上财系列金融风险控制与管理QMRFinancetheory.ppt

Quantitative Risk Management - Finance Theory Written by Ming-Heng Zhang ? Quantitative Study The quantitative study of how people acquire and invest their money borrows a great deal from the hard sciences Robert Brown (1773-1858) Brown, R. “A brief account of microscopical observations made in the months of June, July and August 1827, on the particles contained in the pollen of plants; and on the general existence of active molecules in organic and inorganic bodies,” Edinburgh New Philosophical Journal 5, 358-371;1828 The term Brownian motion (in honor of the botanist Robert Brown) refers to either The physical phenomenon that minute particles immersed in a fluid move about randomly; or The mathematical models used to describe those random movements Robert Brown (1773-1858) Robert Brown December 21,1773-June 10,1858 the leading British botanist, to collect in Australia during the first half of the 19th century Brownian motion - Example Brownian motion - Model Wiener Process - For each positive number t, denote the value of the process at time t by Wt. Then the process is characterized by the following two conditions: If 0 s t, then Wt-Ws ~ N(0,t-s); If 0 ≤ s t ≤ u v, (i.e., the two intervals [s, t] and [u, v] do not overlap) then Wt-Ws and Wu-Wv are independent random variables, and similarly for more then non-lapping intervals Geometric Brownian motion A stochastic process St is said to follow a GBM if it satisfies the following stochastic differential equation: where {Wt} is a Wiener process or Brownian motion and u (the percentage drift) and v (the percentage volatility) are constants. The equation has an analytic solution: Louis Bachelier Louis Bachelier was a French mathematician at the turn of the 20th Century. the first person to model Brownian motion, which was part of his PhD thesis. The Theory of Speculation, (published 1900). His thesis, which discussed the use of Brownian motion to evaluate stock options, is his