page 198 The Nelson Siegel term structure approximation......Page 199 Extended Nelson Siegel models......Page 201 Cubic spline.......Page 203 Cox Ingersoll Ross.......Page 206 Vasicek......Page 209 Readings......Page 211 The Rendleman and Bartter model......Page 212 Readings......Page 214 The movement of interest rates......Page 215 Pricing bonds......Page 217 Callable bond......Page 219 Readings......Page 221 Building trees of term structures Ho Lee term structure class......Page 222 Pricing things......Page 225 References......Page 227 Vasicek bond option pricing......Page 228 Date & time revisited - BOOST libraries......Page 230 References......Page 231 A.1 The normal distribution function......Page 232 A.3 Multivariate normal......Page 233 A.4 Calculating cumulative bivariate normal probabilities......Page 234 A.5 Simulating random normal numbers......Page 236 A.8 References......Page 237 C++ concepts......Page 238 C.4 GSL......Page 240 C.5 Internet links......Page 241 Summarizing routine names......Page 242 E.1 Source availability......Page 252 C++ code......Page 253 MatLab code......Page 256 Index......Page 257 Biblio......Page 261