Table of Contents
[ vii ]
Capital budgeting with Monte Carlo Simulation 446
Python SimPy module 449
Comparison between two social policies – basic income and basic job 450
Finding an efcient frontier based on two stocks by using simulation 454
Constructing an efcient frontier with n stocks 457
Long-term return forecasting 460
Efciency, Quasi-Monte Carlo, and Sobol sequences 462
Appendix A – data case #8 - Monte Carlo Simulation and blackjack 463
References 464
Exercises 464
Summary 466
Chapter 13: Credit Risk Analysis 467
Introduction to credit risk analysis 468
Credit rating 468
Credit spread 475
YIELD of AAA-rated bond, Altman Z-score 477
Using the KMV model to estimate the market value of total assets
and its volatility 479
Term structure of interest rate 482
Distance to default 485
Credit default swap 486
Appendix A – data case #8 - predicting bankruptcy by using Z-score 487
References 488
Exercises 488
Summary 490
Chapter 14: Exotic Options 491
European, American, and Bermuda options 492
Chooser options 494
Shout options 496
Binary options 497
Rainbow options 498
Pricing average options 505
Pricing barrier options 507
Barrier in-and-out parity 509
Graph of up-and-out and up-and-in parity 510
Pricing lookback options with oating strikes 512
Appendix A – data case 7 – hedging crude oil 514
References 516
Exercises 516
Summary 519
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