Foundations of the Pricing of Financial Derivatives: Theory and Analysis (Frank J. Fabozzi Series)

In __Foundations of the Pricing of Financial Derivatives: Theory and Analysis__ two expert finance academics with professional experience deliver a practical new text for doctoral and masters’ students and also new practitioners. The book draws on the authors extensive combined experience teaching, researching, and consulting on this topic and strikes an effective balance between fine-grained quantitative detail and high-level theoretical explanations. The authors fill the gap left by books directed at masters’-level students that often lack mathematical rigor. Further, books aimed at mathematically trained graduate students often lack quantitative explanations and critical foundational materials. Thus, this book provides the technical background required to understand the more advanced mathematics used in this discipline, in class, in research, and in practice. An accessible and mathematically rigorous resource for masters and PhD students In Foundations of the Pricing of Financial Derivatives: Theory and Analysis two expert finance academics with professional experience deliver a practical new text for doctoral and masters'students and also new practitioners. The book draws on the authors extensive combined experience teaching, researching, and consulting on this topic and strikes an effective balance between fine-grained quantitative detail and high-level theoretical explanations. The authors fill the gap left by books directed at masters'-level students that often lack mathematical rigor. Further, books aimed at mathematically trained graduate students often lack quantitative explanations and critical foundational materials. Thus, this book provides the technical background required to understand the more advanced mathematics used in this discipline, in class, in research, and in practice. Readers will also find: Tables, figures, line drawings, practice problems (with a solutions manual), references, and a glossary of commonly used specialist terms Review of material in calculus, probability theory, and asset pricing Coverage of both arithmetic and geometric Brownian motion Extensive treatment of the mathematical and economic foundations of the binomial and Black-Scholes-Merton models that explains their use and derivation, deepening readers'understanding of these essential models Deep discussion of essential concepts, like arbitrage, that broaden students'understanding of the basis for derivative pricing Coverage of pricing of forwards, futures, and swaps, including arbitrage-free term structures and interest rate derivativesAn effective and hands-on text for masters'-level and PhD students and beginning practitioners with an interest in financial derivatives pricing, Foundations of the Pricing of Financial Derivatives is an intuitive and accessible resource that properly balances math, theory, and practical applications to help students develop a healthy command of a difficult subject. Contents Preface 1. Introduction and Overview Part I: Basic Foundations for Derivative Pricing 2. Boundaries, Limits, and Conditions on Option Prices 3. Elementary Review of Mathematics for Finance 4. Elementary Review of Probability for Finance 5. Financial Applications of Probability Distributions 6. Basic Concepts in Valuing Risky Assets and Derivatives Part II: Discrete Time Derivatives Pricing Theory 7. The Binomial Model 8. Calculating the Greeks in the Binomial Model 9. Convergence of the Binomial Model to the Black-Scholes-Merton Model Part III: Continuous Time Derivatives Pricing Theory 10. The Basics of Brownian Motion and Wiener Processes 11. Stochastic Calculus and Itô’s Lemma 12. Properties of the Lognormal and Normal Diffusion Processes for Modeling Assets 13. Deriving the Black-Scholes-Merton Model 14. The Greeks in the Black-Scholes-Merton Model 15. Girsanov’s Theorem in Option Pricing 16. Connecting Discrete and Continuous Brownian Motions Part IV: Extensions and Generalizations of Derivative Pricing 17. Applying Linear Homogeneity to Option Pricing 18. Compound Option Pricing 19. American Call Option Pricing 20. American Put Option Pricing 21. Min-Max Option Pricing 22. Pricing Forwards, Futures, and Options on Forwards and Futures Part V: Numerical Methods 23. Monte Carlo Simulation 24. Finite Difference Methods Part VI: Interest Rate Derivatives 25. The Term Structure of Interest Rates 26. Interest Rate Contracts: Forward Rate Agreements, Swaps, and Options 27. Fitting an Arbitrage-Free Term Structure Model 28. Pricing Fixed-Income Securities and Derivatives Using an Arbitrage-Free Binomial Tree Part VII: Miscellaneous Topics 29. Option Prices and the Prices of State-Contingent Claims 30. Option Prices and Expected Returns 31. Implied Volatility and the Volatility Smile 32. Pricing Foreign Currency Options References Symbols Used About the Website Index An accessible and mathematically rigorous resource for masters and PhD students In Foundations of the Pricing of Financial Theory and Analysis two expert finance academics with professional experience deliver a practical new text for doctoral and masters students and also new practitioners. The book draws on the authors extensive combined experience teaching, researching, and consulting on this topic and strikes an effective balance between fine-grained quantitative detail and high-level theoretical explanations. The authors fill the gap left by books directed at masters-level students that often lack mathematical rigor. Further, books aimed at mathematically trained graduate students often lack quantitative explanations and critical foundational materials. Thus, this book provides the technical background required to understand the more advanced mathematics used in this discipline, in class, in research, and in practice. Readers will also An effective and hands-on text for masters-level and PhD students and beginning practitioners with an interest in financial derivatives pricing, Foundations of the Pricing of Financial Derivatives is an intuitive and accessible resource that properly balances math, theory, and practical applications to help students develop a healthy command of a difficult subject.