Articles of finance

Transpose Present Value of an Ordinary Annuity Formula for Interest Rate

I’m having trouble transposing the formula for Present Value of an Ordinary Annuity in order to find the interest rate. The formula is: Where P=Present Value of an Ordinary Annuity PMT=Payment i=Interest Rate n=Number of Terms Not sure if it helps, but I managed to simplify the formula to this: Thanks in advance.

How to solve the given problem of simple interest?

The problem statement is: What annual instalment will discharge a debt of 1092 due in 3 years at 12% simple interest? Now, what I know is Simple interest =( principal* Rate per annum*Time in years)/(100) Here, R= 12℅ ,T=3 years but I don’t understand how to move forward.I am not getting the meaning of the […]

Arbitrage opportunity

Given odds $o_i$ for $i=1,2,\ldots,n$ and the possibility to bet the amount $b_i\in \mathbb{R}$ on each event such that if event $i$ occurs you receive $b_io_i$ and if it doesn’t you recieve $-b_i$. I am trying to find out the condition for arbitrage. My immediate thoughts are that $1/o_i$ represents probability, and since these events […]

What's the math formula that is used to calculate the monthly payment in this mortgage calculator?

What’s the math formula that is used to calculate the monthly payment in this mortgage calculator? I would like to know this math formula so that I can plug in the following values Mortgage Amount: $100,000 Rate Type: Fixed Interest Rate: 6% Interest Term: 5 Years Payment Frequency: Monthly Amortization Rate: 5% and calculate the […]

What is an alternative book to oksendal's stochastic differential equation: An introduction?

What is an alternative book to oksendal’s stochastic differential equation: An introduction? But also An alternative that is over 300 pages and at the same level? Some professor refer that book as a bible for finance.

Compound interest: why does everyone get it wrong?

The compound interest formula is: $$A_t=A_0(1+r)^t$$ There is a simple derivation for this which works by starting with $A_1$ and then considering $A_2$ and then extrapolating. The above formula can be manipulated to solve any related problem we have. Rates are almost always stated as APR’s, which once stated are a legal obligation so daily […]

Stochastic calculus book recommendation

I’m a quantitative researcher at a financial company. I have a PhD in math, but I’m an algebraist, so I only took the two required analysis courses in grad school (measure theory for the first, and I don’t even remember the content of the second course. It involved Fourier series). I taught a probability course […]

In stochastic calculus, why do we have $(dt)^2=0$ and other results?

I’m doing actuarial problems of Exam MFE and it covers some of the stochastic calculus (like Ito’s Lemma). One of the frequently used results are the so-called “multiplication rules”: $(dt)^2=0$ $dZ(t)^2=dt$ $dZ(t) \, dt=0$ I tried to do some research online. There are tons of papers providing introduction to stochastic calculus, but strangely all of […]

Book request: Mathematical Finance, Stochastic PDEs

I’m a math student, starting a PhD in the near future. My field of research will be mostly in the field of applied mathematics / numerics. Topics will deal with Kinetic Theory, Moment Equations, Fractional Diffusion, Spetral Methods. I think I have a solid background in numerical computing, especially for PDEs. Now for my Masterthesis […]

Price of a European Call option is a convex function of strike price K

I’m trying to show that the price of a European call option (payoff function is $(S_1-K)^+$) in a no-arbitrage market is a decreasing and convex function of K. That it shall be decreasing makes sense; as $K$ increases, $S_1-K$ decreases and we make less profit. But why shall it be convex?