Elementary Stochastic Calculus, with Finance in View

Elementary Stochastic Calculus, with Finance in View

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Modelling with the Ito integral or stochastic differential equations has become increasingly important in various applied fields, including physics, biology, chemistry and finance. However, stochastic calculus is based on a deep mathematical theory.This book is suitable for the reader without a deep mathematical background. It gives an elementary introduction to that area of probability theory, without burdening the reader with a great deal of measure theory. Applications are taken from stochastic finance. In particular, the Black-Scholes option pricing formula is derived. The book can serve as a text for a course on stochastic calculus for non-mathematicians or as elementary reading material for anyone who wants to learn about Ito calculus and/or stochastic finance.show more

Product details

  • Hardback | 224 pages
  • 157.48 x 218.44 x 12.7mm | 476.27g
  • World Scientific Publishing Co Pte Ltd
  • Singapore, Singapore
  • English
  • black & white illustrations
  • 9810235437
  • 9789810235437
  • 477,610

Table of contents

Preliminaries - basic concepts from probability theory; stochastic processes; Brownian motion; conditional expectation; Martingales; the stochastic integral - the Riemann and Riemann-Stieltjes; integrals; the Ito integral; the Ito lemma; the Stratonovich and other integrals; stochastic differential equations - deterministic differential equations; Ito stochastic differential equations; the general linear differential equation; numerical solution; applications of stochastic calculus in finance - the Black-Scholes option-pricing formula; a useful technique - change of measure. Appendices: modes of convergence; inequalities; non-differentiability and unbounded variation of Brownian sample paths; proof of the existence of the general Ito stochastic integral; the Radon-Nikodym theorem; proof of the existence and uniqueness of the conditional expectation.show more

Review quote

"This book under review can be determined as a very successful work ... the author's choice of the material is done with good taste and expertise ... It can be strongly recommended to graduate students and practitioners in the field of finance and economics." Mathematics Abstracts, 2000 "... this is a well-written book, which makes the difficult object of mathematical finance easy to understand also for non-mathematicians. It might be useful for economics students and all practitioners in the field of finance who are interested in the mathematical methodology behind the Black-Scholes model." Statistical Papers, 2000show more