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

Summary


In this chapter, first we have explained many basic concepts related to portfolio theory, such as covariance,correlation, the formulas on how to calculate variance of a 2-stock portfolio and variance of an n-stock portfolio. After that, we have discussed various risk measures for individual stocks or portfolios, such as Sharpe ratio, Treynor ratio, Sortino ratio, how to minimize portfolio risk based on those measures (ratios), how to setup an objective function, how to choose an efficient portfolio for a given set of stocks, and how to construct an efficient frontier.

In the next chapter, we will discuss one of the most important theory in modern finance: options and futures. We will start from the basic concepts such as payoff functions for a call and for a put. Then we explain the related applications such as various trading strategies, corporate incentive plans, and hedging strategies including different types of options and futures.