Wednesday, March 25, 2009

Hypercomplication

As if derivative pricing wasn't already difficult... I introduce....
Option Pricing using the fourier transform method....
This is quite informative if you are crazy enough to be curious about this stuff.. The first 2 sections go over the basic rationale for why we want to price options and the basic techniques. Basic is used very very loosely though.... One of the first things they mention is Ito's Lemma... which is a seriously high level math concept by itself... So when you get pissed off that these companies are having to pay 'please stay' bonuses... you can get an idea of the types of people they 'may' be trying to hold onto... the derivatives game is almost intractably complex....

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