Option theory with stochastic analysis. An introduction to mathematical finance. (Q1414900)

This is a textbook for a first year graduate course. The book provides an introduction to the basic ideas of the mathematical theory of financial options valuation, or, more concretely, to the Black-Scholes theory of pricing contingent claims on equity. The fundamentals of Itô calculus are explained and then applied to the pricing (and hedging) of contingent claims. This is the core of the book. A further chapter deals with the essential ideas of the numerical methods used for pricing: Monte Carlo and finite differences. The book opens with a chapter devoted to the statistical analysis of time series of equity quotes and a critical assessment of the hypothesis underlying the Black-Scholes model. The text is a brief, neat, carefully written introduction to the fundamentals of the mathematics and the modelling of the analysis of options pricing. No much finance is actually involved. If used as a guide for a course, it should be conveniently complemented with an introduction to finance, its instruments and operations.