Introduction to the Mathematics of Finance (Graduate Studies in Mathematics, Vol. 72) by R. J. Williams (PDF)

Description

The modern subject of mathematical finance has undergone considerable development, both in theory and practice, since the seminal work of Black and Scholes appeared a third of a century ago. This book is intended as an introduction to some elements of the theory that will enable students and researchers to go on to read more advanced texts and research papers. The book begins with the development of the basic ideas of hedging and pricing of European and American derivatives in the discrete (i.e., discrete time and discrete state) setting of binomial tree models. Then a general discrete finite market model is introduced, and the fundamental theorems of asset pricing are proved in this setting. Tools from probability such as conditional expectation, filtration, (super)martingale, equivalent martingale measure, and martingale representation are all used first in this simple discrete framework. This provides a bridge to the continuous (time and state) setting, which requires the additional concepts of Brownian motion and stochastic calculus. The simplest model in the continuous setting is the famous Black-Scholes model, for which pricing and hedging of European and American derivatives are developed. The book concludes with a description of the fundamental theorems for a continuous market model that generalizes the simple Black-Scholes model in several directions.

User’s Reviews

Editorial Reviews: Review “The text is clearly written and well-arranged and most of the results are proved in detail. Each chapter is completed with exercises, which makes the textbook very comprehensive.” — –EMS NewsletterThis monograph gives a far-reaching and easily readable advanced introduction to the mathematical modelling of the absence of riskless financial profits, as well as to the connected topic of pricing and risk-protecting-replication/hedging of securities whose value depend on an underlying asset. …The book’s style is pragmatic, precise, concise, with smoothly and fast increasing technical level including the quotation of mathematical subtleties. –Wolfgang Stummer

Reviews from Amazon users which were colected at the time this book was published on the website:

⭐With a little bit of probability, you can get well into the second chapter. I am still reading the book, and it seems very understandable.

⭐Unlike many of its competitors in mathematical finance literature (i.e. Karatzas and Shreve, Merton, etc), this text is very readable and enjoyable. It is short and to the point. It is NOT meant to be a comprehensive introduction to the broad theory of finance but only a sophisticated introduction to the Black-Scholes model. It develops Black-Scholes options pricing in both discrete (CRR) and continuous settings. The appendix has everything you need to know about probability and stochastic processes to tackle the chapters, which it keeps at an absolute minimum. I knew nothing about finance when I read it, and it allowed me to feel like I can now read papers on the subject. It is chock-full of great exercises too, making it ideal for a short course or self-study.

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