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© 1997

Martingale Methods in Financial Modelling

  • Has sold over 8000 copies since release in 1997

  • Bridges the mathematical theory and industry practice of option pricing at the ideal level for both audiences

  • Brand new chapter on volatility risk

Book

Part of the Applications of Mathematics book series (SMAP, volume 36)

Table of contents

  1. Front Matter
    Pages I-XII
  2. Spot and Futures Markets

    1. Front Matter
      Pages 1-1
    2. Marek Musiela, Marek Rutkowski
      Pages 3-32
    3. Marek Musiela, Marek Rutkowski
      Pages 33-68
    4. Marek Musiela, Marek Rutkowski
      Pages 69-86
    5. Marek Musiela, Marek Rutkowski
      Pages 87-108
    6. Marek Musiela, Marek Rutkowski
      Pages 109-134
    7. Marek Musiela, Marek Rutkowski
      Pages 135-158
    8. Marek Musiela, Marek Rutkowski
      Pages 159-182
    9. Marek Musiela, Marek Rutkowski
      Pages 183-204
    10. Marek Musiela, Marek Rutkowski
      Pages 205-228
    11. Marek Musiela, Marek Rutkowski
      Pages 229-261
  3. Fixed-income Markets

    1. Front Matter
      Pages 263-263
    2. Marek Musiela, Marek Rutkowski
      Pages 265-280
    3. Marek Musiela, Marek Rutkowski
      Pages 281-302
    4. Marek Musiela, Marek Rutkowski
      Pages 303-324
    5. Marek Musiela, Marek Rutkowski
      Pages 325-356
    6. Marek Musiela, Marek Rutkowski
      Pages 357-386
    7. Marek Musiela, Marek Rutkowski
      Pages 387-418
    8. Marek Musiela, Marek Rutkowski
      Pages 419-452

About this book

Introduction

The origin of this book can be traced to courses on financial mathemat­ ics taught by us at the University of New South Wales in Sydney, Warsaw University of Technology (Politechnika Warszawska) and Institut National Polytechnique de Grenoble. Our initial aim was to write a short text around the material used in two one-semester graduate courses attended by students with diverse disciplinary backgrounds (mathematics, physics, computer sci­ ence, engineering, economics and commerce). The anticipated diversity of potential readers explains the somewhat unusual way in which the book is written. It starts at a very elementary mathematical level and does not as­ sume any prior knowledge of financial markets. Later, it develops into a text which requires some familiarity with concepts of stochastic calculus (the basic relevant notions and results are collected in the appendix). Over time, what was meant to be a short text acquired a life of its own and started to grow. The final version can be used as a textbook for three one-semester courses­ one at undergraduate level, the other two as graduate courses. The first part of the book deals with the more classical concepts and results of arbitrage pricing theory, developed over the last thirty years and currently widely applied in financial markets. The second part, devoted to interest rate modelling is more subjective and thus less standard. A concise survey of short-term interest rate models is presented. However, the special emphasis is put on recently developed models built upon market interest rates.

Keywords

Arbitrage Black-Scholes Finance Martingal Martingale Stochastic calculus derivatives financial modelling futures mathematical finance modeling option pricing swaps valuation volatility

Authors and affiliations

  1. 1.School of MathematicsUniversity of New South WalesSydneyAustralia
  2. 2.Institute of MathematicsPolitechnika WarszawskaWarszawaPoland

About the authors

 .

Bibliographic information

Industry Sectors
Finance, Business & Banking

Reviews

From the reviews:

" …This book is an impressive work of scholarship in mathematical finance in the area of option pricing. …contains the latest results and references. …The presence of many explicit formulae, for various types of derivatives, will make this book attractive to practitioners; and its breadth of content will make it useful for anyone who considers research in mathematical finance." (The Australian and New Zealand Journal of Statistics)

" …On the whole, this book presents a very wide range of topics and will appeal to both practitioners and mathematicians. …the second part gives an excellent overview of the state of the art in term structure research and will set a clear standard for some time to come." (MathSciNet)

" ...The book contains a wealth of material expressed in a clear mathematical way. A definite bonus is the very extensive list of references which gives the reader a most welcome basis from which to explore further the realm of mathematical finance. …The book can be used ideally both as an introductory and as an advanced text on mathematical finance." (Short Book Reviews)

" …This book is a comprehensive and up-to-date presentation of the martingale approach for pricing and hedging derivative securities. …provides a wide range of topics and will appeal to both practitioners and mathematicians. When only special cases or models are provided, the authors give useful references that will help researchers to obtain even more insight in the topics." (ZentralblattMATH)

From the reviews of the second edition:

"The book starts at an elementary level of mathematics as well as of market and product knowledge. … In summary, the book gives a very broad insight into advanced modern financial mathematics, in particular fixed income models. … It will serve as a basic source of knowledge of the described topics in financial mathematics." (Ludger Overbeck, Mathematical Reviews, Issue 2005 m)