This book offers a complete, succinct account of the principles of financial
derivatives pricing. The first chapter provides readers with an intuitive exposition of
basic random calculus. Concepts such as volatility and time, random walks, geometric
Brownian motion, and Ito's lemma are discussed heuristically. The second chapter
develops generic pricing techniques for assets and derivatives, determining the notion of
a stochastic discount factor or pricing kernel, and then uses this concept to price
conventional and exotic derivatives. The third chapter applies the pricing concepts to the
special case of interest rate markets, namely, bonds and swaps, and discusses factor
models and term structure consistent models. The fourth chapter deals with a variety of
mathematical topics that underlie derivatives pricing and portfolio allocation decisions
such as mean-reverting processes and jump processes and discusses related tools of
stochastic calculus such as Kolmogorov equations, martingales techniques, stochastic
control, and partial differential equations.
Succinct but complete overview of financial derivatives, hot topic in financial theory
and practice
Walks readers from the basic concepts to their modeling and application, serving as a
perfect manual for beginners and professionals
Authors well known both in US and Europe; treatment balances theory and real analysis
Table of Contents
1. Introduction; 2. Preliminary mathematics; 3. Principles of financial valuation; 4.
Interest rate models; 5. Mathematics of asset pricing; 6. Bibliography.
Review
Advance praise: 'Jamil Baz and Geroge Chacko have written an invaluable book that
combines the technical and the practical aspects of derivatives pricing, interest rate
models, and pricing complex financial instruments in a manner that is accessible to the
sophisticated and the lay reader. They handle the material in a pedagogical manner which
makes it appropriate for graduate level finance courses and practitioners. This book is a
must read for those looking to educate themselves on these topics.' Franco Modigliani,
Emeritus Professor at MIT and Nobel Laureate in Economic Science
338 pages