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Mastering Python for Finance

You're reading from   Mastering Python for Finance Understand, design, and implement state-of-the-art mathematical and statistical applications used in finance with Python

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Product type Paperback
Published in Apr 2015
Publisher Packt
ISBN-13 9781784394516
Length 340 pages
Edition 1st Edition
Languages
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Toc

Table of Contents (12) Chapters Close

Preface 1. Python for Financial Applications FREE CHAPTER 2. The Importance of Linearity in Finance 3. Nonlinearity in Finance 4. Numerical Procedures 5. Interest Rates and Derivatives 6. Interactive Financial Analytics with Python and VSTOXX 7. Big Data with Python 8. Algorithmic Trading 9. Backtesting 10. Excel with Python Index

The bisection method


The bisection method is considered the simplest one-dimensional root-finding algorithm. The general interest is to find the value of a continuous function such that .

Suppose we know the two points of an interval and , where , and that and lie along the continuous function, taking the midpoint of this interval as , where , the bisection method then evaluates this value as f(c).

Let's illustrate the setup of points along a nonlinear function with the following graph:

Since the value of f(a) is negative and f(b) is positive, the bisection method assumes that the root lies somewhere between a and b and gives .

If or is very close to zero by some predetermined error tolerance value, then a root is declared as found. If , then we may conclude that a root exists along the interval and , or interval and otherwise.

On the next evaluation, is replaced as either or accordingly. With the new interval shortened, the bisection method repeats with the same evaluation to determine...

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