Financial Derivatives in Theory and Practice / Edition 1

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Originally published in 2000, Financial Derivatives in Theory and Practice is a complete, rigorous and readable account of the mathematics underlying derivative pricing and a guide to applying these ideas to solve real pricing problems. It is aimed at practitioners and researchers who wish to understand the latest finance literature and develop their own pricing models. The authors' combination of strong theoretical knowledge and extensive market experience make this book particularly relevant for those interested in real world applications of mathematical finance. This revised edition has been updated with minor corrections, and now includes a dedicated chapter of exercises and solutions. The balance of rigor and readability makes the book an ideal textbook for masters and postgraduate students of mathematical finance, stochastic calculus and derivatives pricing. Detailed coverage of interest rate derivatives, from 'vanilla' instruments through to many of the more exotic products currently being traded. Overview of popular term structure models along with their relationships to each other (including Heath-Jarrow-Morton, short rate models and the latest market models). Explanation of numeraires as a modelling and pricing tool. Pricing models for constant maturity swaps and other convexity products. Models and efficient algorithms for path-dependent and Bermudan swaptions. Insights into how to go about pricing products beyond those treated in the text. Accessible yet rigorous treatment of the stochastic calculus required for option pricing. A chapter of exercises and solutions enabling use as a course text or for self-study.

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Product Details

  • ISBN-13: 9780470863589
  • Publisher: Wiley
  • Publication date: 7/26/2004
  • Series: Wiley Series in Probability and Statistics Series, #556
  • Edition description: Revised Edition
  • Edition number: 1
  • Pages: 468
  • Product dimensions: 6.16 (w) x 9.70 (h) x 1.27 (d)

Table of Contents

Pt. I Theory 1
1 Single-period option pricing 3
2 Brownian motion 19
3 Martingales 31
4 Stochastic integration 63
5 Girsanov and Martingale representation 91
6 Stochastic differential equations 115
7 Option pricing in continuous time 141
8 Dynamic term structure models 183
Pt. II Practice 213
9 Modelling in practice 215
10 Basic instruments and terminology 227
11 Pricing standard market derivatives 237
12 Futures contracts 247
Orientation : pricing exotic European derivatives 259
13 Terminal swap-rate models 263
14 Convexity corrections 277
15 Implied interest rate pricing models 287
16 Multi-currency terminal swap-rate models 303
Orientation : pricing exotic American and path-dependent derivatives 315
17 Short-rate models 319
18 Market models 337
19 Markov-functional modelling 351
20 Exercises and solutions 373
App. 1 The usual conditions 417
App. 2 L[superscript 2] spaces 419
App. 3 Gaussian calculations 421
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  • Anonymous

    Posted February 23, 2000

    Excellent Introduction to the Mathematics of Derivatives Pricing

    This book explains the theory of valuing financial derivatives (with a focus on interest rate options) in a mathematically rigorous fashion. It is also one of the first books to use the recently developed concepts of martingales and numeraires consistently throughout the text. The book developes these mathematical concept rigorously and consistently. Therefore the book is most suited for people with a solid mathematical background looking for an extensive introduction to option pricing models.

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