Principles of Infinitesinal Stochastic and Financial Analysis

Principles of Infinitesinal Stochastic and Financial Analysis

by Imme Van Den Berg
     
 
There has been a tremendous growth in the volume of financial transactions based on mathematics, reflecting the confidence in the Nobel-Prize-winning Black-Scholes option theory. Risks emanating from obligatory future payments are covered by a strategy of trading with amounts not determined by guessing, but by solving equations, and with prices not resulting from

Overview

There has been a tremendous growth in the volume of financial transactions based on mathematics, reflecting the confidence in the Nobel-Prize-winning Black-Scholes option theory. Risks emanating from obligatory future payments are covered by a strategy of trading with amounts not determined by guessing, but by solving equations, and with prices not resulting from offer and demand, but from computation. However, the mathematical theory behind that suffers from inaccessibility. This is due to the complexity of the mathematical foundation of the Black-Scholes model, which is the theory of continuous-time stochastic processes: a thorough study of mathematical finance is considered to be possible only at postgraduate level.The setting of this book is the discrete-time version of the Black-Scholes model, namely the Cox-Ross-Rubinstein model. The book gives a complete description of its background, which is now only the theory of finite stochastic processes. The novelty lies in the fact that orders of magnitude — in the sense of nonstandard analysis — are imposed on the parameters of the model. This not only makes the model more economically sound (such as rapid fluctuations of the market being represented by infinitesimal trading periods), but also leads to a significant simplification: the fundamental results of Black-Scholes theory are derived in full generality and with mathematical rigour, now at graduate level. The material has been repeatedly taught in a third-year course to econometricians.

Product Details

ISBN-13:
9789810243586
Publisher:
World Scientific Publishing Company, Incorporated
Publication date:
07/27/2000
Pages:
148
Product dimensions:
6.10(w) x 8.50(h) x 0.60(d)

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