Titlebook: Introduction to Quantitative Methods for Financial Markets; Hansjoerg Albrecher,Andreas Binder,Philipp Mayer Textbook 2013 Springer Basel

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The Binomial Option Pricing Model,The following chapters will be dedicated to the stochastic modeling of price movements of financial assets. Chapters 5 to 8 will focus on stocks, while Chapter 9 will deal with interest rates.

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Stock-Price Models,In . it has been shown that the Black-Scholes model allows to derive explicit formulas for the prices of European call and put options. Having explicit pricing formulas is a great advantage; however, the Black-Scholes model has also been found to not fully explain market prices due to some of its assumptions and properties.

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The Black-Scholes Model,r, the binomial model often oversimplifies the real world, so that in practice one would aim to choose a model setup that better describes reality. In this chapter we will discuss a continuous-time model which is broadly considered today the classical model of mathematical finance.

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Interest Rate Models,w stochastic behavior (cf. .). While this often only plays a secondary role when dealing with stock derivatives, it is, of course, the core aspect when pricing interest rate derivatives. After a brief introduction to some of the most commonly traded interest rate products, this chapter will present a selection of popular interest rate models.

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Simulation Methods, formulas for derivatives) or successfully apply numerical methods as outlined in .. In such cases stochastic simulation can offer an efficient and powerful alternative for obtaining numerical estimates for specific quantities.