Financial Mathematics. In finance, a hedge is an investment that is taken out specifically to reduce...

Financial Mathematics

In finance, a hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment.

central limit theorem (CLT) states that the sum of a large number of independent and identically-distributed random variables will be approximately normally distributed (i.e., following a Gaussian distribution, or bell-shaped curve) if the random variables have a finite variance.

Call Option

http://en.wikipedia.org/wiki/Call_option

Put Option

http://en.wikipedia.org/wiki/Put_option

Lets look at some equity option markets

http://quote.morningstar.com/Option/Options.aspx?ticker=AAPL&sLevel=D

Black Scholes Pricing Option Formula

• http://en.wikipedia.org/wiki/Black-Scholes

Statistical Arbitrage

Pairs Trading

• http://en.wikipedia.org/wiki/Pairs_trade

• Ford and GM

• http://finance.google.com/finance?q=ford

Co-Integration

• Excel: Simple_Cointegration_Example.xls