Book contents
- Frontmatter
- Contents
- Preface
- Part One Basic Option Theory
- 1 An Introduction to Options and Markets
- 2 Asset Price Random Walks
- 3 The Black–Scholes Model
- 4 Partial Differential Equations
- 5 The Black–Scholes Formulæ
- 6 Variations on the Black–Scholes Model
- 7 American Options
- Part Two Numerical Methods
- Part Three Further Option Theory
- Part Four Interest Rate Derivative Products
- Hints to Selected Exercises
- Bibliography
- Index
1 - An Introduction to Options and Markets
from Part One - Basic Option Theory
Published online by Cambridge University Press: 05 June 2012
- Frontmatter
- Contents
- Preface
- Part One Basic Option Theory
- 1 An Introduction to Options and Markets
- 2 Asset Price Random Walks
- 3 The Black–Scholes Model
- 4 Partial Differential Equations
- 5 The Black–Scholes Formulæ
- 6 Variations on the Black–Scholes Model
- 7 American Options
- Part Two Numerical Methods
- Part Three Further Option Theory
- Part Four Interest Rate Derivative Products
- Hints to Selected Exercises
- Bibliography
- Index
Summary
Introduction
This book is about mathematical models for financial markets, the assets that are traded in them and, especially, financial derivative products such as options and futures. There are many kinds of financial market, but the most important ones for us are:
Stock markets, such as those in New York, London and Tokyo;
Bond markets, which deal in government and other bonds;
Currency markets or foreign exchange markets, where currencies are bought and sold;
Commodity markets, where physical assets such as oil, gold, copper, wheat or electricity are traded;
Futures and options markets, on which the derivative products that are the subject of this book are traded.
The reader may not have encountered all of the financial terms in bold face in this list. Most will be explained in detail later in the book when we need them. However, we do assume that the raison d'être of the currency and commodity markets is clear, and we hope that readers are familiar with the idea behind stocks (also known as shares or equities). Roughly speaking, a company that needs to raise money, for example to build a new factory or develop a new product, can do so by selling shares in itself to investors. The company is then ‘owned’ by its shareholders; if the company makes a profit, part of this may be paid out to shareholders as a dividend of so much per share, and if the company is taken over or otherwise wound up, the proceeds (if any) are distributed to shareholders.
- Type
- Chapter
- Information
- The Mathematics of Financial DerivativesA Student Introduction, pp. 3 - 17Publisher: Cambridge University PressPrint publication year: 1995