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

Writing your own financial calculator in Python


It could be viewed as a great achievement when a new Python learner could write his/her own financial calculator. The basic knowledge to do so includes the following:

  • Knowledge on how to write a function

  • What are the related finance formulae?

For the latter, we have learnt from the preceding sections, such as the formula to calculate the present value of one future cash flow. Let's write the simplest Python function to double an input value:

def dd(x):
    return 2*x

Here, def is the keyword for writing a function, dd is the function name, and x in the parentheses is an input variable. For Python, the indentation is critical. The preceding indentation indicates that the second line is the part of the dd function. Calling this function is the same as calling other built-in Python functions:

>>>dd(5)
 10
>>>dd(3.42)
 6.84

Now, let's write our simplest financial calculator. First, launch Python and use its editor to enter the following...