Probability Theory in Finance: A Mathematical Guide to the Black-scholes Formula (Graduate Studies in Mathematics) - Hardcover

Seán Dineen

Hardcover

ISBN 10: 0821894900 ISBN 13: 9780821894903

Publisher: American Mathematical Society, 2013

Synopsis

The use of the Black-Scholes model and formula is pervasive in financial markets. There are very few undergraduate textbooks available on the subject and, until now, almost none written by mathematicians. Based on a course given by the author, the goal of this book is to introduce advanced undergraduates and beginning graduate students studying the mathematics of finance to the Black-Scholes formula. The author uses a first-principles approach, developing only the minimum background necessary to justify mathematical concepts and placing mathematical developments in context. The book skillfully draws the reader toward the art of thinking mathematically and then proceeds to lay the foundations in analysis and probability theory underlying modern financial mathematics. It rigorously reveals the mathematical secrets of topics such as abstract measure theory, conditional expectations, martingales, Wiener processes, the Itô calculus, and other ingredients of the Black-Scholes formula. In explaining these topics, the author uses examples drawn from the universe of finance. The book also contains many exercises, some included to clarify simple points of exposition, others to introduce new ideas and techniques, and a few containing relatively deep mathematical results. The second edition contains numerous revisions and additional material designed to enhance the book's usability as a classroom text. These changes include insights gleaned by the author after teaching from the text, as well as comments and suggestions made by others who used the book. Whereas the revised edition maintains the original approach, format, and list of topics, most chapters are modified to some extent; in addition, the rearrangement of material resulted in a new chapter (Chapter 9). With the modest prerequisite of a first course in calculus, the book is suitable for undergraduates and graduate students in mathematics, finance, and economics and can be read, using appropriate selections, at a number of levels.

About this title

About the Author

Sean Dineen, University College Dublin, Ireland.

Review

Dineen is doing something valuable by trying to find ways to communicate mathematics in a serious way to an audience that often gets little more than recipes and rules. It's a project definitely worth supporting. --MAA Reviews

A neatly and lively written text that may be warmly recommended to undergraduates and graduate students in mathematics and finance. --EMS Newsletter

The author has done a very good job presenting the abstract probability theory needed to understand the derivation of the Black-Scholes formula, as well as the intuitive ideas, often simple, behind it. By starting with simple models in which the financial principles used can be clearly seen and then building smoothly toward the more complex model used in the Black-Scholes formula, the author allows the reader to appreciate the financial principles used even in the more complex settings. Furthermore, the exercises included after each chapter help the reader understand the material presented. ... Finally, the many historical footnotes often add insight and help bring the mathematics to life. --Errol Caby, AT&T Laboratories

Edition details

• Publisher: American Mathematical Society
• Publication date: 2013
• Language: English
• ISBN 10: 0821894900
• ISBN 13: 9780821894903
• Binding: Hardcover
• Edition number: 2
• Number of pages: 305