Discrete models of financial markets /
Marek Capiński, AGH University of Science and Technology, Kraków, Poland, Ekkehard Kopp, University of Hull, Hull, UK.
- 1 online resource (ix, 181 pages) : digital, PDF file(s).
- Mastering mathematical finance .
- Mastering mathematical finance. .
Title from publisher's bibliographic system (viewed on 05 Oct 2015).
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.
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.