Seminar on Derivatives: Part One

Seminar on Derivatives (with Professor M.L.Yueh): Part One

2006, Spring-Term

Topic 1: (Twice)

General Characteristics of Financial Derivative Models

Reading List:

1.  Kwok Y.K. (1998), Mathematical Models of Financial Derivatives, Chapter 1.

2.  Eric Briys, etc. (1998), Options, Futures and Exotic Derivatives, Chapters 1-4.

3.  Smith, C.W., Jr. (1976),”Option Pricing- a review,” JFE, vol 3.,p.3-51.

4.  S. Figlewski, “A Layman’s Introduction to Stochastic Process in Continuous-Time,”, (1977), NYU, Working paper, p.1-36.

5.  D.A. Pietea, (1989), “A Shortcut to Ito Leman for Financial Applications: The Case of Hedging With Interest Rate Futures,” Finance, P51-58.

6.  R.K., Sundaram (1997), “Equivalent Martingale Measure and Risk-Neutral Pricing: An Expository Note,” Journal of Derivatives, p.85-98.

7.  S.M., Sundaresan (2000), “ Continuous-Time Method in Finance: A Review and an Assessment,” Journal of Finance, pp.1569-1622..

8.  Stulz, R.M., (2004) ”Should we fear Derivatives,” Journal of Derivatives, Winter, pp. 1-18

Topic 2: (Once)

Pricing Futures and Forwards

Reading List:

1.  Cox, J,C., j.e., Ingersoll, and S.A., Ross, (1981) “The Relation between Forward Prices and Future Prices,” JFE , P. 321-346.

2.  Jarrow, R.A., and G.S., Oldfield, (1981)” Forward Contracts and Futures Contracts,” JFE, P. 373-382.

3.  Richard, S., and M., Sundaresan (1981) “ a Continuous Time Modelof Forward and Futures Prices in a Multigood Economy,” JFE, p. 347-372.

4.  French, K., (1981) “A Comparison of Futures and Forward Prices,” JFE, p.311-342.

5.  Park, H. Y., and A.H., Chen, (1985)“Difference between Futures and Forward Prices: A Further Investigation of Marking to Market,”, Journal of Futures Market, p.77-88.

Topic 3: (Once)

Solving PDE for B-S Model

Reading List:

1.  Black, F., and M. Scholes, (1973), “The Pricing of Options and Corporate Liabilities,” Journal of Political Economy, p. 637-659.

2.  Black, F., (1975), “Fact and Fantasy in the Use of Options and Corporate Liabilities,” Financial Analysts Journal, p. 61-72.

3.  Merton, R.C., (1973), “Theory of Rational Option Pricing,” Bell Journal of Economics and Management Science, p. 141-183.

4.  Smith, C.W., Jr. (1976),”Option Pricing- a review,” JFE, vol 3.,p.3-51.

5.  Kutuer, G.W., (1988), “Black-Scholes Revisited : Some Important Details,” The Financial Review. P. 95-104.

Topic 4: Alternative Option Pricing Models

Reading List:

1.  Hull, J. and A. White (1987), “The Pricing of Options on Assets with Stochastic Volatility”, Journal of Finance, 42, pp.281-300.

2.  Merton, R.C., (1976), “Option Pricing When Underlying Stock Returns Are Discontinuous, “ Journal of Financial Economics, pp. 125-144.

3.  Leland, H.E., (1985), “Option Pricing and Replication With Transaction Costs, “ Journal of Finance, pp.1283-1301.

4.  Rabinovitch, R., (1989), “Pricing Stock and Bond Options When Default-Free Rate is Stochastic, “ Journal of Financial and Quantitative Analysis, pp. 447-457.

5.  Amin, K., (1993), “Jump-Diffusion Option Valuation in Discrete Time,” Journal of Finance, vol. 48, pp. 1833-1863.

6.  Boyle, P.P. and T. Vorst, (1992), “Option Replication in Discrete Time with Transaction Costs, “ Journal of Finance, vol.47, pp. 271-294.

7.  Benniga, S., Bjork, T., and Wiener, Z. (2002),”On the Use of Numeraires in Option Pricing”, Journal of Derivatives, pp. 43-54.

8.  Navas, J., (2003), “Calculation of Volatility in a Jump-Diffusion Model,” Journal of Derivatives, pp. 66-72.

Topic 5: Pricing American Options

Reading List:

1.  Geske, R. and H. Johnson (1984), “ The American Put Analytical Analysis, “ Journal of Finance, pp. 1511-1542.

2.  Barrone-Adesi, G. and R.E. Whaley, (1987), “Efficient Analytic Approximation of American Option Values, “ Journal of Finance, pp. 301-320.

3.  Huang, J.Z., M.G. Subrahmanyam and G.G. Yu, (1996), “Pricing and Hedging American Options: a Recursive Integration Approach, “ Review of Financial Studies, pp. 277-300.

4.  Whaley, R. (1982), “Valuation of American Call Options On Dividend Paying Stocks, “ Journal of Financial Economics, pp.29-58.

5.  Broadie, M., and Detemple, J. (1997), “Pricing American-style Securities using Simulations,” Journal of Economic, Dynamic and Control, vol.21, pp. 1323-1352.

6.  Duan, J.C. and Simonato, (1998), “Empirical Martingale Simulations for Asset Prices” Management Sciences, vol.44, pp.1218-1233.

7.  Broadie, M., and Detemple, J. (2004), ”Option Pricing: Valuation Models and Applications”, Management Sciences, vol.50, pp. 1145-1177.

Topic 6: Utility-Base OPM

Reading List:

1.  Brennan, M.J. (1979), “The Pricing of Contingent Claims in Discrete-Time Model”, Journal of Finance, 34, pp. 53-68.

2.  Rubinstein M (1974)., “An Aggregation Theorem for Securities Markets”, Journal of Financial Economics, pp.225-244.

3.  Stapleton, R. and M. Subrahmanyam’ (1984), “The Valuation of Multivariate Contingent Claims in Discrete Time Models”, Journal of Finance.

4.  Stapleton, R. and M. Subrahmanyam’ (1990), “ Risk Aversion and the Intertemporal Behavior of Asset Prices”, Review of Financial Studies, vol. 3, pp. 677-693.

5.  Camara, Antonio (2003), “A Generalized of the Brennan-Rubinstein Approach for the Pricing of Derivatives”, Journal of Finance, 58, pp.805-819.

6.  Schroder , M. (2004), “Risk-Neutral Parameter shifts and Derivatives Pricing in Discrete Time”, Journal of Finance, vol. 59, pp. 2375-2401.

Topic 7: GARCH Option Pricing Models

Reading List:

1.  Duan, J.C. (1995), “The GARCH Option Pricing Models”, Mathematical Finance, pp. 13-32.

2.  Duan, J.C. (1999), “Conditionally Fat Tailed Distribution and Volatility Smile in Options”, working paper.

3.  Duan, J.C. and Zhang, H (2001), “Pricing Hang Seng Index Options Around Asian Financial Crisis-A GARCH Approach”, Journal of Banking and Finance, pp. 1989-2014.

4.  Duan, J.C., P. Ritchken and Z. Sun (2006), “Jump Starting GARCH: Pricing and Hedging Options with Jumps in Return and Volatility”, Mathematical Finance, vol.16, pp. 21-52..

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