Introduction to Option Pricing Theory
Published on 6. October 2012
Book
Paperback/Softback
X, 269 pages
978-1-4612-6796-6 (ISBN)
Description
Since the appearance of seminal works by R. Merton, and F. Black
and M. Scholes, stochastic processes have assumed an increasingly
important role in the development of the mathematical theory of
finance. This work examines, in some detail, that part of stochastic
finance pertaining to option pricing theory. Thus the exposition is
confined to areas of stochastic finance that are relevant to the
theory, omitting such topics as futures and term-structure.
This self-contained work begins with five introductory chapters
on stochastic analysis, making it accessible to readers with little or
no prior knowledge of stochastic processes or stochastic analysis.
These chapters cover the essentials of Ito's theory of stochastic
integration, integration with respect to semimartingales, Girsanov's
Theorem, and a brief introduction to stochastic differential
equations.
Subsequent chapters treat more specialized topics, including
option pricing in discrete time, continuous time trading, arbitrage,
complete markets, European options (Black and Scholes Theory),
American options, Russian options, discrete approximations, and asset
pricing with stochastic volatility. In several chapters, new results
are presented. A unique feature of the book is its emphasis on
arbitrage, in particular, the relationship between arbitrage and
equivalent martingale measures (EMM), and the derivation of necessary
and sufficient conditions for no arbitrage (NA).
{\it Introduction to Option Pricing Theory} is intended for
students and researchers in statistics, applied mathematics, business,
or economics, who have a background in measure theory and have
completed probability theory at the intermediate level. The work
lends itself to self-study, as well as to a one-semester course at the
graduate level.
More details
Edition
Softcover reprint of the original 1st ed. 2000
Language
English
Place of publication
Boston
United States
Target group
Professional and scholarly
Research
Illustrations
X, 269 p.
Dimensions
Height: 235 mm
Width: 155 mm
Thickness: 16 mm
Weight
435 gr
ISBN-13
978-1-4612-6796-6 (9781461267966)
DOI
10.1007/978-1-4612-0511-1
Schweitzer Classification
Other editions
Additional editions
Gopinath Kallianpur | Rajeeva L. Karandikar
Introduction to Option Pricing Theory
Book
10/1999
Birkhauser Boston Inc
€106.99
Shipment within 15-20 days
Content
1 Stochastic Integration.- 1.1 Notation and definitions.- 1.2 The predictable ? field.- 1.3 The Itô integral.- 1.4 Quadratic variation of a continuous martingale.- 1.5 The stochastic integral w.r.t. continuous local martingales.- 1.6 Stochastic integral w.r.t. continuous semimartingales.- 1.7 Integration w.r.t. semimartingales.- 2 Itô's Formula and its Applications.- 2.1 Preliminaries.- 2.2 Itô's formula for continuous semimartingales.- 2.3 Itô's formula for r.c.l.l. semimartingales.- 2.4 Applications.- 2.5 Application to geometric Brownian motion.- 2.6 Local time and the Tanaka formula.- 2.7 Brownian motion and the heat equation.- 3 Representation of Square Integrable Martingales.- 3.1 The Itô representation.- 3.2 The Kunita-Watanabe representation.- 4 Stochastic Differential Equations.- 4.1 Preliminaries.- 4.2 Existence and uniqueness of solutions.- 4.3 The Feynman-Kac formula.- 4.4 The Ornstein-Uhlenbeck process (O.U.P).- 5 Girsanov's Theorem.- 5.1 Auxiliary results.- 5.2 Girsanov's Theorem.- 6 Option Pricing in Discrete Time.- 6.1 Arbitrage opportunities.- 6.2 Option pricing: an example.- 6.3 European call option.- 6.4 Complete markets.- 6.5 The American option.- 7 Introduction to Continuous Time Trading.- 7.1 Introduction.- 7.2 A general model.- 7.3 Trading strategies and arbitrage opportunities.- 7.4 Examples.- 7.5 Contingent claims and complete markets.- 8 Arbitrage and Equivalent Martingale Measures.- 8.1 Introduction.- 8.2 Necessary and sufficient conditions for NA.- 8.3 A general model of stock prices.- 8.4 The separation theorem.- 8.5 Orlicz spaces.- 8.6 No arbitrage with controlled risk.- 8.7 Fractional Brownian motion (1/29.1 Definition.- 9.2 Representation of martingales.- 9.3 Examples of complete markets.- 9.4 Equivalent martingale measures.- 9.5 Incomplete markets.- 9.6 Completeness and underlying filtration.- 10 Black and Scholes Theory.- 10.1 Preliminaries.- 10.2 The Black-Scholes PDE.- 10.3 Explicit solution of the Black-Scholes PDE.- 10.4 The Black-Scholes formula.- 10.5 Diffusion model.- 11 Discrete Approximations.- 11.1 The binomial model.- 11.2 A binomial Feynman-Kac formula.- 11.3 Approximation of the Black-Scholes PDE.- 11.4 Approximation to the Black-Scholes fonnula.- 12 The American Options.- 12.1 Model.- 12.2 Upper and lower bounds.- 12.3 American claims in complete markets.- 13 Asset Pricing with Stochastic Volatility.- 13.1 Introduction.- 13.2 Incompleteness of the market.- 13.3 Asymptotic analysis for models with two scales.- 13.4 Filtering of the stochastic volatility.- 13.5 PDE whenSis observed.- 14 The Russian Options.- 14.1 Introduction and background.- 14.2 The Russian put option.- 14.3 A free boundary problem for the put option.- 14.4 Proofs of the lemmas.- 14.5 The Russian call option (or the option for selling short).- 14.6 The F.B.P. for the call option.- References.