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Financial Derivatives

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  • Baz,Jamil
  • Chacko,George

Abstract

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, martingale techniques, stochastic control, and partial differential equations.

Suggested Citation

  • Baz,Jamil & Chacko,George, 2004. "Financial Derivatives," Cambridge Books, Cambridge University Press, number 9780521815109.
    • Handle: RePEc:cup:cbooks:9780521815109
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    Cited by:

    1. Radu Tunaru & Ephraim Clark & Howard Viney, 2005. "An option pricing framework for valuation of football players," Review of Financial Economics, John Wiley & Sons, vol. 14(3-4), pages 281-295.
    2. Radu Tunaru, 2015. "Model Risk in Financial Markets:From Financial Engineering to Risk Management," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 9524, January.
    3. Dickler, Robert A. & Schalast, Christoph, 2006. "Distressed debt in Germany: What's next? Possible innovative exit strategies," Frankfurt School - Working Paper Series 73, Frankfurt School of Finance and Management.
    4. Somnath Chatterjee, 2015. "Modelling credit risk," Handbooks, Centre for Central Banking Studies, Bank of England, number 34, April.
    5. repec:esx:essedp:713 is not listed on IDEAS
    6. J. Benson Durham, 2015. "Betting against beta (and gamma) using government bonds," Staff Reports 708, Federal Reserve Bank of New York.
    7. Jun Ma, 2009. "Pricing Foreign Equity Options with Stochastic Correlation and Volatility," Annals of Economics and Finance, Society for AEF, vol. 10(2), pages 303-327, November.
    8. Rudolf Olsovsky, 2009. "Compilation of statisitcal data on new financial instruments: the case of the Czech Republic," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Proceedings of the IFC Conference on "Measuring financial innovation and its impact", Basel, 26-27 August 2008, volume 31, pages 209-218, Bank for International Settlements.

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