Financial Derivatives: Pricing, Applications, and Mathematics

Combining their corporate and academic experiences, Jamil Baz and George Chacko offer financial analysts a complete, succinct account of the principles of financial derivatives pricing. Readers with a basic knowledge of finance, calculus, probability and statistics will learn about the most powerful tools in applied finance: equity derivatives, interest rate markets, and the mathematics of pricing.

Baz and Chacko apply concepts such as volatility and time, and generic pricing to the valuation of conventional and more specialized cases. Other topics include:

• Interest rate markets, government and corporate bonds, swaps, caps, and swaptions
• Factor models and term structure consistent models
• Mathematical allocation decisions such as mean-reverting processes and jump processes
• Stochastic calculus and related tools such as Kilmogorov equations, martingales techniques, stocastic control and partial differential equations

Meant for financial analysts and graduate students in finance and economics, Financial Derivatives begins with basic economic principles of risk and builds up various pricing and hedging techniques from those principles. Baz and Chacko simplify the mathematical presentation, and balance theory and real analysis, making it a more accessible and practical manual.