Contents Preface vii Chapter 1. Financial Markets and Derivatives 1 1.1. Financial Markets 1 1.2. Derivatives 2 1.3. Exercise 5 Chapter 2. Binomial Model 7 2.1. Binomial or CRR Model 7 2.2. Pricing a European Contingent Claim 10 2.3. Pricing an American Contingent Claim 19 2.4. Exercises 28 Chapter 3. Finite Market Model 31 3.1. Definition of the Finite Market Model 32 3.2. First Fundamental Theorem of Asset Pricing 34 3.3. Second Fundamental Theorem of Asset Pricing 39 3.4. Pricing European Contingent Claims 44 3.5. Incomplete Markets 47 3.6. Separating Hyperplane Theorem 51 3.7. Exercises 52 Chapter 4. Black-Scholes Model 55 4.1. Preliminaries 56 4.2. Black-Scholes Model 57 v
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