Financial Mathematics In finance, a hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment. central limit theorem (CLT) states that the sum of a large number of independent and identically-distributed random variables will be approximately normally distributed (i.e., following a Gaussian distribution, or bell-shaped curve) if the random variables have a finite variance. Call Option http://en.wikipedia.org/wiki/Call_option Put Option http://en.wikipedia.org/wiki/Put_option Lets look at some equity option markets http://quote.morningstar.com/Option/Options.aspx?ticker=AAPL&sLevel= D Black Scholes Pricing Option Formula • http://en.wikipedia.org/wiki/Black-Scholes Statistical Arbitrage Pairs Trading • http://en.wikipedia.org/wiki/Pairs_trade • Ford and GM • http://finance.google.com/finance?q=ford Co-Integration • Excel: Simple_Cointegration_Example.xls