Time series analysis is an important subject in finance. In this post, we are going to apply a time series technique to a financial time series and develop an investment strategy.  Specifically, we are going to use moving averages to trade volatility Exchange Traded Notes (ETN). Moving averages are used …

In previous posts, we provided examples of pricing European and American options in Excel. For pricing the European option, we utilized the Black-Scholes formula, and for pricing the American option we utilized the binomial approach. In this post, we are going to implement these methods in Python. Recall that, In …

In a previous post, we presented an example of Interest Rate Swap Pricing in Excel. In this post, we are going to provide an example of interest rate swap pricing in Python. We are going to use the USD Libor swap curve as at December 31 2018. Picture below shows …

Capital structure is an important determinant factor of a company’s credit risks. In this post, we are going to walk you through an example of calculating the weighted average cost of capital (WACC) using Excel. The weighted average cost of capital (WACC) is the rate that a company is expected …

Debt instruments are an important part of the capital market.  In this post, we are going to provide an example of pricing a fixed-rate bond. A fixed rate bond is a long term debt paper that carries a predetermined interest rate. The interest rate is known as coupon rate and …

In a previous post entitled Credit Risk Management Using Merton Model we provided a brief theoretical description of the Merton structural credit risk model. Note that, The Merton model is an analysis model – named after economist Robert C. Merton – used to assess the credit risk of a company’s …

An interest rate swap (IRS) is a financial derivative instrument that involves an exchange of a fixed interest rate for a floating interest rate.  More specifically, An interest rate swap’s (IRS’s) effective description is a derivative contract, agreed between two counterparties, which specifies the nature of an exchange of payments …

In a previous post, we provided an example of pricing American options using an analytical approximation. Such a pricing model is fast and accurate enough for risk management purposes. However, sometimes more accurate results are required. For this purpose, the binomial (lattice) model can be used. Wikipedia describes the binomial …

R. Merton published a seminal paper that laid the foundation for the development of structural credit risk models. In this post, we’re going to provide an example of how it can be used for managing credit risks. Within the Merton model, equity of a firm is considered a call …

In the previous installment, we presented a concrete example of pricing a European option. In this follow-up post we are going to provide an example of valuing American options. The key difference between American and European options relates to when the options can be exercised: A European option may be …