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eBook Risk-Neutral Valuation: Pricing and Hedging of Financial Derivatives, 2nd Ed. download

by Nicholas H. Bingham,Rüdiger Kiesel

eBook Risk-Neutral Valuation: Pricing and Hedging of Financial Derivatives, 2nd Ed. download ISBN: 1852334584
Author: Nicholas H. Bingham,Rüdiger Kiesel
Publisher: Springer; 2nd edition (May 4, 2004)
Language: English
Pages: 438
ePub: 1116 kb
Fb2: 1990 kb
Rating: 4.6
Other formats: lrf txt lrf doc
Category: Work and Money
Subcategory: Management and Leadership

FREE shipping on qualifying offers. Risk-neutral measures are used in the pricing of financial derivatives, financial products derived from underlying assets, such as stocks. They are also called an equivalent martingale measures.

FREE shipping on qualifying offers. On the probabilistic side.

Authors: Bingham, Nicholas . Kiesel, Rüdiger. Since its introduction in the early 1980s, the risk-neutral valuation principle has proved to be an important tool in the pricing and hedging of financial derivatives. eBook 53,54 €. price for Russian Federation (gross). ISBN 978-1-4471-3856-3.

Books on complex hedging instruments are often more confusing than the instruments themselves.

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oceedings{alVP, title {Risk-Neutral Valuation: Pricing and Hedging of Financial Derivatives}, author {Nicholas H. Bingham and R{"u}diger Kiesel}, year {2001} }. Nicholas H. Bingham, Rüdiger Kiesel. 1 Derivative Instruments . 2 Underlying Securities . 4 Types of Traders . 5 Modeling Assumptions . Arbitrage . Arbitrage Relationships . 1 Fundamental Determinants of Option Values .

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Nicholas Bingham, N H Bingham, Rudiger Kiesel. On the probabilistic side, both discrete- and continuous-time stochastic processes are treated, with special emphasis on martingale theory, stochastic integration and change-of-measure techniques.

This book provides a self-contained treatment of the probabilistic theory behind the risk-neutral valuation principle and its application to the pricing and hedging of financial derivatives. On the probabilistic side, both discrete- and continuous-time stochastic processes are treated.

Request PDF On Jan 1, 2004, N. H. Bingham and others published Risk-Neutral Valuation: Pricing . The first method is based on hedging of a portfolio process, and the second on replication of the payoff at expiry date T. View.

The first method is based on hedging of a portfolio process, and the second on replication of the payoff at expiry date T.

Bingham, Nicholas H. 1945- Verfasser (DE-588)118095315.

This second edition - completely up to date with new exercises - provides a comprehensive and self-contained treatment of the probabilistic theory behind the risk-neutral valuation principle and its application to the pricing and hedging of financial derivatives. On the probabilistic side, both discrete- and continuous-time stochastic processes are treated, with special emphasis on martingale theory, stochastic integration and change-of-measure techniques. Based on firm probabilistic foundations, general properties of discrete- and continuous-time financial market models are discussed.

Comments: (4)
Yozshunris
Risk-neutral measures are used in the pricing of financial derivatives, financial products derived from underlying assets, such as stocks. They are also called an equivalent martingale measures.
The book covers among other things the fundamental theorem of asset pricing, but readers are gently introduced to the necessary mathematics, both continuous and discrete, before the financial applications are developed systematically in the main body of the book, and roughly a third into the book.
Comments on the subject of the book: In a complete market, the pricing of a derivative is the discounted expected value of the future payoff, and this is computed under what is called the unique risk-neutral measure.
The book is great for a course in the subject, and it has been tested in courses taught by the authors over the years. furthermore, it strikes a nice balance between mathematics and its applications to pricing of financial derivatives. I found the exercises especially helpful.
The subject: In a complete market, i.e., no arbitrage opportunities, one can adjust the probabilities of future outcomes such that they incorporate risk premium, and one then takes the expectation under this new (risk-neutral) probability distribution, i.e., the risk-neutral measure.

The lack of arbitrage is crucial for existence of a risk-neutral measure. In fact, by the fundamental theorem of asset pricing, the condition of no-arbitrage is equivalent to the existence of a risk-neutral measure. Completeness of the market is also important because in an incomplete markets with a multitude of possible prices for an asset corresponding to different risk-neutral measures.

These probability distributions are different from the real-world probability because in the real-world, investors demand risk premia.
It is shown that, under the risk-neutral probabilities, all assets have the same expected rate of return, called the risk-free rate, and thus do not incorporate premia.
The method of risk-neutral pricing is thus a convenient and powerful tool. Even if it might seem artificial, it is central in the finance.
And the theory is beautifully presented in this important book.
Review by Palle Jorgensen, July 2013.
Ytli
I am a PhD student in Applied Math but with only a basic background on Probability (I am on the side of Analysis, Differential Equations and Topology) and I was looking for a comprehensible textbook on options and derivatives with a probabilistic approach. I wanted a readable, preferably self contained text in pricing financial products with both discrete and continuous stochastic processes, and this text was the right choice.

This text is self contained: it gives you all the probability background you need in order to understand stochastic processes in both discrete and continuous time. True, you need basic background on probability but just an undergraduate course.

The authors use thoroughly the Arbitrage principle just as a physicist uses Newton's law: they build up portfolios and then they use arbitrage (like F=ma) to derive the solution. This idea of "no arbitrage" as the basis of finance can be contested but it is the standard way to proceed when valuating derivatives. I have read several books on derivatives and this was the first one that taught me the very principle behind all the finance: "the fair price of a product is such that there is no free lunch without taking risks", or as the authors say, one should discount everything and take expected values under risk neutral probabilities.

The book proves everything but the huge and technical theorems like e.g. Ito's, Feynman-Kac's or Girsanov's. It is OK since the emphasis is on the relevant concepts and their correct use and interpretation and not on hard mathematics: the heavy proofs and constructions are outlined and references are mentioned.

If you are interested in the hard proofs I suggest Oksendal "Stochastic Differential Equations", and if you are looking for a non probabilistic approach of pricing derivatives I strongly recommend Wilmott "Quantitative finance", which is PDE based.
Nakora
This book covers quite a few fields (axiomatic probability, stochastic processes, financial theory) to the extent that they relate to valuation of securities. Naturally, the scope of coverage in such a brief tome (< 300 p.) is limited. It is written clearly and with precision, with sufficient number of exercises provided at chapters' ends. I would say that it goes to greater depth than Neftci, and is far more rigorous than Wilmott. Incomparably easier to understand than Merton. The only shorcomings I can find are relative paucity of examples and inadequate Index.