Foundations of the Pricing of Financial Derivatives: Theory and Analysis - Hardcover

by Robert E. Brooks (Author), Don M. Chance (Author)

An accessible and mathematically rigorous resource for masters and PhD students

In Foundations of the Pricing of Financial Derivatives: Theory and Analysis two expert finance academics with professional experience deliver a practical new text for doctoral and masters' students and also new practitioners. The book draws on the authors extensive combined experience teaching, researching, and consulting on this topic and strikes an effective balance between fine-grained quantitative detail and high-level theoretical explanations.

The authors fill the gap left by books directed at masters'-level students that often lack mathematical rigor. Further, books aimed at mathematically trained graduate students often lack quantitative explanations and critical foundational materials. Thus, this book provides the technical background required to understand the more advanced mathematics used in this discipline, in class, in research, and in practice.

Readers will also find:

• Tables, figures, line drawings, practice problems (with a solutions manual), references, and a glossary of commonly used specialist terms
• Review of material in calculus, probability theory, and asset pricing
• Coverage of both arithmetic and geometric Brownian motion
• Extensive treatment of the mathematical and economic foundations of the binomial and Black-Scholes-Merton models that explains their use and derivation, deepening readers' understanding of these essential models
• Deep discussion of essential concepts, like arbitrage, that broaden students' understanding of the basis for derivative pricing
• Coverage of pricing of forwards, futures, and swaps, including arbitrage-free term structures and interest rate derivatives

An effective and hands-on text for masters'-level and PhD students and beginning practitioners with an interest in financial derivatives pricing, Foundations of the Pricing of Financial Derivatives is an intuitive and accessible resource that properly balances math, theory, and practical applications to help students develop a healthy command of a difficult subject.

Front Jacket

In Foundations of the Pricing of Financial Derivatives: Theory and Analysis, two distinguished finance professionals deliver a new gold standard in the study of financial derivatives for doctoral and master's students in finance. Drawing on the authors' extensive combined experience teaching on the subject, and in more mainstream finance subjects, the book strikes an effective balance between fine-grained quantitative detail and a high-level theoretical overview.

The authors provide the necessary mathematical foundations to understand and excel in this highly technical subfield, in addition to grounding students in a careful new way of thinking where the Black-Scholes-Merton model is more than just a rote formula and the concept of arbitrage is explained in detailed fashion.

Foundations of the Pricing of Financial Derivatives contains many standard tables, figures, line drawings, practice problems, and references. It also includes a solutions manual for instructors.

Rather than assuming the reader already possesses deep mathematical understanding of the concepts explained within, the book offers the required math foundation alongside its lessons, bringing master's and doctoral students along even if they have no background in a highly technical field. It fills the gap between master's-level financial derivatives textbooks and texts that target mathematically trained graduate students. The book also includes practical insights based on the authors' extensive consulting experience.

An essential and practical resource for students in advanced financial courses, Foundations of the Pricing of Financial Derivatives is a class-tested guide to a complex subject of critical importance to finance professionals working in the real world.

Back Jacket

Praise for FOUNDATIONS of the PRICING of FINANCIAL DERIVATIVES

"This book stands out for me in at least two important ways. First, quite incredibly, the authors have succeeded in presenting financial derivatives in a remarkably accessible user-friendly manner that integrates technical derivatives' mathematics with insightful conceptual understanding, enabling students to easily navigate the complex minefield of ideas and applications involved. Second, it combines a strong academic focus with an equivalent emphasis on addressing real-world problems across different echelons of difficulty levels."
-- PRADEEP YADAV, W. Ross Johnston Chair and Professor of Finance, University of Oklahoma

"This is a comprehensive and cleverly developed book on derivatives. It is an excellent text for advanced Master's and Ph.D. students (and for reference by professionals)."
-- JIMMY HILLIARD, Harbert Eminent Scholar and Professor of Finance, Auburn University

"The authors are great storytellers; they make derivatives come alive. The subject is obviously highly technical and intimidating at times, but they have made it so accessible, relevant and, most importantly, fun. The topics covered are comprehensive and yet very selective with all the right choices and emphasis. I wholeheartedly recommend this excellent textbook for both novice and advanced students of derivatives."
--YISONG S. TIAN, Professor of Finance, York University

Author Biography

ROBERT E. BROOKS, PHD, CFA, is Professor Emeritus of Finance at the University of Alabama. He is the President of Financial Risk Management, LLC, a quantitative finance consulting firm. He is the author of several books and maintains a YouTube channel, @FRMHelpForYou.

DON M. CHANCE, PHD, CFA, holds the James C. Flores Endowed Chair of MBA Studies and is Professor of Finance at the E.J. Ourso College of Business at Louisiana State University. He is the author of four books on derivatives and risk management. His consulting firm is Omega Risk Advisors, LLC, and his website is donchance.com.