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Description of Financial Derivatives

This book offers a complete, succinct account of the principles of financial derivatives pricing. The first chapter provides readers with an intuitive exposition of basic random calculus. Concepts such as volatility and time, random walks, geometric Brownian motion, and Ito's lemma are discussed heuristically. The second chapter develops generic pricing techniques for assets and derivatives, determining the notion of a stochastic discount factor or pricing kernel, and then uses this concept to price conventional and exotic derivatives. The third chapter applies the pricing concepts to the special case of interest rate markets, namely, bonds and swaps, and discusses factor models and term structure consistent models. The fourth chapter deals with a variety of mathematical topics that underlie derivatives pricing and portfolio allocation decisions such as mean-reverting processes and jump processes and discusses related tools of stochastic calculus such as Kolmogorov equations, martingale techniques, stochastic control, and partial differential equations.

Title Information

ISBN:

9780521815109

Pages:

350 pages

Format:

Hardback

Product Code:

17977

Publisher:

Cambridge University Press

Published:

12/01/2004

Edition:

illustrated edition

Press and Industry Reviews

"Jamil Baz and Geroge Chacko have written an invaluable book that combines the technical and the practical aspects of derivatives pricing, interest rate models, and pricing complex financial instruments in a manner that is accessible to the sophisticated and the lay reader. They handle the material in a pedagogical manner which makes it appropriate for graduate level finance courses and practitioners. This book is a must read for those looking to educate themselves on these topics."
- Franco Modigliani, Emeritus Professor at MIT and Nobel Laureate in Economic Science

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About Jamil Baz and George K. Chacko

Jamil Baz is the chief investment strategist of GLG, a London-based hedge fund. Prior to holding this position, he was a portfolio manager with PIMCO in London, a managing director in the Proprietary Trading Group of Goldman Sachs, chief investment strategist of Deutsche Bank, and executive director of Lehman Brothers fixed income research division. Dr Baz teaches financial economics at Oxford University. He has degrees from the London School of Economics (M.Sc.), MIT (S.M.), and Harvard University (A.M., Ph.D.). Professor George Chacko has split his time between the academic and commercial worlds during his career. His past commercial experience has included work at Accenture and Prudential Investments. Most recently, he was a managing director heading fixed income sales and trading at State Street Bank, a managing director in pension asset management at IFL, and the chief investment officer of Auda Alternative Investments. He has co-founded and sold three financial services businesses over his career. He is currently the managing partner of Confluentis Investments. His past academic experience has been at Harvard Business School, where he served as a professor in the finance department for ten years. He also served as a visiting professor at the Indian School of Business. He is currently a professor in the finance department at Santa Clara University. His research interests have been in the areas of fixed income and derivatives research, portfolio choice and construction, and the microstructure of financial markets. He has a BS from MIT in Electrical Engineering, an MBA from the University of Chicago, and an MA and PhD from Harvard University in Business Economics.

Contents of Financial Derivatives

1. Introduction
2. Preliminary mathematics
3. Principles of financial valuation
4. Interest rate models
5. Mathematics of asset pricing
6. Bibliography