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Published / Preprint: Prosperity is associated with instability in dynamical networks

March 18, 2012 by MoneyScience   Comments (0)

Social, biological and economic networks grow and decline with occasional fragmentation and re-formation, often explained in terms of external perturbations. We show that these phenomena can be a direct consequence of simple imitation and internal conflicts between ‘cooperators’ and ‘defectors’. We employ a game-theoretic model of dynamic network formation where successful individuals are more likely to be imitated by newcomers who adopt their strategies and copy their social network....

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Towards a common financial language - speech by Andrew Haldane

March 18, 2012 by MoneyScience   Comments (0)

In a speech drawn from a paper presented at the Securities Industry and Financial Markets Association’s (SIFMA) Legal Entity Identifier Symposium in New York, Andrew Haldane – Executive Director for Financial Stability and member of the Financial Policy Committee – considers the benefits of finance adopting a common language that he believes “…could transform both itself and its contribution to wider society.” The paper is written jointly with two Bank...

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Research Library: When You Cannot Hedge Continuously: The Corrections to Black-Scholes (1998)

March 18, 2012 by MoneyScience   Comments (0)

Emanuel Derman Goldman Sach Quantitative Strategies Research Notes Introduction The insight behind the Black-Scholes formula for options valuation is the recognition that, if you  know the future volatility of a stock, you can  replicate an option payoff exactly by a continuous  rebalancing of a portfolio  consisting of the  underlying stock and a risk-free bond. If no  arbitrage is possible, then the value of the option  should be the cost of the...

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Research Library: On the Black-Scholes Equation: Various Derivations (pdf)

March 18, 2012 by MoneyScience   Comments (0)

Manabu Kishimoto Abstract One of the significant equations in financial mathematics is the Black-Scholes equation, a partial differential equation that governs the value of financial derivatives, such as options. In this paper, various derivations of the Black-Scholes equation are illustrated. Throughout these derivations, core concepts in financial mathematics, such as Ito’s lemma, the replicating portfolio, the CAPM, arbitrage pricing, risk-neutral pricing, and put-call parity, are...

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Research Library: The Pricing of Options and Corporate Liabilities (pdf, 1973)

March 18, 2012 by MoneyScience   Comments (0)

Fischer Black University of Chicago Myron Scholes Massachusetts Institute of Technology Journal of Political Economy, 1973 Abstract If options are correctly priced in the market, it should not be possible to make sure profits by creating portfolios of long and short positions in options and underlying stocks. Using this principal, a theoretical valuation formula for options is derived. Since almost all corporate liabilities can be viewed as combinations of options, the formula and the...

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