Stochastic Calculus for Finance I: The Binomial Asset Pricing Model

by Steven E. Shreve

Book Overview

Developed for the professional Master's program in Computational Finance at Carnegie Mellon, the leading financial engineering program in the U.S.

Has been tested in the classroom and revised over a period of several years

Exercises conclude every chapter; some of these extend the theory while others are drawn from practical problems in quantitative finance

• Format: Hardcover
• Language: English
• ISBN: 0387401008
• ISBN13: 9780387401003
• Release Date: April 2004
• Publisher: Springer
• Length: 187 Pages
• Weight: 1.40 lbs.
• Dimensions: 0.6" x 6.0" x 9.6"

Customer Reviews

Very good to understand the basics of pricing-theory.

This book is great book about theory. Using a simple binomial tree as asset evolution model, all key notions are introduced. Neutral-risk probabilities come up in a simple, natural way, and I never found such a clear explanation of the the change of measure and its meaning in finances. Examples help to understand every ussue. The only case in which you should not buy it: if you are looking for real-market instruments and techniques.

A gentle introduction

I am always a fan of books that can simplify advanced concepts instead of drowning the reader in rigour. Shreve's introduction to probablistic asset pricing is gentle, covering basic stochastic processes, the concepts behind derivative pricing and hedging, as well as setting up the reader for subsequent readings. It's one of those books that you come back to when you are stuck with a problem from a conceptual point of view because things are explained in the book at an intuitive level. All in all, a good foundation book or reference for starting quants.

Great for beginers in stochatic claculus with a simple apication to finance

This book is great to start understanding stochastic calculus with immediate application to pricing derivatives. To make everything simpler, all is explained on a discrete basis. This helps a lot to understand the subject and prepares the reader for the second course in which everything is converted into continues basis. It also helps very much to understand how to price a derivative through portfolio that replicates it (Non-arbitrage principle).

Great book

I think the reviewer below who gave it one star seems biased and has an attitude. I would invite this reviewer to right a book half as good as this book. Personally, for me this book explained a lot of materials without having to master the more advanced measure theory and probability concepts. As a first introduction to the stocahstic calculus applications in finance, I highly recommend this book. And yes, I was always a big fan of Shreve's lecture notes on the net. They are the best.

One of the best!

It would be hard to overstate my enthusiasm for this text and its companion volume. In field that is too frequently represented by poorly thought out drafts rushed to market or by advanced mathematical treatments that are not easily understood by individuals more focused on practice, Shreve's texts stand out by being both rigorous and accessible with well thought out examples and exercises. This particular volume, covering binomial models, covers advanced concepts in a discrete setting. For some it will represent a waste of time and those individuals are best advised to skip to Volume II. However, many intelligent students who are not so comfortable with abstract mathematics will find this a simple and concrete exposition that can serve as a bridge to more advanced theory.