Introduction to stochastic integration. (Q2368522)

This is a very good book on stochastic integration covering subjects from a construction of a Brownian motion to stochastic differential equations. It grew up from lecture notes the author elaborated during several years, and can be equally well used for teaching and self-education. The text is extremely clear and concise both in language and mathematical notation. Every topic is illustrated by simple and motivating examples. The author gives much effort to explain the subject to an unprepared reader without going deep into elementary details. The genuine jewels of the book are numerous notes about a natural development of mathematical ideas and usefulness of new notions. Every chapter is followed by theoretical and computational exercises. For instance, a reader can be offered to prove a part of a theorem or to determine a homogeneous chaos expansion of a certain function. After a short introductory chapter about Riemann-Stieltjes integration the author passes to elementary properties of a standard one-dimensional Brownian motion and a definition of a Wiener integral. The Brownian motion is constructed in Chapter 3 with the help of Kolmogorov's extension theorem, whereas the alternative constructions due to Wiener and Lévy are briefly discussed. In the next two chapters, Itô's integral is introduced and studied for square integrable and a.s.\ finite integrands. Further, Itô's integral with respect to square integrable rcll martingales is constructed. Itô's formula is proved in Chapter 7. Chapter 8 is devoted to its various applications. In particular, Stratonovich integrals, local times and Girsanov's change of measure are discussed. The next chapter is devoted to multiple Wiener integrals and chaos expansions. These topics are not often covered in textbooks, and the author fills this gap. Stochastic differential equations are the subject of Chapter 10. Finally, the last chapter is devoted to various aspects of the theory of SDEs: linear SDEs, Black-Scholes formula, filtering theory, Feynman-Kac formula, Wong-Zakai approximations, white noise and electric circuits. This is a timely, happily designed and well written book. It will be useful for unprepared and advanced readers.