Undergraduate Introduction to Financial Mathematics

This textbook provides an introduction to financial mathematics and financial engineering for undergraduate students who have completed a three or four semester sequence of calculus courses. It introduces the theory of interest, random variables and probability, stochastic processes, arbitrage, option pricing, hedging, and portfolio optimization. The student progresses from knowing only elementary calculus to understanding the derivation and solution of the Black-Scholes partial differential equation and its solutions. This is one of the few books on the subject of financial mathematics which is accessible to undergraduates having only a thorough grounding in elementary calculus. It explains the subject matter without "hand waving" arguments and includes numerous examples. Every chapter concludes with a set of exercises which test the chapter's concepts and fill in details of derivations. Contents: The Theory of Interest; Discrete Probability; Normal Random Variables and Probability; The Arbitrage Theorem; Random Walks and Brownian Motion; Options; Solution of the Black-Scholes Equation; Derivatives of Black-Scholes Option Prices; Hedging; Capital Assets Pricing Model. Key Features Self-contained introduction to elementary probability, random variables, and stochastic processes Thorough and detailed derivation of the Black-Scholes partial differential equation and its solutions Includes applications of the main results to portfolio hedging and optimization Readership: Undergraduate students with a background in multivariable calculus.Buchanan, J. Robert is the author of 'Undergraduate Introduction to Financial Mathematics', published 2006 under ISBN 9789812566379 and ISBN 9812566376.