Option valuation and hedging

Posted July 13th, 2011 at 7:41 pm.

Abstract: Tong Wu

Mentor: Leslie Cheng

This summer I am working with Professor Leslie Cheng.   My summer research project involves financial mathematics. Financial mathematics is the branch of applied math that analyzes the financial market. For example, we can use our models and formulas to calculate the fair price of financial instruments, such as options and swaps.   An option is the right to buy or sell an asset (say, a stock) at a pre-determined price (called the strike or exercise price) at a fixed date in the future (called the expiration date).

My summer research will give me a solid foundation for my honor thesis. I also intend to prepare myself for future study in financial math

I will consult several books to obtain background knowledge about financial math, including Options, Futures and other Derivatives by John C.Hull; The Mathematics of Finance: Modeling and Hedging by Joseph Stampfli and Victor Goodman; An Introduction to Financial Mathematics by J Robert Buchanan and Quantitative Finance by Wilmott. These books will assist me in understanding portfolio optimization, hedging and option pricing. The useful tools will be the Black-Scholes formula, partial differential equations, multivariable calculus, and linear algebra.

This research project will enable me to have a big picture of financial math and help me to develop my interests in some specific areas. For instance, I could choose option pricing, portfolio management, optimization and hedging as my thesis topics and apply for the graduate programs. This summer research experience will also give me an opportunity to use the skills I learned in theoretical math to solve the problems in applied math. Working on Professor Cheng’s research in particular will provide me with an idea of how mathematicians apply all the theories to analyze the real world market.

Filed under: 2011,Cheng, Dr. Leslie,Wu, Tong by Michelle Han

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