Derivatives Introduction To The Mathematics Of Option Trading外语英文电子书.pdfVIP

H E D G I N G BY SEQUENTIAL REGRESSION: AN I N T R O D U C T I O N TO T H E M A T H E M A T I C S OF O P T I O N T R A D I N G BY H. FOLLMER and M. SCHWEIZER E T H Zfirich 1. I N T R O D U C T I O N It is widely acknowledge that there has been a major breakthrough in the mathematical theory of option trading. This breakthrough, which is usually sum- marized by the Black-Scholes formula, has generated a lot of excitement and a certain mystique. On the mathematical side, it involves advanced probabilistic techniques from martingale theory and stochastic calculus which are accessible only to a small group of experts with a high degree of mathematical sophisti- cation; hence the mystique. In its practical implications it offers exciting prospects. Its promise is that, by a suitable choice of a trading strategy, the risk involved in handling an option can be eliminated completely. Since October 1987, the mood has become more sober. But there are also mathematical reasons which suggest that expectations should be lowered. This will be the main point of the present expositoryaccount. We argue that, typically, the risk involved in handling an option has an irreducible intrinsic part. This intrin- sic risk may be much smaller than the apriori risk, but in general one should not expect it to vanish completely. In this more sober perspective, the mathematical technique behind the Black-Scholes formula does not lose any of its importance. I