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Financial Mathematics. In finance, a hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment.financerisk.

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Presentation on theme: "Financial Mathematics. In finance, a hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment.financerisk."— Presentation transcript:

1 Financial Mathematics

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6 In finance, a hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment.financerisk

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29 central limit theorem (CLT) states that the sum of a large number of independent and identically-distributed random variables will be approximately normally distributed (i.e., following a Gaussian distribution, or bell-shaped curve) if the random variables have a finite variance. independent and identically-distributed random variables normally distributedi.e.finite

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38 Call Option http://en.wikipedia.org/wiki/Call_option Put Option http://en.wikipedia.org/wiki/Put_option Lets look at some equity option markets http://quote.morningstar.com/Option/Options.aspx?ticker=AAPL&sLevel= D

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50 Black Scholes Pricing Option Formula http://en.wikipedia.org/wiki/Black-Scholes

51 Statistical Arbitrage

52 Pairs Trading http://en.wikipedia.org/wiki/Pairs_trade Ford and GM http://finance.google.com/finance?q=ford

53 Co-Integration Excel: Simple_Cointegration_Example.xls

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