Tools for computational finance (Q5915496)

This is a revised, extended and English version of the former German textbook (see the review in Zbl 0965.91002). The main changes are threefold. In general, the presentation is more detailed and often easier to read. In sections 1.5 and 1.6, the reader learns the basic replication idea behind option pricing in the binomial model and the intuition behind the second order term in Itô's formula. These are welcome additions, but no major changes. The third change is the addition of chapter 6 on exotic options. The main topic of discussion is the Asian option where the numerical solution of the corresponding PDE encounters new difficulties. After showing an instability problem, the author explains upwind schemes and high-resolution methods and gives additional pointers to the literature. In summary, this new version of a good book has kept (and even extended) its strong numerical focus and at the same time improved the presentation of the financial and probabilistic background.