Arbitrage Theory in Continuous Time (Oxford Finance)

By Tomas Bjork

Book Overview

The second edition of this popular introduction to the classical underpinnings of the mathematics behind finance continues to combine sounds mathematical principles with economic applications. Concentrating on the probabilistics theory of continuous arbitrage pricing of financial derivatives, including stochastic optimal control theory and Merton's fund separation theory, the book is designed for graduate students and combines necessary mathematical background with a solid economic focus. It includes a solved example for every new technique presented, contains numerous exercises and suggests further reading in each chapter. In this substantially extended new edition, Bjork has added separate and complete chapters on measure theory, probability theory, Girsanov transformations, LIBOR and swap market models, and martingale representations, providing two full treatments of arbitrage pricing: the classical delta-hedging and the modern martingales. More advanced areas of study are clearly marked to help students and teachers use the book as it suits their needs.

• Format: Hardcover
• Language: English
• ISBN: 0199271267
• ISBN13: 9780199271269
• Release Date: May 2004
• Publisher: Oxford University Press, USA
• Length: 496 Pages
• Weight: 2.00 lbs.
• Dimensions: 1.3" x 9.3" x 6.3"

Customer Reviews

Only a Minor Update But Still an Excellent Book

If you own the second edition of Arbitrage Theory in Continuous Time, I don't think owning the third edition will add substantial value. The two major chapters that were added are the martingale approach to optimal investment problems and optimal stopping theory. Apart from this, the book looks and reads like the second edition. However, if you do not own the second edition, this book provides an excellent elementary treatment of asset pricing. The mathematics is quite reasonable, and does not require a substantial understanding of heavy math machinery from the reader. Many of the mathematical tools are explained in adequate detail in the text as well as in the Appendix. However, the reader should be comfortable with calculus and probability theory. The discussion on options is particularly good, especially the treatment of the binomial approach as well as Black-Scholes. However, this is not unique to this book. I would say that this book would be a good supplement for students that are taking their intro level Ph.D. asset pricing course. In particular, I think this would be beneficial to those who would like to get a little bit more intuition than what they can get from standard Ph.D. level texts. Bjork's writing style may be helpful in that respect.

This is how quant fin should be tought

Having been a student of professor Bjork and having studied that book and solved every exercise there is in, i say a big WELL DONE. This is how quant finance should be tought to people who do not aspire to become mathematicians. If you are a general finance phd, a practitioner, someone who wants to jump to finance this is the ONLY required level of maths that you need to understand and apply the subject. It gives the necessary rigor without sacrifising time to numerous technicalities which obscure rather than clarify. Great job

intuitive introduction to option pricing

I agree with several reviewers above that the book is written in a style very helpful for students to understand the material. It doesn't contain a lot of small details of financial markets like Hull's book, but the approach is very systematic. The derivations of formula for Barrier options is a nice example, Hull only lists a set of formula. The focus is on the theory, not on the practice. (No numerical method in the book). Bjork's book is very valuable for a student with very good math skills but want to learn the reasoning style for option pricing. It is a quick and enjoyable read. A huge plus side of the book is to describe strategy before writing down all the proofs. This helps greatly. It can be contrasted with Duffie's book "Dynamic Asset Pricing Theory", which is written like a dry math book (well, I have to admit that Duffie's book is not an intro book) Only thing I can think of that can be improved is typo in the book, too many wrong formula, especially in the second half of the book, luckily enough, they are obviously wrong so that one can still understand the topics. I also find that using SEK and mentioning street name of Britain are amusing for a student in U.S.

An FE Bible

The central text for IOE 552(financial Engineering I) at the University of Michigan. Halfway through the course and I really understand the application of Ito's Lemma and the Feynman-Kac stochastic representation theorem. This book has just the right mixture of narative story telling, and mathematical rigor. The derivations are accessible to those with a semester of advanced calculus and a semester of probability. Over and over, Bjork shows that the secret of success in Financial Engineering is "RAIL" which stands for the "Relentless Application of Ito's Lemma".

Rigorous, complete, easy to understand, so worth studying

One of the best book on derivatives pricing. Professor Björk explain from the simplest model to the more elaborate pricing techniques not only the mathematical tools necessary but the methodology in a very clear and understandable manner. I wish I had a Professor like him !! Thank You Professor Björk.A PhD Student,