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Financial Derivative and Energy Market Valuation: Theory and Implementation in MATLAB
book

Financial Derivative and Energy Market Valuation: Theory and Implementation in MATLAB

by Michael Mastro PhD
March 2013
Intermediate to advanced content levelIntermediate to advanced
664 pages
15h 11m
English
Wiley
Content preview from Financial Derivative and Energy Market Valuation: Theory and Implementation in MATLAB

Chapter 1: Financial Models

1.1 Introduction

The movement of financial assets and products generally displays some type of expected return, even over a short period. This expected return trends at a predictable rate that may be positive, indicating growth; negative, indicating a decline; or zero. Additionally, there are random movements that are individually unpredictable; however, the general distribution of these fluctuations is predictable based on historical movements. The common approach to model randomness is to assume a single- or multi-component Gaussian process. The generalized format to describe a time-dependent stochastic process is

equation

where the drift and volatility are functions of time and asset price , and is a Wiener process. If the drift and volatility are constants, then ...

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Publisher Resources

ISBN: 9781118501818Purchase book