Discrete Models of Financial Markets

An excellent basis for further study. Suitable even for readers with no mathematical background.

Marek Capi?ski (Author), Ekkehard Kopp (Author)

9780521175722, Cambridge University Press

Paperback, published 23 February 2012

192 pages, 10 b/w illus. 95 exercises
22.7 x 15.2 x 1.2 cm, 0.31 kg

'… 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

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.

Preface
1. Introduction
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
Index.

Subject Areas: Mathematics [PB], Finance [KFF], Econometrics [KCH], Economics, finance, business & management [K]