Details
| Original language | English |
|---|---|
| Title of host publication | From Nano to Space |
| Subtitle of host publication | Applied Mathematics Inspired by Roland Bulirsch |
| Pages | 211-238 |
| Number of pages | 28 |
| Publication status | Published - 2008 |
Abstract
Risk management is essential in a modern market economy. Financial markets enable firms and households to select an appropriate level of risk in their transactions. Risks can be redistributed towards others who are willing and able to assume them. Derivative instruments-derivatives, for short-like options or futures have a particular status. In the early 1970s Myron S. Scholes, Robert C. Merton and Fischer Black modeled an analytic pricing model for derivatives. This model is based on a continuous-time diffusion process (Ito process) for non-payout underlyings: The partial differential Black-Scholes equation. The WARRANT-PRO-2 software (Release 0.3) solves this equation with an adapted Crank-Nicholson scheme numerically. Arbitrary payments (boundary conditions) enable the design and optimization of customer tailored derivatives. WARRANT-PRO-2 computes derivative prices for given payments (simulation and expert design). But moreover this software can also optimize payments via parameterized boundary conditions of the Black-Scholes equation. The parameterized boundary conditions are optimized by nonlinear programming, i. e. an advanced SQP-method here. The deviation from a predefinable Δ of an option (performance index), e. g., can be minimized and the gradient can be computed highly accurate with automatic differentiation. A software quality and change management process for WARRANT-PRO-2, its comfortable and easy to use MATLAB-GUI (graphical user interface) and its portability to WINDOWS and LINUX operating systems is discussed. Optimized derivatives are very promising for both buyer and seller and can revolutionize modern financial markets: Examples like European double-barrier options are discussed.
ASJC Scopus subject areas
- Mathematics(all)
- General Mathematics
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From Nano to Space: Applied Mathematics Inspired by Roland Bulirsch. 2008. p. 211-238.
Research output: Chapter in book/report/conference proceeding › Contribution to book/anthology › Research › peer review
}
TY - CHAP
T1 - Customer tailored derivatives
T2 - Simulation, design and optimization with the WARRANT-PRO-2 software
AU - Breitner, Michael H.
N1 - Copyright: Copyright 2013 Elsevier B.V., All rights reserved.
PY - 2008
Y1 - 2008
N2 - Risk management is essential in a modern market economy. Financial markets enable firms and households to select an appropriate level of risk in their transactions. Risks can be redistributed towards others who are willing and able to assume them. Derivative instruments-derivatives, for short-like options or futures have a particular status. In the early 1970s Myron S. Scholes, Robert C. Merton and Fischer Black modeled an analytic pricing model for derivatives. This model is based on a continuous-time diffusion process (Ito process) for non-payout underlyings: The partial differential Black-Scholes equation. The WARRANT-PRO-2 software (Release 0.3) solves this equation with an adapted Crank-Nicholson scheme numerically. Arbitrary payments (boundary conditions) enable the design and optimization of customer tailored derivatives. WARRANT-PRO-2 computes derivative prices for given payments (simulation and expert design). But moreover this software can also optimize payments via parameterized boundary conditions of the Black-Scholes equation. The parameterized boundary conditions are optimized by nonlinear programming, i. e. an advanced SQP-method here. The deviation from a predefinable Δ of an option (performance index), e. g., can be minimized and the gradient can be computed highly accurate with automatic differentiation. A software quality and change management process for WARRANT-PRO-2, its comfortable and easy to use MATLAB-GUI (graphical user interface) and its portability to WINDOWS and LINUX operating systems is discussed. Optimized derivatives are very promising for both buyer and seller and can revolutionize modern financial markets: Examples like European double-barrier options are discussed.
AB - Risk management is essential in a modern market economy. Financial markets enable firms and households to select an appropriate level of risk in their transactions. Risks can be redistributed towards others who are willing and able to assume them. Derivative instruments-derivatives, for short-like options or futures have a particular status. In the early 1970s Myron S. Scholes, Robert C. Merton and Fischer Black modeled an analytic pricing model for derivatives. This model is based on a continuous-time diffusion process (Ito process) for non-payout underlyings: The partial differential Black-Scholes equation. The WARRANT-PRO-2 software (Release 0.3) solves this equation with an adapted Crank-Nicholson scheme numerically. Arbitrary payments (boundary conditions) enable the design and optimization of customer tailored derivatives. WARRANT-PRO-2 computes derivative prices for given payments (simulation and expert design). But moreover this software can also optimize payments via parameterized boundary conditions of the Black-Scholes equation. The parameterized boundary conditions are optimized by nonlinear programming, i. e. an advanced SQP-method here. The deviation from a predefinable Δ of an option (performance index), e. g., can be minimized and the gradient can be computed highly accurate with automatic differentiation. A software quality and change management process for WARRANT-PRO-2, its comfortable and easy to use MATLAB-GUI (graphical user interface) and its portability to WINDOWS and LINUX operating systems is discussed. Optimized derivatives are very promising for both buyer and seller and can revolutionize modern financial markets: Examples like European double-barrier options are discussed.
UR - http://www.scopus.com/inward/record.url?scp=84889977372&partnerID=8YFLogxK
U2 - 10.1007/978-3-540-74238-8_16
DO - 10.1007/978-3-540-74238-8_16
M3 - Contribution to book/anthology
AN - SCOPUS:84889977372
SN - 9783540742371
SP - 211
EP - 238
BT - From Nano to Space
ER -