Recent Developments in Mathematical Finance: A Practitioner's Point of View

21 Pages Posted: 1 Jun 2006

See all articles by Marcus Overhaus

Marcus Overhaus

Deutsche Bank AG

Ana Bermudez

Deutsche Bank AG

Hans Buehler

JP Morgan

Andrew Ferraris

Deutsche Bank AG

Christopher Jordinson

Deutsche Bank AG

Aziz Lamnouar

Deutsche Bank AG

Anwar Puthu

Deutsche Bank AG

Date Written: December 29, 2005

Abstract

This article is an introduction into the principles of financial mathematics with a strong view on how the theory is actually used in practise. Using a very basic model, we explain the importance of replication of a financial contract. Afterwards, we show that the concept of replication is an integral part not only of the famous Black&Scholes model but also of more general diffusion based models.

The ideas are then applied to the pricing and hedging of options on variance. In this context, we present recent results on the modelling of the term-structure of variance swaps.

Keywords: Finance theory, Black-Scholes, Hedging, Variance Swaps

JEL Classification: G10

Suggested Citation

Overhaus, Marcus and Bermudez, Ana and Buehler, Hans and Ferraris, Andrew and Jordinson, Christopher and Lamnouar, Aziz and Puthu, Anwar, Recent Developments in Mathematical Finance: A Practitioner's Point of View (December 29, 2005). Available at SSRN: https://ssrn.com/abstract=905361 or http://dx.doi.org/10.2139/ssrn.905361

Marcus Overhaus

Deutsche Bank AG ( email )

31 West 52nd Street, 12th Floor
New York, NY 10019
United States

Ana Bermudez

Deutsche Bank AG ( email )

31 West 52nd Street, 12th Floor
New York, NY 10019
United States

Hans Buehler (Contact Author)

JP Morgan ( email )

London
United Kingdom

Andrew Ferraris

Deutsche Bank AG ( email )

31 West 52nd Street, 12th Floor
New York, NY 10019

Christopher Jordinson

Deutsche Bank AG ( email )

31 West 52nd Street, 12th Floor
New York, NY 10019
United States

Aziz Lamnouar

Deutsche Bank AG ( email )

31 West 52nd Street, 12th Floor
New York, NY 10019
United States

Anwar Puthu

Deutsche Bank AG ( email )

31 West 52nd Street, 12th Floor
New York, NY 10019
United States

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