Financial calculus. An introduction to derivative pricing. Martin Baxter. Nomura International London. Andrew Rennie. Head ofDebt Analytics, Merrill Lynch. Financial Calculus. The website of Financial Calculus: an introduction to derivative pricing. This book has been written by Martin Baxter and Andrew Rennie, and. Financial Calculus is a presentation of the mathematics behind derivative pricing, building up to the Black-Scholes theorem and then extending the theory to a.

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One strength of Financial Calculus is that, while it is rigorous and the approach is quite abstract — it assumes familiarity with calculus and a general competence with formal mathematics — concrete worked examples are used to anchor the theory and assist intuition. Other readers are likely to be less interested in the various elaborations and want more philosophical and empirical background. Beginning with the discrete case, chapter two introduces a simple binomial tree model.

Goodreads helps you keep track of books you want to read. Chan-Ho rated it really liked it Apr 09, Chapter one explains the limitations of expectation pricing, introducing instead the use of “no arbitrage” constructions to derive prices.

Financial Calculus

While some background knowledge of options and Black-Scholes is appropriate, this is a fairly self-contained introduction to risk-neutral pricing. This is the most intuitive and concise introduction to asset pricing via equivalent martingale measures that I’ve yet encountered.


Jan 31, Neal Groothuis rated it it was amazing.

Trinh Quoc Anh rated it liked it Nov 07, It is clearly presented, with a systematic build up of the necessary results, and with extensions separated from the core ideas. Books by Martin Baxter. Alexander rated it liked it Mar 19, John rated it really liked it Aug 15, Paradoxically, I also worry about the very elegance and rigour of the results in Financial Calculus.

Feb 10, Taylor rated it it was amazing.

This book will be especially useful to people with a background in economic theory who are having trouble making the conceptual link between risk aversion, subjective This is the most intuitive and concise introduction to asset pricing via equivalent martingale measures that I’ve yet encountered. Without a proper background to these topics, certain intuitive statements made in this book can be misleading.

Open Preview See a Problem? Chapter three extends this to the continuous realm, using basic stochastic calculus, Ito’s formula and stochastic differential equations.

Rennnie rated it really liked it Nov 30, If most real-world markets are not Brownian, as Mandelbrot and others have argued, that doesn’t undermine any of the mathematics in Financial Calculus but does make its utility entirely unclear.

Sam Nazari rated it liked it Jan 18, Misha rated it really liked it Jan 29, To ask other readers questions about Financial Calculusplease sign up. For example, in the chapter that introduces the binomial asset pricing model, the authors describe filtrations as being the history of the price process up to a given point in time.


Financial Calculus by Martin Baxter. Some of this involves clever constructions, but it doesn’t add that much to the core theory.

Financial Calculus

There are also a few exercises, with solutions, which mostly test understanding of basic concepts and the ability to use the formal machinery. And a reluctance to lose the beauty of the analytic formalism may make it harder to face up to empirical ugliness. Suzy rated it it was ok Sep 03, Anthony P Badali rated it really liked it Jul 04, The real value of this book lies in how successfully it motivates each of the pieces of theoretical machinery used in risk-neutral asset pricing: Keelhaul rated it really liked it Jan 02, Chapter four applies and extends this to baxted kinds of securities: And chapter five, which I only glanced over, builds progressively more complex models for interest rates.

This is concise without being terse, clear, and comprehensive.