Introduction to Stochastic Calculus Applied to Finance, Second Edition

Damien Lamberton, Bernard Lapeyre

November 30, 2007 by Chapman and Hall/CRC
Textbook - 254 Pages
ISBN 9781584886266 - CAT# C626
Series: Chapman and Hall/CRC Financial Mathematics Series


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  • Provides a concise and accessible introduction to the probabilistic techniques required to understand the most widely used financial models
  • Presents fully updated material on stochastic volatility models, option pricing, and credit risk modeling
  • Includes many numerical experiments and real-world examples taken from the authors' own experiences
  • Implements some algorithms using SciLab
  • Summary

    Since the publication of the first edition of this book, the area of mathematical finance has grown rapidly, with financial analysts using more sophisticated mathematical concepts, such as stochastic integration, to describe the behavior of markets and to derive computing methods. Maintaining the lucid style of its popular predecessor, Introduction to Stochastic Calculus Applied to Finance, Second Edition incorporates some of these new techniques and concepts to provide an accessible, up-to-date initiation to the field.

    New to the Second Edition
  • Complements on discrete models, including Rogers' approach to the fundamental theorem of asset pricing and super-replication in incomplete markets
  • Discussions on local volatility, Dupire's formula, the change of numéraire techniques, forward measures, and the forward Libor model
  • A new chapter on credit risk modeling
  • An extension of the chapter on simulation with numerical experiments that illustrate variance reduction techniques and hedging strategies
  • Additional exercises and problems

    Providing all of the necessary stochastic calculus theory, the authors cover many key finance topics, including martingales, arbitrage, option pricing, American and European options, the Black-Scholes model, optimal hedging, and the computer simulation of financial models. They succeed in producing a solid introduction to stochastic approaches used in the financial world.
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