Financial Calculus: An Introduction to Derivative PricingThe rewards and dangers of speculating in the modern financial markets have come to the fore in recent times with the collapse of banks and bankruptcies of public corporations as a direct result of ill-judged investment. At the same time, individuals are paid huge sums to use their mathematical skills to make well-judged investment decisions. Here now is the first rigorous and accessible account of the mathematics behind the pricing, construction and hedging of derivative securities. Key concepts such as martingales, change of measure, and the Heath-Jarrow-Morton model are described with mathematical precision in a style tailored for market practitioners. Starting from discrete-time hedging on binary trees, continuous-time stock models (including Black-Scholes) are developed. Practicalities are stressed, including examples from stock, currency and interest rate markets, all accompanied by graphical illustrations with realistic data. A full glossary of probabilistic and financial terms is provided. This unique book will be an essential purchase for market practitioners, quantitative analysts, and derivatives traders. |
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Financial Calculus: An Introduction to Derivative Pricing Baxter Martin,Andrew Rennie No preview available - 2014 |
Common terms and phrases
arbitrage binomial tree bond price Brownian motion call option change of measure conditional expectation constant contract coupon coupon bond deterministic discount bond discounted claim discounted stock dividend dollar EQ(BT¹X equation equivalent exp(r dt F-previsible Figure forward contract forward price forward rate function hedge HJM model holding instantaneous rate interest rate Itô log-normally distributed market price martingale measure martingale representation theorem maturity measure Q n-factor Newtonian node normal N(0 numeraire option price path payment payoff portfolio previsible process price of risk price process probability Q-Brownian Q-martingale Radon-Nikodym derivative random variable replicating strategy risk-neutral measure self-financing short rate simple sterling stochastic differential stochastic process stock price strong law Suppose swaptions T-bond T₁ tick-time unit of stock V₁ variance Vasicek model worth yield curve zero σντ