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This book explains in simple settings the fundamental ideas of financial market modelling and derivative pricing, using the no-arbitrage principle. Relatively elementary mathematics leads to powerful notions and techniques – such as viability, completeness, self-financing and replicating strategies, arbitrage and equivalent martingale measures – which are directly applicable in practice. The general methods are applied in detail to pricing and hedging European and American options within the Cox–Ross–Rubinstein (CRR) binomial tree model. A simple approach to discrete interest rate models is included, which, though elementary, has some novel features. All proofs are written in a user-friendly manner, with each step carefully explained and following a natural flow of thought. In this way the student learns how to tackle new problems.Read more
- Written specifically at the Master's level by experienced lecturers, so readers can dive in directly
- The mathematics is rigorous but also motivated, so readers see how to apply what they learn
- Clear, concise and short, so readers can master the whole topic
Reviews & endorsements
"The book could be used by a broad range of practitioners, such as analysts, risk managers, quants, consultants, and auditors in financial markets, as it provides an overview of all the basic terminologies and concepts of financial models."
Thomas S. Y. Ho, SIAM ReviewSee more reviews
"… clearly written … The exposition is of well-known material, using the classical notation, and plenty of exercises for the reader are integrated into the text."
George Matthews, Mathematics Today
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- Date Published: March 2012
- format: Paperback
- isbn: 9780521175722
- length: 192 pages
- dimensions: 227 x 152 x 12 mm
- weight: 0.31kg
- contains: 10 b/w illus. 95 exercises
- availability: Available
Table of Contents
2. Single-step asset pricing models
3. Multi-step binomial model
4. Multi-step general models
5. American options
6. Modelling bonds and interest rates
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- Advanced Financial Management
- Applied Analytical Methods in Finance
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