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Book DetailsGraduate Studies in MathematicsVolume: 72; 2006; 150 ppMSC: Primary 60; 62; 91; Secondary 58
The modern subject of mathematical finance has undergone considerable development, both in theory and practice, since the seminal work of Black and Scholes appeared a third of a century ago. This book is intended as an introduction to some elements of the theory that will enable students and researchers to go on to read more advanced texts and research papers.
The book begins with the development of the basic ideas of hedging and pricing of European and American derivatives in the discrete (i.e., discrete time and discrete state) setting of binomial tree models. Then a general discrete finite market model is introduced, and the fundamental theorems of asset pricing are proved in this setting. Tools from probability such as conditional expectation, filtration, (super)martingale, equivalent martingale measure, and martingale representation are all used first in this simple discrete framework. This provides a bridge to the continuous (time and state) setting, which requires the additional concepts of Brownian motion and stochastic calculus. The simplest model in the continuous setting is the famous BlackScholes model, for which pricing and hedging of European and American derivatives are developed. The book concludes with a description of the fundamental theorems for a continuous market model that generalizes the simple BlackScholes model in several directions.
ReadershipGraduate students interested in financial mathematics.

Table of Contents

Chapters

Chapter 1. Financial markets and derivatives

Chapter 2. Binomial model

Chapter 3. Finite market model

Chapter 4. BlackScholes model

Chapter 5. Multidimensional BlackScholes model

Appendix A. Conditional expectation and $L^p$spaces

Appendix B. Discrete time stochastic processes

Appendix C. Continuous time stochastic processes

Appendix D. Brownian motion and stochastic integration


Additional Material

Reviews

This monograph gives a farreaching and easily readable advanced introduction to the mathematical modelling of the absence of riskless financial profits, as well as to the connected topic of pricing and riskprotectingreplication/hedging of securities whose value depend on an underlying asset. ...The book's style is pragmatic, precise, concise, with smoothly and fast increasing technical level including the quotation of mathematical subtleties.
Wolfgang Stummer 
The text is clearly written and wellarranged and most of the results are proved in detail. Each chapter is completed with exercises, which makes the textbook very comprehensive.
EMS Newsletter


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The modern subject of mathematical finance has undergone considerable development, both in theory and practice, since the seminal work of Black and Scholes appeared a third of a century ago. This book is intended as an introduction to some elements of the theory that will enable students and researchers to go on to read more advanced texts and research papers.
The book begins with the development of the basic ideas of hedging and pricing of European and American derivatives in the discrete (i.e., discrete time and discrete state) setting of binomial tree models. Then a general discrete finite market model is introduced, and the fundamental theorems of asset pricing are proved in this setting. Tools from probability such as conditional expectation, filtration, (super)martingale, equivalent martingale measure, and martingale representation are all used first in this simple discrete framework. This provides a bridge to the continuous (time and state) setting, which requires the additional concepts of Brownian motion and stochastic calculus. The simplest model in the continuous setting is the famous BlackScholes model, for which pricing and hedging of European and American derivatives are developed. The book concludes with a description of the fundamental theorems for a continuous market model that generalizes the simple BlackScholes model in several directions.
Graduate students interested in financial mathematics.

Chapters

Chapter 1. Financial markets and derivatives

Chapter 2. Binomial model

Chapter 3. Finite market model

Chapter 4. BlackScholes model

Chapter 5. Multidimensional BlackScholes model

Appendix A. Conditional expectation and $L^p$spaces

Appendix B. Discrete time stochastic processes

Appendix C. Continuous time stochastic processes

Appendix D. Brownian motion and stochastic integration

This monograph gives a farreaching and easily readable advanced introduction to the mathematical modelling of the absence of riskless financial profits, as well as to the connected topic of pricing and riskprotectingreplication/hedging of securities whose value depend on an underlying asset. ...The book's style is pragmatic, precise, concise, with smoothly and fast increasing technical level including the quotation of mathematical subtleties.
Wolfgang Stummer 
The text is clearly written and wellarranged and most of the results are proved in detail. Each chapter is completed with exercises, which makes the textbook very comprehensive.
EMS Newsletter