Quantitative Finance: Its Development, Mathematical Foundations, and Current Scope

A rigorous, yet accessible, introduction to essential topics in mathematical financePresented as a course on the topic, Quantitative Finance traces the evolution of financial theory and provides an overview of core topics associated with financial investments. With its thorough explanations and use of realworld examples, this book carefully outlines instructions and techniques for working with essential topics found within quantitative finance including portfolio theory, pricing of derivatives, decision theory, and the empirical behavior of prices.The author begins with introductory chapters on mathematical analysis and probability theory, which provide the needed tools for modeling portfolio choice and pricing in discrete time. Next, a review of the basic arithmetic of compounding as well as the relationships that exist among bond prices and spot and forward interest rates is presented.? Additional topics covered include:Dividend discount modelsMarkowitz meanvariance theoryThe Capital Asset Pricing ModelStatic?portfolio theory based on the expectedutility paradigmFamiliar probability models for marginal distributions of returns and the dynamic behavior of security pricesThe final chapters of the book delve into the paradigms of pricing and present the application of martingale pricing in advanced models of price dynamics. Also included is a stepbystep discussion on the use of Fourier methods to solve for arbitragefree prices when underlying price dynamics are modeled in realistic, but complex ways.Throughout the book, the author presents insight on current approaches along with comments on the unique difficulties that exist in the study of financial markets. These reflections illustrate the evolving nature of the financial field and help readers develop analytical techniques and tools to apply in their everyday work. Exercises at the end of most chapters progress in difficulty, and selected workedout solutions are available in the appendix. In addition, numerous empirical projects utilize MATLAB and Minitab to demonstrate the mathematical tools of finance for modeling the behavior of prices and markets. Data sets that accompany these projects can be found via the books FTP site.Quantitative Finance is an excellent book for courses in quantitative finance or financial engineering at the upperundergraduate and graduate levels. It is also a valuable resource for practitioners in related fields including engineering, finance, and economics.