Financial Calculus: An Introduction to Derivative Pricing

Here is the first rigorous and accessible account of the mathematics behind the pricing, construction, and hedging of derivative securities. With mathematical precision and in a style tailored for market practioners, the authors describe key concepts such as martingales, change of measure, and the Heath-Jarrow-Morton model. Starting from discrete-time hedging on binary trees, the authors develop continuous-time stock models (including the Black-Scholes method). They stress practicalities including examples from stock, currency and interest rate markets, all accompanied by graphical illustrations with realistic data. The authors provide a full glossary of probabilistic and financial terms.

Table of Contents

Chapter 1 Introduction
Chapter 2 Discrete processes
Chapter 3 Continuous processes
Chapter 4 Pricing market securities
Chapter 5 Interest rates
Chapter 6 Bigger models