Mathematics of the Financial Markets

Mathematics of the Financial Markets Financial Instruments and Derivatives Modeling, Valuation and Risk Issues Alain Ruttiens There are many books dedicated to the quantitative finance field but these are either devoted to a specific type of financial instrument, combining both the products description and use in the market and their quantitative aspects, or to a specific mathematical or statistical/econometric theory, or otherwise, with an impressive degree of mathematical formalism which needs a high degree of competence in mathematics, econometrics and quantitative methods. Mathematics of the Financial Markets: Financial Instruments and Derivatives Modeling, Valuation and Risk Issues aims to prioritise what needs mastering and presents the content in the most understandable, concise and pedagogical way illustrated by real market examples. Divided into two parts, the book first examines the deterministic world, starting with yield curve building and related calculations (spot rates, forward rates, discrete versus continuous compounding, etc.), and continuing with spot instruments valuation (short term rates, bonds, currencies and stocks) and forward instruments valuation (forward forex, FRAs and variants, swaps & futures).The second part of the book looks at the probabilistic world, starting with the basis of stochastic calculus and the alternative approach of ARMA to GARCH, and continuing with derivative pricing: options, second generation options, volatility, credit derivatives. This part is completed by a chapter dedicated to market performance & risk measures, and a chapter widening the scope of quantitative models beyond the Gaussian hypothesis and evidencing the potential troubles linked to derivative pricing models. This book equips the reader with the mathematical knowledge needed to explain the valuation and behaviour of financial products, from traditional spot instruments to complex derivatives in the whole set of markets, from currencies and stocks to interest rates and credit underlyings. Written by Alain Ruttiens, an expert author with twenty-five years of practical and academic experience in the financial markets, this book presents the quantitative aspects of financial markets instruments and their derivatives, in a global and coherent way. It is now more crucial than ever to be aware of what is happening, quantitatively speaking, behind the financial instruments behaviour, making this an essential read for anyone concerned with financial markets.