An Introduction to Quantitative FInance
The book concerns financial derivatives, a derivative being a contract or trade (or bet, depending on your prejudices) between two entities or counterparties whose value is a function of—derives from—the price of an underlying financial asset. We define various derivative contracts and describe the quantitative and probabilistic tools that were developed to address issues encountered by practitioners as markets developed. The book is steeped in practice, as the methods we explore only developed to such an extent because the markets themselves grew exponentially fast. Whilst we develop theory here, this book is not theoretical in the ‘existing only in theory’ sense. The products we consider are traded in significant size and have meaningful economic impact.