The art of quantitative finance Vol. 1. Trading, derivatives and basic concepts (Q6041114)

This book is the first volume of a set of three volumes: Volume I: Trading, Derivatives and Basic Concepts Volume II: Volatilities, Stochastic Analysis and Valuation Tools Volume III: Risk, Optimal Portfolios and Case Studies dedicated to the presentation of theory and current practice in quantitative finance. The original came out in 2020 in German and now the English translation is out. The author, Gerhard Larcher, is a professor at the Institute of Financial Mathematics and Applied Number Theory at the Johannes Kepler University in Linz (Austria) and has previous experience as an investment fund manager. The first volume, as the title indicates, is dedicated to the presentation of the basic theory of financial derivatives management and consists of four chapters. In the first chapter, the basic financial concepts and products are presented: interest rate, bonds, stocks, indices. The second chapter is dedicated to the presentation of elementary derivative products: plain vanilla options, futures, and their negotiation in the markets, and their utility in financial risk management. The third chapter presents the principle of non-arbitrage, the basis of contemporary finance, and its use as a basis for the valuation of futures, options and other financial derivatives, under the so-called binomial model, which assumes discrete time. Finally, the fourth chapter is dedicated to the introduction to the basic continuous time model, which he calls Wiener model. This requires the introduction of probability theory and stochastic analysis concepts and techniques, like Brownian motion and geometric Brownian motion. It shows how this model can be seen as a limit passage of the binomial one, and how this approximation makes it possible to demonstrate the well-known Black-Scholes formula for the valuation of plain vanilla options. The last sections of the chapter are devoted to the solution of the hedging problem and the calculation of Greeks under the Black-Scholes model. This first volume is therefore a basic course in quantitative finance that aims to maintain a balance or be a bridge between the more practical and financial aspects that are of particular interest to students of economics or business administration and the more mathematical or quantitative aspects, which may interest students of mathematics or statistics. The book puts a lot of effort in presenting, in a detailed way, products, basic concepts and management strategies, topics that don't appear in books more geared toward math students or related careers, and on the other hand, it also puts a lot of effort into rigorous presentation of mathematical theory, which the more practically oriented books on the management of financial derivatives do not. Therefore, the book is aimed both at readers with financial training interested in the practical use of modern quantitative finance and at mathematicians interested in financial markets and their dynamics. The fundamental concepts of quantitative finance and financial engineering are introduced. The book is very complete, didactic, with many examples, with very illustrative graphs, and nicely edited. I have no doubt that reading it can be very profitable for students and teachers of both economics and business administration as well as mathematics or statistics. And also for quantitative analysts working in banks or financial markets. The book very elegantly maintains the difficult balance between theory and practice. I, as a mathematician and researcher on stochastic finance, and teacher of quantitative finance and related subjects, for many years at the Faculty of Mathematics and Computer Science of the University of Barcelona, and more recently at the Faculty of Economics and Business of the same university, consider that the book is very interesting, recommendable and useful for my training in the more practical aspects, and for my teaching. And I look forward to the possibility of reading volumes 2 and 3.