Summary
In this chapter, many concepts and issues associated with statistics are discussed in detail. Topics include how to download historical prices from Yahoo! Finance; estimate returns, total risk, market risk, correlation among stocks, and correlation among different country's markets; form various types of portfolios; estimate a portfolio variance-covariance matrix; construct an efficient portfolio, and an efficient frontier; and estimate the Roll (1984) spread, Amihud's (2002) illiquidity, and Pastor and Stambaugh's (2003) liquidity.
Although in Chapter 4, 13 Lines of Python Code to Price a Call Option, we discuss how to use 13 lines to price a call option based on the Black-Scholes-Merton model even without understanding its underlying theory and logic. In the next chapter, we will explain the option theory and its related applications in more detail.