Introduction to the Economics and Mathematics of Financial Markets

by Jaksa Cvitanic

An innovative textbook for use in advanced undergraduate and graduate courses; accessible to students in financial mathematics, financial engineering and economics. Introduction to the Economics and Mathematics of Financial Markets fills the longstanding need for an accessible yet serious textbook treatment of financial economics. The book provides a rigorous overview of the subject, while its flexible presentation makes it suitable for use with different levels of undergraduate and graduate students. Each chapter presents mathematical models of financial problems at three different degrees of single-period, multi-period, and continuous-time. The single-period and multi-period models require only basic calculus and an introductory probability/statistics course, while an advanced undergraduate course in probability is helpful in understanding the continuous-time models. In this way, the material is given complete coverage at different levels; the less advanced student can stop before the more sophisticated mathematics and still be able to grasp the general principles of financial economics. The book is divided into three parts. The first part provides an introduction to basic securities and financial market organization, the concept of interest rates, the main mathematical models, and quantitative ways to measure risks and rewards. The second part treats option pricing and hedging; here and throughout the book, the authors emphasize the Martingale or probabilistic approach. Finally, the third part examines equilibrium models—a subject often neglected by other texts in financial mathematics, but included here because of the qualitative insight it offers into the behavior of market participants and pricing.

Genres: Economics, Finance, Mathematics

494 pages, Hardcover

First published February 27, 2004

Reviews

[Yasiru · Rating 4 out of 5]

Mainly used as a source of extra problems for BEM 1105x: Pricing Options with Mathematical Models on edx.org. When I did refer to the text's explanations for further detail and additional topics however, I found that it read very clearly.

More worked examples would have been welcome, but the text already covers a lot of material.

[Tadas Talaikis · Rating 4 out of 5]

Despite it's good, rated it 4 because everything can be explained much shorter. Problem with books and courses alike is that, for example, Black-Scholes pricing can be written in few lines of Python or R and the whole point explained in just few sentences. Learning just "dry" theory without doing anything in practice IMHO unlearns itself.