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Index
Introduction Dynamic Hedging General Risk Management 1 Introduction to the Instruments Synthetic Securities Time-Dependent Linear Derivatives Noncontingent Time-Dependent Nonlinear Derivatives Simple Options Hard and Soft Optionality Mirror Image Rule American Options, Early Exercise, and Other Headaches (Advanced Topic) Hard American Options A Brief Warning about Early Exercise Tests Forwards, Futures, and Forward-Forwards (Advanced Topic) Credit The Correlation between the Future and the Financing (Advanced Issue) Forward-Forward Applying the Framework to Specific Instruments 2 The Generalized Option Step 2. The Type of Payoff: Continuous and Discontinuous Step 3. Barriers Step 5. Order of the Options Step 6. Path Dependence 3 Market Making and Market Using Commoditized and Nonstandard Products Trading Risks in Commoditized Products Profitability Proprietary Departments Tacit Rules in Market Making Market Making and the Price for Immediacy Market Making and Autocorrelation of Price Changes Adverse Selection, Signaling, and the Risk Management of Market Makers Value Trading versus the Greater Fool Theory Monkeys on a Typewriter More Modern Methods of Monitoring Traders The ArcSine Law of the P/L 4 Liquidity and Liquidity Holes Liquidity Holes Liquidity and Risk Management Barrier Options and the Liquidity Vacuum One-Way Liquidity Traps Limits and Market Failures Liquidity and Triple Witching Hour Liquidity and Option Pricing 5 Arbitrage and the Arbitrageurs Mechanical versus Behavioral Stability The Deterministic Relationships Passive Arbitrage An Absorbing Barrier Called the "Squeeze" Arbitrage and the Accounting Systems Other Nonmarket Forms of Arbitrage
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