Modern Software Techniques in Computational Finance
Option management is among the most important and interesting problems in computational finance where modern techniques can be used to improve the design and implementation of software systems and supporting tools. The purpose of option valuation is to compute the value of a financial instrument, the option, which is governed by economic laws and is a function of a number of financial variables. The option valuation problem has many similarities to classical problems in physics and applied mathematics such as boundary value problems, free boundary problems, and optimal stopping problems. Knowhow from these areas has been proven useful in the mathematical treatment of options. The treatment of options in a mathematical framework facilitates their classification and provides the basis for an object-oriented abstraction. The object-orientation of the option valuation problem is used in FINANZIA, a library for option valuation, hedging, and implied parameter calculation. Introducing object-oriented techniques in the design and implementation of option management software helps in mastering the complexity and dynamic nature of the application domain, as well as in meeting the strict requirements for software maintainability, robustness, and performance.
KeywordsImplied Volatility Free Boundary Problem American Option Strike Price Underlying Asset
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