Financial Derivatives in Theory and Practice (Wiley Series in Probability and Statistics) - Hardcover

Hunt, P. J.; Kennedy, J. E.

Hardcover

ISBN 10: 0471967173 ISBN 13: 9780471967170

Publisher: Wiley–Blackwell, 2000

Synopsis

This book brings together in one volume both a complete, rigorous and yet readable account of the mathematics underlying derivative pricing and a guide to applying these ideas to solve real pricing problems. It is aimed at practitioners and researchers who wish to understand the latest finance literature and develop their own pricing models. The authors′ combination of strong theoretical knowledge and extensive market experience make this book particularly relevant for those interested in real world applications of mathematical finance.

Features:

• detailed coverage of interest rate derivatives, from ′vanilla′ instruments through to many of the more exotic products currently being traded
• overview of popular term structure models along with their relationships to each other (including Heath–Jarrow–Morton, short rate models and the latest market models)
• explanation of numeraires as a modelling and pricing tool
• pricing models for constant maturity swaps and other convexity products
• models and efficient algorithms for path–dependent and Bermudan swaptions
• insights into how to go about pricing products beyond those treated in the text
• accessible yet rigorous treatment of the stochastic calculus required for option pricing

About this title

From the Back Cover

This book brings together in one volume both a complete, rigorous and yet readable account of the mathematics underlying derivative pricing and a guide to applying these ideas to solve real pricing problems. It is aimed at practitioners and researchers who wish to understand the latest finance literature and develop their own pricing models. The authors? combination of strong theoretical knowledge and extensive market experience make this book particularly relevant for those interested in real world applications of mathematical finance. Features:

• detailed coverage of interest rate derivatives, from ?vanilla? instruments through to many of the more exotic products currently being traded.
• overview of popular term structure models along with their relationships to each other (including Heath?Jarrow?Morton, short rate models and the latest market models)
• explanation of numeraires as a modelling and pricing tool
• pricing models for constant maturity swaps and other convexity products
• models and efficient algorithms for path–dependent and Bermudan swaptions
• insights into how to go about pricing products beyond those treated in the text
• accessible yet rigorous treatment of the stochastic calculus required for option pricing

From the Inside Flap

"A masterful work which explains clearly and precisely the mathematics and the practicalities of derivative pricing. Written by two leading experts from academia and industry, this is a rigorous description of the cutting edge of both research and practice. The excellent in–depth coverage of the interest–rate markets includes the application of basic theory coupled with descriptions of real–world products, convexity effects, and state of the art modelling. A very valuable book, which is destined to be a key reference for bankers and researchers" Martin Baxter, Nomura International, London, UK (co–author of the best–selling Financial Calculus) "This work strikes an excellent balance between theory and applications, between rigor and accessibility. The early chapters develop mathematical tools lucidly and with a clear focus on the important issues. Later chapters apply these tools to a broad range of problems and models in mathematical finance. The book is rich in links between theory and industry practice, and covers many topics not easily found elsewhere. It is a valuable and authoritative resource for both students and experts." Paul Glasserman, Graduate School of Business, Columbia University, USA "This book achieves two main goals. First, it provides an excellent and highly comprehensive account of martingale theory and Itô’s stochastic calculus, which underpin arbitrage pricing theory. Secondly, it offers a thorough analysis of the fundamental ideas of modern financial modelling, with special emphasis on the concepts related to the valuation and hedging of interest–rate sensitive derivatives. The exceptional strength of the book lies in the fact that the authors never lose their perspective on the practical aspects of the theory. Hunt and Kennedy, who are themselves renowned experts in this area, have set a new high standard for future texts on term structure modelling." Marek Rutkowski, Financial Mathematics Centre, Warsaw University of Technology, Poland Contents Part I: Theory

1. Single–period option pricing
2. Brownian motion
3. Martingales
4. Stochastic integration
5. Girsanov and martingale representation
6. Stochastic differential equations
7. Option pricing in continuous time
8. Dynamic term structure models

Part II: Practice

1. Modelling in practice
2. Basic instruments and terminology
3. Pricing standard market derivatives
4. Futures contracts Orientation: Pricing exotic European derivatives
5. Terminal swap–rate models
6. Convexity corrections
7. Implied interest rate pricing models
8. Multi–currency terminal swap–rate models Orientation: Pricing exotic American and path–dependent derivatives
9. Short–rate models
10. Market models
11. Markov–functional modelling

Appendices

Edition details

• Publisher: Wiley–Blackwell
• Publication date: 2000
• Language: English
• ISBN 10: 0471967173
• ISBN 13: 9780471967170
• Binding: Hardcover
• Number of pages: 422