Martingale methods in financial modelling. 2nd ed. (English) Zbl 1058.60003

Musiela, Marek; Rutkowski, Marek

Stochastic Modelling and Applied Probability 36. Berlin: Springer (ISBN 3-540-20966-2/hbk; 978-3-642-05898-1/pbk; 978-3-540-26653-2/ebook). xvi, 636 p. (2005).

For the first edition (1997) see Zbl 0906.60001, where a detailed review can be found. In the 2nd edition some sections of Part I are omitted, and a new chapter is devoted to volatility risk. Hedging of plain-vanilla options and valuation of exotic options are not limited to the Black-Scholes framework with constant volatility. Stochastic volatility also reappears in the second part of the book, which has been revised fundamentally. The analysis of the various interest-rate models available is more detailed than in the 1st edition.

Reviewer: Stefan Weber (Berlin)

MSC:

60-02	Research exposition (monographs, survey articles) pertaining to probability theory
62P05	Applications of statistics to actuarial sciences and financial mathematics
91B28	Finance etc. (MSC2000)
60Hxx	Stochastic analysis

Keywords:

mathematical finance; martingale techniques; financial derivatives; continuous time models; stochastic volatility; interest rate models; stochastic calculus

Citations:

Zbl 0906.60001