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Financial Derivatives: Pricing, Applications, and Mathematics

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Overview

This book offers a succinct account of the principles of financial derivatives pricing. The first chapter provides readers with an intuitive exposition of basic random calculus. Concepts such as volatility and time, random walks, geometric Brownian motion, and Ito's lemma are discussed heuristically. The second chapter develops generic pricing techniques for assets and derivatives, determining the notion of a stochastic discount factor or pricing kernel, and then uses this concept to price conventional and exotic derivatives. The third chapter applies the pricing concepts to the special case of interest rate markets, namely, bonds and swaps, and discusses factor models and term-structure-consistent models. The fourth chapter deals with a variety of mathematical topics that underlie derivatives pricing and portfolio allocation decisions, such as mean-reverting processes and jump processes, and discusses related tools of stochastic calculus, such as Kolmogorov equations, martingales techniques, stochastic control, and partial differential equations.
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Editorial Reviews

From the Publisher
"...excellent for industry people and for the new masters programs in quantitative financial modeling and mathematical finance...Excellent, too, is the exposition and the writing style."
Darrell Duffie, Stanford Business School

"...excellent...it contains the most important ingredients for a successful textbook, viz, clarity and accessibility...it will also be useful to practitioners who need to brush up on underlying concepts."
Dr. Sadek Wahba, Morgan Stanley Payne Webber

"The book is fundamentally strong because it is both well-informed technically and also focused on the actual matters that matter in the markets."
Martin Baxter, Nomura International, London

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Product Details

  • ISBN-13: 9780521066792
  • Publisher: Cambridge University Press
  • Publication date: 12/15/2008
  • Pages: 352
  • Sales rank: 1,020,883
  • Product dimensions: 6.00 (w) x 8.90 (h) x 1.00 (d)

Meet the Author

Jamil Baz is the chief investment strategist of GLG, a London-based hedge fund. Prior to holding this position, he was a portfolio manager with PIMCO in London, a managing director in the Proprietary Trading Group of Goldman Sachs, chief investment strategist of Deutsche Bank, and executive director of Lehman Brothers fixed income research division. Dr Baz teaches financial economics at Oxford University. He has degrees from the London School of Economics (M.Sc.), MIT (S.M.), and Harvard University (A.M., Ph.D.).

Professor George Chacko has split his time between the academic and commercial worlds during his career. His past commercial experience has included work at Accenture and Prudential Investments. Most recently, he was a managing director heading fixed income sales and trading at State Street Bank, a managing director in pension asset management at IFL, and the chief investment officer of Auda Alternative Investments. He has co-founded and sold three financial services businesses over his career. He is currently the managing partner of Confluentis Investments. His past academic experience has been at Harvard Business School, where he served as a professor in the finance department for ten years. He also served as a visiting professor at the Indian School of Business. He is currently a professor in the finance department at Santa Clara University. His research interests have been in the areas of fixed income and derivatives research, portfolio choice and construction, and the microstructure of financial markets. He has a BS from MIT in Electrical Engineering, an MBA from the University of Chicago, and an MA and PhD from Harvard University in Business Economics.

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Table of Contents

Acknowledgments
Introduction 1
1 Preliminary Mathematics 5
2 Principles of Financial Valuation 22
3 Interest Rate Models 78
4 Mathematics of Asset Pricing 184
Bibliography 269
Index 327
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