Seminar on Derivatives (with Professor M.L.Yueh): Part One
2006, Spring-Term
Topic 1: (Twice)
General Characteristics of Financial Derivative Models
Reading List:
1. Kwok Y.K. (1998), Mathematical Models of Financial Derivatives, Chapter 1.
2. Eric Briys, etc. (1998), Options, Futures and Exotic Derivatives, Chapters 1-4.
3. Smith, C.W., Jr. (1976),”Option Pricing- a review,” JFE, vol 3.,p.3-51.
4. S. Figlewski, “A Layman’s Introduction to Stochastic Process in
Continuous-Time,”, (1977), NYU, Working paper, p.1-36.
5. D.A. Pietea, (1989), “A Shortcut to Ito Leman for Financial Applications: The Case
of Hedging With Interest Rate Futures,” Finance, P51-58.
6. R.K., Sundaram (1997), “Equivalent Martingale Measure and Risk-Neutral
Pricing: An Expository Note,” Journal of Derivatives, p.85-98.
7. S.M., Sundaresan (2000), “ Continuous-Time Method in Finance: A Review and an
Assessment,” Journal of Finance, pp.1569-1622..
8. Stulz, R.M., (2004) ”Should we fear Derivatives,” Journal of Derivatives, Winter,
pp. 1-18
Topic 2: (Once)
Pricing Futures and Forwards
Reading List:
1.Cox, J,C., j.e., Ingersoll, and S.A., Ross, (1981) “The Relation between Forward
Prices and Future Prices,” JFE , P. 321-346.
2.Jarrow, R.A., and G.S., Oldfield, (1981)” Forward Contracts and Futures Contracts,”
JFE, P. 373-382.
3. Richard, S., and M., Sundaresan (1981) “ a Continuous Time Modelof Forward
and Futures Prices in a Multigood Economy,” JFE, p. 347-372.
4.French, K., (1981) “A Comparison of Futures and Forward Prices,” JFE, p.311-342.
5.Park, H. Y., and A.H., Chen, (1985)“Difference between Futures and Forward Prices:
A Further Investigation of Marking to Market,”, Journal of Futures Market, p.77-88.
Topic 3: (Once)
Solving PDE for B-S Model
Reading List:
1. Black, F., and M. Scholes, (1973), “The Pricing of Options and Corporate
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Liabilities,” Journal of Political Economy, p. 637-659.
2. Black, F., (1975), “Fact and Fantasy in the Use of Options and Corporate
Liabilities,” Financial Analysts Journal, p. 61-72.
3. Merton, R.C., (1973), “Theory of Rational Option Pricing,” Bell Journal of
Economics and Management Science, p. 141-183.
4. Smith, C.W., Jr. (1976),”Option Pricing- a review,” JFE, vol 3.,p.3-51.
5. Kutuer, G.W., (1988), “Black-Scholes Revisited : Some Important Details,” The
Financial Review. P. 95-104.
Topic 4: Alternative Option Pricing Models
Reading List:
1. Hull, J. and A. White (1987), “The Pricing of Options on Assets with Stochastic
Volatility”, Journal of Finance, 42, pp.281-300.
2. Merton, R.C., (1976), “Option Pricing When Underlying Stock Returns Are
Discontinuous, “ Journal of Financial Economics, pp. 125-144.
3. Leland, H.E., (1985), “Option Pricing and Replication With Transaction Costs,
“ Journal of Finance, pp.1283-1301.
4. Rabinovitch, R., (1989), “Pricing Stock and Bond Options When Default-Free Rate
is Stochastic, “ Journal of Financial and Quantitative Analysis, pp. 447-457.
5. Amin, K., (1993), “Jump-Diffusion Option Valuation in Discrete Time,” Journal of
Finance, vol. 48, pp. 1833-1863.
6. Boyle, P.P. and T. Vorst, (1992), “Option Replication in Discrete Time with
Transaction Costs, “ Journal of Finance, vol.47, pp. 271-294.
7. Benniga, S., Bjork, T., and Wiener, Z. (2002),”On the Use of Numeraires in Option
Pricing”, Journal of Derivatives, pp. 43-54.
8. Navas, J., (2003), “Calculation of Volatility in a Jump-Diffusion Model,” Journal of
Derivatives, pp. 66-72.
Topic 5: Pricing American Options
Reading List:
1. Geske, R. and H. Johnson (1984), “ The American Put Analytical Analysis,
“ Journal of Finance, pp. 1511-1542.
2. Barrone-Adesi, G. and R.E. Whaley, (1987), “Efficient Analytic Approximation of
American Option Values, “ Journal of Finance, pp. 301-320.
3. Huang, J.Z., M.G. Subrahmanyam and G.G. Yu, (1996), “Pricing and Hedging
American Options: a Recursive Integration Approach, “ Review of Financial
Studies, pp. 277-300.
4. Whaley, R. (1982), “Valuation of American Call Options On Dividend Paying
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Stocks, “ Journal of Financial Economics, pp.29-58.
5. Broadie, M., and Detemple, J. (1997), “Pricing American-style Securities using
Simulations,” Journal of Economic, Dynamic and Control, vol.21, pp. 1323-1352.
6. Duan, J.C. and Simonato, (1998), “Empirical Martingale Simulations for Asset
Prices” Management Sciences, vol.44, pp.1218-1233.
7. Broadie, M., and Detemple, J. (2004), ”Option Pricing: Valuation Models and
Applications”, Management Sciences, vol.50, pp. 1145-1177.
Topic 6: Utility-Base OPM
Reading List:
1. Brennan, M.J. (1979), “The Pricing of Contingent Claims in Discrete-Time Model”,
Journal of Finance, 34, pp. 53-68.
2. Rubinstein M (1974)., “An Aggregation Theorem for Securities Markets”, Journal
of Financial Economics, pp.225-244.
3. Stapleton, R. and M. Subrahmanyam’ (1984), “The Valuation of Multivariate
Contingent Claims in Discrete Time Models”, Journal of Finance.
4. Stapleton, R. and M. Subrahmanyam’ (1990), “ Risk Aversion and the
Intertemporal Behavior of Asset Prices”, Review of Financial Studies, vol. 3, pp.
677-693.
5. Camara, Antonio (2003), “A Generalized of the Brennan-Rubinstein Approach for
the Pricing of Derivatives”, Journal of Finance, 58, pp.805-819.
6. Schroder , M. (2004), “Risk-Neutral Parameter shifts and Derivatives Pricing in
Discrete Time”, Journal of Finance, vol. 59, pp. 2375-2401.
Topic 7: GARCH Option Pricing Models
Reading List:
1. Duan, J.C. (1995), “The GARCH Option Pricing Models”, Mathematical Finance,
pp. 13-32.
2. Duan, J.C. (1999), “Conditionally Fat Tailed Distribution and Volatility Smile in
Options”, working paper.
3. Duan, J.C. and Zhang, H (2001), “Pricing Hang Seng Index Options Around Asian
Financial Crisis-A GARCH Approach”, Journal of Banking and Finance, pp.
1989-2014.
4. Duan, J.C., P. Ritchken and Z. Sun (2006), “Jump Starting GARCH: Pricing and
Hedging Options with Jumps in Return and Volatility”, Mathematical Finance,
vol.16, pp. 21-52..
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