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A portfolio that gives maximum return for a given risk, or minimum risk for given return is an efficient portfolio. Thus, portfolios are selected as follows: (a) From the portfolios that have the same return, the investor will prefer the portfolio with lower risk, and [ 1 ]
Least Square Monte Carlo is a technique for valuing early-exercise options (i.e. Bermudan or American options).It was first introduced by Jacques Carriere in 1996. [12]It is based on the iteration of a two step procedure:
In contrast, modern portfolio theory is based on a different axiom, called variance aversion, [27] and may recommend to invest into Y on the basis that it has lower variance. Maccheroni et al. [ 28 ] described choice theory which is the closest possible to the modern portfolio theory, while satisfying monotonicity axiom.
In finance, the binomial options pricing model (BOPM) provides a generalizable numerical method for the valuation of options.Essentially, the model uses a "discrete-time" (lattice based) model of the varying price over time of the underlying financial instrument, addressing cases where the closed-form Black–Scholes formula is wanting, which in general does not exist for the BOPM.
Portfolio optimization is the process of selecting an optimal portfolio (asset distribution), out of a set of considered portfolios, according to some objective.The objective typically maximizes factors such as expected return, and minimizes costs like financial risk, resulting in a multi-objective optimization problem.
Merton's portfolio problem is a problem in continuous-time finance and in particular intertemporal portfolio choice.An investor must choose how much to consume and must allocate their wealth between stocks and a risk-free asset so as to maximize expected utility.
A conditional variance swap is a type of variance swap or swap derivative product that allows investors to take exposure to volatility in the price of an underlying security but only while the underlying security is within a pre-specified price range.
There are numerous permutations of Asian option; the most basic are listed below: Fixed strike (or average rate) Asian call payout = ((,),),where A denotes the average price for the period [0, T], and K is the strike price.