Titlebook: Martingale Methods in Financial Modelling; Marek Musiela,Marek Rutkowski Book 2005Latest edition Springer-Verlag Berlin Heidelberg 2005 He

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Foreign Market Derivativesfree bonds and foreign stocks (and their derivatives), is allowed. We will work within the classical Black-Scholes framework. More specifically, both domestic and foreign risk-free interest rates are assumed throughout to be nonnegative constants, and the foreign stock price and the exchange rate ar

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Exotic Optionsaim of this chapter is to study examples of more sophisticated option contracts. Although the payoffs of . are given by similar expressions for both spot and futures options, the corresponding valuation formulas would not agree. We restrict here our attention to the case of exotic spot options.

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Continuous-time Security Marketsmodel, which is based on the It? stochastic integral with respect to a semimartingale. Such a model of financial market, in which the arbitrage-free property hinges on the chosen class of admissible trading strategies, is termed the . hereafter. We discuss the relevance of a judicious choice of a nu

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Interest Rates and Related Contractsld practice, several fixed-income markets operate; as a result, many concepts of interest rates have been developed. There is no doubt that management of interest rate risk, by which we mean the control of changes in value of a stream of future cash flows resulting from changes in interest rates, or

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Models of Instantaneous Forward Ratesy compounded forward rates .(.,.). For any fixed maturity .≤., the dynamics of the forward rate .(.,.) are (cf. Heath et al. (1990a, 1992b)) .where . and . are adapted stochastic processes with values in ? and ?. respectively, and . is a .-dimensional standard Brownian motion with respect to the und

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Alternative Market Modelss well for the valuation and hedging of the LIBOR related derivatives, such as plain-vanilla and exotic caps and floors. It thus may be see as a good candidate for the role of the Black-Scholes-like benchmark model for this particular sector of the fixed-income market. Interest rate swaps are anothe