An Introduction to Financial Option Valuation: Mathematics, Stochastics and Computation [Paperback]

Desmond Higham (Author)

Book Description

ISBN-10: 0521547571 | ISBN-13: 978-0521547574 | Publication Date: April 19, 2004

This book is intended for use in a rigorous introductory PhD level course in econometrics, or in a field course in econometric theory. It covers the measure-theoretical foundation of probability theory, the multivariate normal distribution with its application to classical linear regression analysis, various laws of large numbers, central limit theorems and related results for independent random variables as well as for stationary time series, with applications to asymptotic inference of M-estimators, and maximum likelihood theory. Some chapters have their own appendices containing the more advanced topics and/or difficult proofs. Moreover, there are three appendices with material that is supposed to be known. Appendix I contains a comprehensive review of linear algebra, including all the proofs. Appendix II reviews a variety of mathematical topics and concepts that are used throughout the main text, and Appendix III reviews complex analysis. Therefore, this book is uniquely self-contained.

Editorial Reviews

Review

"...well organized and well written...an excellent introductory text. It will be useful to students from a wide range of backgrounds and an essential complement to the standard undergraduate course which embeds mathematical finance into probability theory." UK Nonlinear News

Book Description

This is a lively textbook providing an introduction to financial option valuation for undergraduates armed with a knowledge of first year calculus. Written in a series of short chapters, its self-contained treatment gives equal weight to applied mathematics, stochastics and computational algorithms. No background in probability, statistics or numerical analysis required. The book includes many figures and examples, as well as computations based on real stock market data and each chapter comes with an accompanying stand-alone MATLAB code to illustrate a key idea. Solutions available from [e-mail].

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Product Details

• Paperback: 296 pages
• Publisher: Cambridge University Press (April 19, 2004)
• Language: English
• ISBN-10: 0521547571
• ISBN-13: 978-0521547574
• Product Dimensions: 9.7 x 6.8 x 0.6 inches
• Shipping Weight: 1.3 pounds (View shipping rates and policies)
• Average Customer Review: 4.5 out of 5 stars  See all reviews (2 customer reviews)
• Amazon Best Sellers Rank: #523,115 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

6 of 7 people found the following review helpful:

5.0 out of 5 stars Highly recommended - a joy to read . . ., January 7, 2005

By 

S. Frankel (Indianapolis, IN USA) - See all my reviews
(REAL NAME)   

This review is from: An Introduction to Financial Option Valuation: Mathematics, Stochastics and Computation (Paperback)

If you are looking for an introduction to financial option valuation that is well-written and well-referenced than this book is for you. Prof. Higham is an excellent author (I highly recommend his other books Learning LaTeX and MATLAB Guide) and so anything he writes is a joy to read. His latest book is no exception. It is full of figures that help bring the equations and the ideas to life. Like many of his technical papers (which I also recommend you read - they are available at his website), he has incorporated MATLAB (a powerful matrix manipulation and numerical simulation tool) codes throughout the book (not only does he provide code listings but you can actually download the codes and run them assuming you own the software or have a license - I have!). The codes are a great way to see the equations in practice if you don't have MATLAB and experiment with some of the key parameters yourself if you do. Regarding the subject of the book itself, let me say that I am in the mechanical engineering field and can barely balance my checkbook - ok, my wife does it for me) but I am interested in all things mathematical and find the subject of option valuation (and the possibility of making some extra money) enticing. The book clearly introduces topics related to random numbers and stochastics, as well as finite-difference approximations for partial differential equations. The ultimate goal is the Black-Scholes PDE which is treated in the later half of the book. Monte Carlo simulation techniques as applied to finance are covered as well in several chapters. What I really enjoy about this book (and his other books) is the way he actually tries to teach and advise the reader - a good writer must be sensitive to his/her audience - and this is most appreciated by myself and others I am sure. The bottomline is that this is the first book to own if you want to get into the field of computational finance (his references tell you where to go next). I highly recommend it.

3 of 4 people found the following review helpful:

4.0 out of 5 stars A good hands-on intro to option valuation, December 4, 2004

By 

Bernard VdS - See all my reviews

This review is from: An Introduction to Financial Option Valuation: Mathematics, Stochastics and Computation (Paperback)

There are a lot of derivatives books out there - most of them follow the same approach. This one's different: no complicated measure-theoretic probability theory (of absolutely no use to practitioners), but lots of hands-on Matlab examples. A very reasonable price too. My only suggestion to the author would be to provide more appropriate names to his Matlab functions (instead of chapter numbers) - but this can easily be changed by the reader.