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Quantitative Modeling of Derivative Securities demonstrates how to take the basic ideas of arbitrage theory and apply them - in a very concrete way - to the design and analysis of financial products. Based primarily (but not exclusively) on the analysis of derivatives, the book emphasizes relative-value and hedging ideas applied to different financial instruments. Using a "financial engineering approach," the theory is developed progressively, focusing on specific aspects of pricing and hedging and with problems that the technical analyst or trader has to consider in practice.
More than just an introductory text, the reader who has mastered the contents of this one book will have breached the gap separating the novice from the technical and research literature.
"...using a "financial engineering" approach, it develops the theory progressively, & focuses on specific aspects of pricing, hedging, & the problems that technical analysts or traders have to consider in practice."
Arbitrage Pricing Theory: The One-Period Model
Binomial Option Pricing Model
Analysis of the Black-Scholes Formula
Refinements of the Binomial Model
American-Style Options and Time-Optionality
Trinomial Trees and Finite-Difference Schemes
Brownian Motion and Ito Calculus
An Introduction to Exotic Options
Ito Processes, Continuous-Time Martingales, and Girsanov's Theorem
Continuous-Time Finance: An Introduction
Valuation of Derivative Securities
Fixed-Income Securities and the Term-Structure of Interest Rates
The Heath-Jarrow-Morton Theorem and Multidimensional Term-Structure Model
Appendix: The Intertemporal Discrete Model