by Akira Yamazaki, Kenichiro Shiraya, Tomohisa Yamakami
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Suggested foundations for options and derivatives pricing and asset pricing and factor research. Specialist prerequisites vary by paper.
Build replication and risk-neutral probabilities in a tractable model.
Distinguish pricing probabilities from physical forecasts.
Interpret exposures, residuals and uncertainty in fitted coefficients.
Work with returns and recognise their empirical limitations.
Connect the pricing equation, closed-form value and implied volatility.
Connect factor definitions to portfolio construction.
Distinguish exposure estimation from tests of expected returns.
Start in discrete time, move to Brownian motion, then read the original pricing argument and simulate it.
Connect diversification, common risk factors, investor views, and the properties of a risk measure.