Derivative pricing in discrete time Nigel J. Cutland, Alet Roux

Format:

Book

Author/Creator:

Cutland, Nigel

Contributor:

Roux, Alet

Series:

Springer undergraduate mathematics series

Springer undergraduate mathematics series 1615-2085

Language:

English

Subjects (All):

Derivative securities--Prices--Mathematical models.

Derivative securities.

Discrete-time systems.

Business mathematics.

Physical Description:

1 online resource

Place of Publication:

London New York Springer ©2012

Language Note:

English

System Details:

text file

PDF

Summary:

Derivatives are financial entities whose value is derived from the value of other more concrete assets such as stocks and commodities. They are an important ingredient of modern financial markets. This book provides an introduction to the mathematical modelling of real world financial markets and the rational pricing of derivatives, which is part of the theory that not only underpins modern financial practice but is a thriving area of mathematical research. The central theme is the question of how to find a fair price for a derivative, which is defined to be a price at which it is not possible for any trader to make a risk free profit by trading in the derivative. To keep the mathematics as simple as possible, while explaining the basic principles, only discrete time models with a finite number of possible future scenarios are considered. The authors first examine the simplest possible financial model, which has only one time step, where many of the fundamental ideas occur, and are easily understood. Proceeding slowly, the theory progresses to more realistic models with several stocks and multiple time steps, and includes a comprehensive treatment of incomplete models. The emphasis throughout is on clarity combined with full rigour. The later chapters deal with more advanced topics, including how the discrete time theory is related to the famous continuous time Black-Scholes theory, and a uniquely thorough treatment of American options. The book assumes no prior knowledge of financial markets, and the mathematical prerequisites are limited to elementary linear algebra and probability. This makes it accessible to undergraduates in mathematics as well as students of other disciplines with a mathematical component. It includes numerous worked examples and exercises, making it suitable for self-study

Contents:

Derivative Pricing and Hedging

A Simple Market Model

Single-Period Models

Multi-Period Models: No-Arbitrage Pricing

Multi-Period Models: Risk-Neutral Pricing

The Cox-Ross-Rubinstein model

American Options

Advanced Topics

Notes:

Includes bibliographical references and index

Other Format:

Print version:

ISBN:

9781447144083

1447144082

1447144074

9781447144076

OCLC:

811251708

Access Restriction:

Restricted for use by site license