Introduction to the Economics & Mathematics Finanical Markets

This textbook in financial economics provides a rigorous overview of the subject that - because of an innovative presentation - is suitable for use at different levels of undergraduate and graduate students. Each chapter presents mathematical models of financial problems at three different degrees of sophistication: single-period, multi-period and continuous-time. The single-period and multi-period models require only basic calculus and an introductory probability/statistics course, while an advanced undergraduate course in probability is helpful in understanding the continuous-time models. In this way the material is given complete coverage at different levels; the less advanced student can stop before the more sophisticated mathematics and still be able to grasp the general principles of financial economics. The book is divided into three parts. The first part provides an introduction to basic securities and financial market organisation, the concept of interest rates, the main mathematical models and quantitative ways to measure risks and rewards. The second part treats option pricing and hedging.