Martingale Methods in Financial Modeling - Musiela, Rutkowski

This comprehensive and self-contained treatment of the theory and practice of option pricing describes the role of martingale methods in financial modelling. The emphasis is on using arbitrage-free models already accepted by the market as well as on building new ones but in a way that makes them consistent with the finance industry's derivatives pricing practice.

Standard calls and puts, together with numerous examples of exotic options such as barriers and quantos, for example on stocks, indices, currencies and interest rates, are analyzed. The importance of choosing a convenient numeraire in price calculations is explained.

The second edition of this well-established book concentrates on the most pertinent and widely accepted modelling approaches, and provides the reader with a text focused on practical rather than theoretical aspects of financial modelling.

  • Level: Advanced+
  • Major Topics: T21, T23
  • Minor Topics: T22, T24


Online Resources

Sample chapter

Table of Contents

Part I. Spot and Futures Markets
1. An Introduction to Financial Derivatives
2. Discrete-time Security Markets
3. Benchmark Models in Continuous Time
4. Foreign Market Derivatives
5. American Options
6. Exotic Options
7. Volatility Risk
8. Continuous-Time Security Markets

Part II. Fixed-Income Markets
9. Interest Rates and Related Contracts
10. Short-Term Rate Models
11. Models of Instantaneous Forward Rates
12. Market LIBOR Models
13. Alternative Market Models
14. Cross-Currency Derivatives

Part III. Appendices
A. Conditional Expectations
B. Itô Stochastic Calculus…read more