Book Image

Mastering Python for Finance - Second Edition

By : James Ma Weiming
Book Image

Mastering Python for Finance - Second Edition

By: James Ma Weiming

Overview of this book

The second edition of Mastering Python for Finance will guide you through carrying out complex financial calculations practiced in the industry of finance by using next-generation methodologies. You will master the Python ecosystem by leveraging publicly available tools to successfully perform research studies and modeling, and learn to manage risks with the help of advanced examples. You will start by setting up your Jupyter notebook to implement the tasks throughout the book. You will learn to make efficient and powerful data-driven financial decisions using popular libraries such as TensorFlow, Keras, Numpy, SciPy, and scikit-learn. You will also learn how to build financial applications by mastering concepts such as stocks, options, interest rates and their derivatives, and risk analytics using computational methods. With these foundations, you will learn to apply statistical analysis to time series data, and understand how time series data is useful for implementing an event-driven backtesting system and for working with high-frequency data in building an algorithmic trading platform. Finally, you will explore machine learning and deep learning techniques that are applied in finance. By the end of this book, you will be able to apply Python to different paradigms in the financial industry and perform efficient data analysis.
Table of Contents (16 chapters)
Free Chapter
1
Section 1: Getting Started with Python
3
Section 2: Financial Concepts
9
Section 3: A Hands-On Approach

Lattices in option pricing

In binomial trees, each node recombines at every alternative node. In trinomial trees, each node recombines at every other node. This property of recombining trees can also be represented as lattices to save memory without recomputing and storing recombined nodes.

Using a binomial lattice

We will create a binomial lattice from the binomial CRR tree since at every alternate up and down nodes, the prices recombine to the same probability of ud=1. In the following diagram, Su and Sd recombine with Sdu = Sud = S0. The tree can now be represented as a single list:

For a N-step binomial tree, a list of size 2N +1 is required to contain the information on the underlying stock prices. For European...