Foundations of the Pricing of Financial Derivatives

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 new practitioners. The book draws on the authors' extensive combined experience in teaching, research, and consulting on this topic, striking 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 rigour. Furthermore, books aimed at mathematically trained graduate students often lack quantitative explanations and critical foundational materials. Hence, this book provides the technical background required to understand the more advanced mathematics used in this discipline, whether in class, research, or practice.

Readers will also find:

• Tables, figures, line drawings, practice problems (with a solutions manual), references, and a glossary of commonly used specialist terms.
• A 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, which explains their use and derivation, thereby deepening readers’ understanding of these essential models.
• A deep discussion of essential concepts, like arbitrage, that broadens students’ understanding of the basis for derivative pricing.
• Coverage of pricing of forwards, futures, and swaps, including arbitrage-free term structures and interest rate derivatives.

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 solid command of a difficult subject.