Mathematical Finance → Financial Mathematics Literature Review Random walk and Brownian motion A random walk is a natural process that can be observed in many fields. Often, random walks have Markov property (that only current position is relevant). And, the observations of many random positions (or random variable) over a period of time lays the […]

# Power Asian Option Formula Derivation

Here, we will derive formulas for European style power Asian call and put options when we are taking geometric average of the underlying’s price. We will put expectation and variance of the power geometric average into Black’s formula (generalized version), and will simplify it to obtain option formulas. As we know that the expectation and […]

# Forward

Before saying anything about forwards (or forward contracts) we should recall what spot contracts are? Spot Contract A spot contract is an agreement to buy or sell an asset on the on the spot for an agreed price. Forward A forward (or forward contract) is an agreement to buy or sell an asset at an […]