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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.

"A wonderful display of the use of mathematical probability to derive a large set of results from a small set of assumptions.

Developed for the professional Master's program in Computational Finance at Carnegie Mellon, the leading financial engineering program in the U.S. Has been tested in the classroom and revised over a period of several yearsExercises conclude every chapter;

"Deals with pricing and hedging financial derivatives.... Computational methods are introduced and the text contains the Excel VBA routines corresponding to the formulas and procedures described in the book.

A presentation of classical asset pricing theory, this textbook is the only one to address the economic foundations of financial markets theory from a mathematically rigorous standpoint and to offer a self-contained critical discussion based on empirical results.

This encyclopedic, detailed resource covers all the steps of one-period allocation from the foundations to the most advanced developments. It includes a large number of figures and examples as well as real trading and asset management case studies.

Changing interest rates constitute one of the major risk sources for banks, insurance companies, and other financial institutions. Modeling the term-structure movements of interest rates is a challenging task. This volume gives an introduction to the mathematics of term-structure models in continuous time. LIBOR market models;

Yielding new insights into important market phenomena like asset price bubbles and trading constraints, this is the first textbook to present asset pricing theory using the martingale approach (and all of its extensions).