An Introduction to Financial Markets

Preface

This book arises from slides and lecture notes that I have used over the years in my courses Financial Markets and Instruments and Financial Engineering, which were offered at Politecnico di Torino to graduate students in Mathematical Engineering. Given the audience, the treatment is naturally geared toward a mathematically inclined reader. Nevertheless, the required prerequisites are relatively modest, and any student in engineering, mathematics, and statistics should be well-equipped to tackle the contents of this introductory book.¹ The book should also be of interest to students in economics, as well as junior practitioners with a suitable quantitative background.

We begin with quite elementary concepts, and material is introduced progressively, always paying due attention to the practical side of things. Mathematical modeling is an art of selective simplification, which must be supported by intuition building, as well as by a healthy dose of skepticism. This is the aim of remarks, counterexamples, and financial horror stories that the book is interspersed with. Occasionally, we also touch upon current research topics.

Book structure

The book is organized into five parts.

1. Part One, Overview, consists of two chapters. Chapter 1 aims at getting unfamiliar readers acquainted with the role and structure of financial markets, the main classes of traded assets (equity, fixed income, and derivatives), and the main types of market participants, both in terms of institutions ...