Financial Numerical Recipes in C++
This project started when I was teaching a course in derivatives at the University of British Columbia, in the course of which I sat down and wrote code for calculating the formulas I was teaching. I have always found that implementation helps understanding these things. For teaching such complicated material it is often useful to actually look at the implementation of how the calculation is done in practice. The purpose of the book is therefore primarily pedagogical, although I believe all the routines presented are correct and reasonably efficient, and I know they are also used by people to price real options.
To implement the algorithms in a computer language I choose C++. My students keep asking why anybody would want to use such a backwoods computer language, they think a spreadsheet can solve all the worlds problems. I have some experience with alternative systems for computing, and no matter what, in the end you end up being frustrated with higher end "languages", such as Matlab og R (Not to mention the straitjacket which is is a spreadsheet.) and going back to implementation in a standard language. In my experience with empirical finance I have come to realize that nothing beats knowledge a real computer language. This used to be FORTRAN, then C, and now it is C++. All example algorithms are therefore coded in C++. I do acknowledge that matrix tools like Matlab are very good for rapid prototyping and compact calculations, and will in addition to C++ in places also illustrate the use of Matlab, as well as other (public domain) tools.
Table of contents
- On C++ and programming
- Matrix Tools
- The value of time
- Bond Pricing with a flat term structure
- The term structure of interest rates and an object lesson
- The Mean Variance Frontier
- Futures algoritms
- Binomial option pricing
- Basic Option Pricing, the Black Scholes formula
- Extending the Black Scholes formula
- Option pricing with binomial approximations
- Finite Differences
- Option pricing by simulation
- Pricing American Options - Approximations
- Average, lookback and other exotic options
- Generic binomial pricing
- Trinomial trees
- Alternatives to the Black Scholes type option formula
- Pricing of bond options, basic models
- Credit risk
- Term Structure Models
- Binomial Term Structure models
- Interest rate trees
- Building term structure trees using the Ho and Lee (1986) approach
- Term Structure Derivatives
- Date (and time) revisited - the BOOST libraries
|File type :|
|License:||Open Publication License|
|Author(s):||Bernt Arne Ødegaard|
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