Book Image

Python for Finance - Second Edition

By : Yuxing Yan
5 (1)
Book Image

Python for Finance - Second Edition

5 (1)
By: Yuxing Yan

Overview of this book

This book uses Python as its computational tool. Since Python is free, any school or organization can download and use it. This book is organized according to various finance subjects. In other words, the first edition focuses more on Python, while the second edition is truly trying to apply Python to finance. The book starts by explaining topics exclusively related to Python. Then we deal with critical parts of Python, explaining concepts such as time value of money stock and bond evaluations, capital asset pricing model, multi-factor models, time series analysis, portfolio theory, options and futures. This book will help us to learn or review the basics of quantitative finance and apply Python to solve various problems, such as estimating IBM’s market risk, running a Fama-French 3-factor, 5-factor, or Fama-French-Carhart 4 factor model, estimating the VaR of a 5-stock portfolio, estimating the optimal portfolio, and constructing the efficient frontier for a 20-stock portfolio with real-world stock, and with Monte Carlo Simulation. Later, we will also learn how to replicate the famous Black-Scholes-Merton option model and how to price exotic options such as the average price call option.
Table of Contents (23 chapters)
Python for Finance Second Edition
Credits
About the Author
About the Reviewers
www.PacktPub.com
Customer Feedback
Preface
Index

Pricing barrier options


Unlike the Black-Scholes-Merton option model's call and put options, which are path-independent, a barrier option is path-dependent. A barrier option is similar in many ways to an ordinary option, except a trigger exists. An in option starts its life worthless unless the underlying stock reaches a predetermined knock-in barrier. On the contrary, an out barrier option starts its life active and turns useless when a knock-out barrier price is breached. In addition, if a barrier option expires inactive, it may be worthless, or there may be a cash rebate paid out as a fraction of the premium. The four types of barrier options are given as follows:

  • Up-and-out: In this barrier option, the price starts from below a barrier level. If it reaches the barrier, it is knocked out.

  • Down-and-out: In this barrier option, the price starts from above a barrier. If it reaches the barrier, it is knocked out.

  • Up-and-in: In this barrier option, the price starts down a barrier and has to...