Book description
COVERS THE FUNDAMENTAL TOPICS IN MATHEMATICS, STATISTICS, AND FINANCIAL MANAGEMENT THAT ARE REQUIRED FOR A THOROUGH STUDY OF FINANCIAL MARKETS
This comprehensive yet accessible book introduces students to financial markets and delves into more advanced material at a steady pace while providing motivating examples, poignant remarks, counterexamples, ideological clashes, and intuitive traps throughout. Tempered by real-life cases and actual market structures, An Introduction to Financial Markets: A Quantitative Approach accentuates theory through quantitative modeling whenever and wherever necessary. It focuses on the lessons learned from timely subject matter such as the impact of the recent subprime mortgage storm, the collapse of LTCM, and the harsh criticism on risk management and innovative finance. The book also provides the necessary foundations in stochastic calculus and optimization, alongside financial modeling concepts that are illustrated with relevant and hands-on examples.
An Introduction to Financial Markets: A Quantitative Approach starts with a complete overview of the subject matter. It then moves on to sections covering fixed income assets, equity portfolios, derivatives, and advanced optimization models. This book’s balanced and broad view of the state-of-the-art in financial decision-making helps provide readers with all the background and modeling tools needed to make “honest money” and, in the process, to become a sound professional.
- Stresses that gut feelings are not always sufficient and that “critical thinking” and real world applications are appropriate when dealing with complex social systems involving multiple players with conflicting incentives
- Features a related website that contains a solution manual for end-of-chapter problems
- Written in a modular style for tailored classroom use
- Bridges a gap for business and engineering students who are familiar with the problems involved, but are less familiar with the methodologies needed to make smart decisions
An Introduction to Financial Markets: A Quantitative Approach offers a balance between the need to illustrate mathematics in action and the need to understand the real life context. It is an ideal text for a first course in financial markets or investments for business, economic, statistics, engineering, decision science, and management science students.
PAOLO BRANDIMARTE is Full Professor at the Department of Mathematical Sciences of Politecnico di Torino in Italy, where he teaches Business Analytics and Financial Engineering. He is the author of several publications, including more than ten books on the application of optimization and simulation to diverse areas such as production and supply chain management, telecommunications, and finance.
Table of contents
- Preface
- About the Companion Website
- Part One Overview
-
Part Two Fixed-income assets
-
Chapter Three Elementary Theory of Interest Rates
- 3.1 The time value of money: Shifting money forward in time
- 3.2 The time value of money: Shifting money backward in time
- 3.3 Nominal vs. real interest rates
- 3.4 The term structure of interest rates
- 3.5 Elementary bond pricing
- 3.6 A digression: Elementary investment analysis
- 3.7 Spot vs. forward interest rates
- Problems
- Further reading
- Bibliography
- Notes
- Chapter Four Forward Rate Agreements, Interest Rate Futures, and Vanilla Swaps
- Chapter Five Fixed-Income Markets
-
Chapter Six Interest Rate Risk Management
- 6.1 Duration as a first-order sensitivity measure
- 6.2 Further interpretations of duration
- 6.3 Classical duration-based immunization
- 6.4 Immunization by interest rate derivatives
- 6.5 A second-order refinement: Convexity
- 6.6 Multifactor models in interest rate risk management
- Problems
- Further reading
- Bibliography
- Notes
-
Chapter Three Elementary Theory of Interest Rates
-
Part Three Equity portfolios
- Chapter Seven Decision-Making under Uncertainty: The Static Case
-
Chapter Eight Mean–Variance Efficient Portfolios
- 8.1 Risk aversion and capital allocation to risky assets
- 8.2 The mean-variance efficient frontier with risky assets
- 8.3 Mean–variance efficiency with a risk-free asset: The separation property
- 8.4 Maximizing the Sharpe ratio
- 8.5 Mean–variance efficiency vs. expected utility
- 8.6 Instability in mean–variance portfolio optimization
- S8.1 The attainable set for two risky assets is a hyperbola
- S8.2 Explicit solution of mean–variance optimization in matrix form
- Problems
- Further reading
- Bibliography
- Notes
- Chapter Nine Factor Models
- Chapter Ten Equilibrium Models: CAPM and APT
-
Part Four Derivatives
-
Chapter Eleven Modeling Dynamic Uncertainty
- 11.1 Stochastic processes
- 11.2 Stochastic processes in continuous time
- 11.3 Stochastic differential equations
- 11.4 Stochastic integration and Itô’s lemma
- 11.5 Stochastic processes in financial modeling
- 11.5.1 Geometric Brownian Motion
- 11.5.2 Generalizations
- 11.6 Sample path generation
- S11.1 Probability spaces, measurability, and information
- Problems
- Further reading
- Bibliography
- Notes
- Chapter Twelve Forward and Futures Contracts
-
Chapter Thirteen Option Pricing: Complete Markets
- 13.1 Option terminology
- 13.2 Model-free price restrictions
- 13.3 Binomial option pricing
- 13.4 A continuous-time model: The Black–Scholes–Merton pricing formula
- 13.5 Option price sensitivities: The Greeks
- 13.6 The role of volatility
- 13.7 Options on assets providing income
- 13.8 Portfolio strategies based on options
- 13.9 Option pricing by numerical methods
- Problems
- 13.12 Further reading
- Bibliography
- Notes
- Chapter Fourteen Option Pricing: Incomplete Markets
-
Chapter Eleven Modeling Dynamic Uncertainty
-
Part Five Advanced optimization models
-
Chapter Fifteen Optimization Model Building
- 15.1 Classification of optimization models
- 15.2 Linear programming
- 15.3 Quadratic programming
- 15.4 Integer programming
- 15.5 Conic optimization
- 15.6 Stochastic optimization
- 15.7 Stochastic dynamic programming
- 15.8 Decision rules for multistage SLPs
- 15.9 Worst-case robust models
- 15.10 Nonlinear programming models in finance
- Problems
- Further reading
- Bibliography
- Notes
- Chapter Sixteen Optimization Model Solving
-
Chapter Fifteen Optimization Model Building
- Index
- EULA
Product information
- Title: An Introduction to Financial Markets
- Author(s):
- Release date: November 2017
- Publisher(s): Wiley
- ISBN: 9781118014776
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