Introduction to Financial Mathematics: 1st Edition (Hardback) book cover

Introduction to Financial Mathematics

1st Edition

By Kevin J. Hastings

Chapman and Hall/CRC

407 pages | 83 B/W Illus.

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Description

Introduction to Financial Mathematics is ideal for an introductory undergraduate course. Unlike most textbooks aimed at more advanced courses, the textmotivates students through a discussion of personal finances and portfolio management. The author then goes on to covervaluation of financial derivatives in discrete time, using all of closed form, recursive, and simulation methods.

The text covers nearly all of the syllabus topics of the Financial Mathematics Actuarial examination, providing students with the foundation they require for future studies and throughout their careers. It begins by covering standard material on the mathematics of interest, including compound interest, present value, annuities, loans, several versions of the rate of return on an investment, and interest in continuous time.

The text explains how to value bonds at their issue dates, at coupon times, between coupon times, and in cases where the bonds are terminated early. Next, it supplies a rapid-fire overview of the main ideas and techniques of discrete probability, including sample spaces and probability measures, random variables and distributions, expectation, conditional probability, and independence.

The author introduces the basic terminology of stocks and stock trading. He also explains how to derive the rate of return on a portfolio and how to use the idea of risk aversion to model the investor tradeoff between risk and return. The text also discusses the estimation of parameters of asset models from real data.

The text closes with a detailed discussion of how to value financial derivatives using anti-arbitrage assumptions. The one-step and multi-step cases are covered, and exotic options such as barrier options are also introduced, to which simulation methods are applied.

Many of the examples in the book involve numerical solution of complicated non-linear equations; others ask students to produce algorithms which beg to be implemented as programs. For maximum flexibility, the author has produced the text without adhering to any particular computational platform.

A digital version of this text is also available in the form of Mathematica notebooks that contain additional content.

Table of Contents

Theory of Interest

Rate of Return and Present Value

Compound Interest

Annuities

Loans

Measuring Rate of Return

Continuous Time Interest Theory

Bonds

Bond Valuation

More on Bonds

Term Structure of Interest Rates

Discrete Probability for Finance

Sample Spaces and Probability Measures

Random Variables and Distributions

Discrete Expectation

Conditional Probability

Independence and Dependence

Estimation and Simulation

Portfolio Theory

Stocks

Portfolios of Risky Assets

Optimal Portfolio Selection

Valuation of Derivatives

Basic Terminology and Ideas

Single-Period Options

Multiple-Period Options

Valuation of Exotic Options and Simulation

Appendix: Answers to Selected Exercises

Bibliography

Index

About the Author

Kevin Hastings is Professor of Mathematics; Rothwell C. Stephens Distinguished Service Chair at Knox College. He holds a Ph.D. from Northwestern University. His interests include applications to real-world problems affected by random inputs or disturbances. He is the author or three other books for CRC Press:

Introduction to Probability with Mathematica, 2nd ed., Chapman & Hall/CRC Press, 2009.

Introduction to the Mathematics of Operations Research with Mathematica, 2nd edition, Taylor & Francis/Marcel Dekker, 2006.

Introduction to Probability with Mathematica. CRC Press/Chapman & Hall, November, 2000. Also issued electronically.

About the Series

Advances in Applied Mathematics

Learn more…

Subject Categories

BISAC Subject Codes/Headings:
MAT000000
MATHEMATICS / General
MAT003000
MATHEMATICS / Applied
MAT029010
MATHEMATICS / Probability & Statistics / Bayesian Analysis