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Python for Finance

You're reading from   Python for Finance Apply powerful finance models and quantitative analysis with Python

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Product type Paperback
Published in Jun 2017
Publisher
ISBN-13 9781787125698
Length 586 pages
Edition 2nd Edition
Languages
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Author (1):
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Yuxing Yan Yuxing Yan
Author Profile Icon Yuxing Yan
Yuxing Yan
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Table of Contents (17) Chapters Close

Preface 1. Python Basics FREE CHAPTER 2. Introduction to Python Modules 3. Time Value of Money 4. Sources of Data 5. Bond and Stock Valuation 6. Capital Asset Pricing Model 7. Multifactor Models and Performance Measures 8. Time-Series Analysis 9. Portfolio Theory 10. Options and Futures 11. Value at Risk 12. Monte Carlo Simulation 13. Credit Risk Analysis 14. Exotic Options 15. Volatility, Implied Volatility, ARCH, and GARCH Index

European versus American options

A European option can be exercised only on maturity day, while an American option can be exercised any time before or on its maturity day. Since an American option could be held until it matures, its price (option premium) should be higher than or equal to its European counterpart:

European versus American options

An import difference is that for a European option, we have a close form solution, that is, the Black-Scholes-Merton option model. However, we don't have a close-form solution for an American option. Fortunately, we have several ways to price an American option. Later in the chapter, we show how to use the Binomial-tree method, also called the CRR method, to price an American option.

Understanding cash flows, types of options, rights and obligations

We know that for each business contract, we have two sides: buyer versus seller. This is true for an option contract as well. A call buyer will pay upfront (cash output) to acquire a right. Since this is a zero-sum game, a call option...

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