Portfolio theory, risk management and the evaluation of derivatives

DOI10.1007/978-3-642-20868-3MaRDI QIDQ2276044zbMATH OpenOpenAlexFDO

Authors Jürgen Kremer

Publication date 10 August 2011

Published in Springer-Lehrbuch (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1007/978-3-642-20868-3

zbMATH Keywords

binomial treesBlack-Scholes formulacapital asset pricing model (CAPM)derivativesdiscrete stochastic analysishedgingno arbitrageoptionsportfolio theoryrisk measures

Mathematics Subject Classification ID

Martingales with discrete parameter (60G42) Stochastic integrals (60H05) Applications of stochastic analysis (to PDEs, etc.) (60H30) Research exposition (monographs, survey articles) pertaining to game theory, economics, and finance (91-02) Stochastic models in economics (91B70) Portfolio theory (91G10) Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)

Review text

The book offers a fairly broad selection of material on (mainly discrete time) mathematical finance. Chapter 1 deals with no-arbitrage theory in the one-period model. By assuming, for most of the book, a finite probability space and discrete time trading, the presentation needs no functional analysis and few probabilistic prerequisites. Chapter 2 covers mean-variance portfolio analysis and the CAPM. In Chapters 3 and 4, options are introduced and priced by replication in a multi-period model. The Black-Scholes formula is obtained as a limiting case. American options, forwards, and futures are also discussed, as well as some exotics and basics of fixed income markets (bonds, swaps, duration). Chapter 5 introduces value at risk and coherent risk measures, like expected shortfall. Continuous time no-arbitrage theory is only briefly touched in this book (Chapter 8 on the Black-Scholes model), but Chapter 6 (discrete stochastic analysis) renders the reader well prepared for the technically more demanding continuous time theory. Chapter 8 is preceded by a stochastic formulation of no-arbitrage and pricing by replication (Chapter 7); note that Chapters 1, 3, and 4 totally avoid the language of probability. The text includes code fragments for binomial trees and the Black-Scholes formula, which are also available for download.

Recommendations

• Open valuation. A first course in financial mathematics
• Stochastic analysis for finance with simulations
• Introduction to the stochastics of financial markets
• Stochastic calculus for finance. II: Continuous-time models.
• Stochastic calculus for finance. I: The binomial asset pricing model.
• scientific article; zbMATH DE number 5496230
• Introductory course on financial mathematics
• Financial Mathematics
• Financial mathematics. A comprehensive treatment
• A Course in Financial Calculus

Cited in

(8)

• Introduction to discrete financial mathematics
• Introduction to mathematical portfolio theory
• Investment theory and risk management
• scientific article; zbMATH DE number 1815398 (Why is no real title available?)
• scientific article; zbMATH DE number 5651614 (Why is no real title available?)
• Asset allocation and derivatives
• Topics in modern finance
• Mathematical Portfolio Theory and Analysis

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