FE-W EMBAF Zvi Wiener 02-588-3049 Financial Engineering.

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Presentation transcript:

FE-W EMBAF Zvi Wiener Financial Engineering

FE-W EMBAF Following Paul Wilmott, Introduces Quantitative Finance Chapter 10 BS formula and Greeks

Zvi WienerFE-Wilmott-IntroQF Ch10 slide 3 Delta = Hedge ratio Partial derivative of the price with respect to the underlying asset. What is it for regular call, put? What is it for digital call, put?

Zvi WienerFE-Wilmott-IntroQF Ch10 slide 4 Deltas of common contracts Call Put

Zvi WienerFE-Wilmott-IntroQF Ch10 slide 5 Call and Put Gamma

Zvi WienerFE-Wilmott-IntroQF Ch10 slide 6 Theta Vega Rho

Zvi WienerFE-Wilmott-IntroQF Ch10 slide 7 Implied volatility V BS (S,t,  ) = known value Smile, smirk, etc…

Zvi WienerFE-Wilmott-IntroQF Ch10 slide 8 Hedging Types Delta hedging Gamma hedging Vega hedging Static hedging Margin hedging Crash hedging Model-dependent hedging

Zvi WienerFE-Wilmott-IntroQF Ch10 slide 9 Hedging Always look at one derivative above. Check Gamma before using Delta hedge! Check convexity before using duration! Why?

Zvi WienerFE-Wilmott-IntroQF Ch10 slide 10 Home Assignment Read chapter 10 in Wilmott. Follow Excel files coming with the book.