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IT & Finance

IT & Finance. Stefano Grazioli. Critical Thinking. Last homework! Collab will be the main means of communication between us. Next Time: Bitcoin Easy meter. The Hedge Tournament. SOFTWARE CLINIC WILL OPEN THURSDAY Updates on Collab

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IT & Finance

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  1. IT & Finance Stefano Grazioli

  2. Critical Thinking • Last homework! • Collabwill be the main means of communication between us. • Next Time: Bitcoin • Easy meter

  3. The Hedge Tournament • SOFTWARE CLINIC WILL OPEN THURSDAY • Updates on Collab • Receiving help will become VERY hard the closer we get to the HT • At least one meeting per team between now and HT • 30 min max • Sign up sheets outside my door • You team may appear only once to avoid hoarding

  4. Estimating Volatilities Via Iterative Methods Implicit volatilities, Goal seek and Solver

  5. Analytical Solutions • Preferred way to solve problems“given that y=f(x) and that we know y, find x” • Example: I = C [(1+r)t -1] • If we know thatI = $ 218.99 (and t=10 and C = $1000)what is r? • Analytical solution: r = (I/C+1)1/t – 1then you plug in the numbers, and find out that r = 2%

  6. Analytical Solutions Are Not Always Available • Too complicated, or not known • In these cases we can try iterative solutions • Ideal for computer implementation

  7. Iterative Solutions Continuing the previous example • Pick an arbitrary solution value (e.g., r = 1%) and compute the formula: I = C [(1+r)t -1] • Try another solution value (e.g., r=1.1%) and compute the formula • If the value of I obtained in step 2 is closer to the known value of I ($218.99) than the value of I obtained in step (1), keep increasing the value of r, else reduce it. • Keep on going until you find an r that generates a value of I close enough to the target I

  8. Iterative Solutions • Very powerful techniques BUT • Often approximations • Not guaranteed to find a solution • Might miss solutions in case there is more than one

  9. Excel Tools • Goal seekif you have an equation with one unknown “X” and one known “Y” – as in the example • Goal is a constant • No constraints • Solverif you have an equation with more than one unknowns “X”s and one known Y – e.g., suppose that we did not know t andr (and we had at least two Ys) • Constant, min and max • Constraints

  10. Implicit Volatility Demo

  11. Your Opinion Matters • A couple of things that you have learned from the class • Is the class getting you to think on your own • What can be improved • Attitude towards the HT

  12. WINIT What Is NewIn Technology?

  13. Smart Hedger Demo

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