Mathematical Finance: A Very Short Introduction

Very Short Introductions #592

by Mark H.A. Davis

In recent years the finance industry has mushroomed to become an important part of modern economies, and many science and engineering graduates have joined the industry as quantitative analysts, with mathematical and computational skills that are needed to solve complex problems of asset valuation and risk management. An important parallel story exists of scientific endeavour. Between 1965-1995, insightful ideas in economics about asset valuation were turned into amathematical 'theory of arbitrage', an enterprise whose first achievement was the famous 1973 Black-Scholes formula, followed by extensive investigations using all the resources of modern analysis and probability. The growth of the finance industry proceeded hand-in-hand with these developments. Nownew challenges arise to deal with the fallout from the 2008 financial crisis and to take advantage of new technology, which has revolutionized the practice of trading.This Very Short Introduction introduces readers with no previous background in this area to arbitrage theory and why it works the way it does. Illuminating pricing theory, Mark Davis explains its applications to interest rates, credit trading, fund management and risk management. He concludes with a survey of the most pressing issues in mathematical finance today.ABOUT THE The Very Short Introductions series from Oxford University Press contains hundreds of titles in almost every subject area. These pocket-sized books are the perfect way to get ahead in a new subject quickly. Our expert authors combine facts, analysis, perspective, new ideas, and enthusiasm to make interesting and challenging topics highly readable.

Genres: Mathematics, Economics, Finance, Nonfiction, Business, Science

160 pages, Kindle Edition

First published April 13, 1995

Reviews

[Mike Harris · Rating 2 out of 5]

No idea who this book is aimed at. The introduction makes it seem that one does not need much knowledge of probability and statistics to understand the content but in order to understand any of the mathematics covered one needs deep knowledge and experience in stochastic calculus and at times Brownian motion. If either of these terms mean nothing to you, stay away from this book and just read the Wikipedia entries on the topic covered.

The mathematics definition are not really developed and are just sprinkled through the text. This book would be an okay introduction for a graduate statistics student looking to learn more about mathematical finance but I am sure there are much better introduction available.

[Bernie Gourley · Rating 4 out of 5]

This is Oxford University Press's Very Short Introduction to the field of the "Quants," individuals who apply mathematics to questions of how to value financial assets and assess risks. The book begins by laying out how banking and financial markets work, then discusses how interest rates are determined, and then explores the quantification of various risks faced by lenders. The book finishes by discussing how the 2008 financial crisis impacted the field and how it operates in the wake of that event. (The 2008 crisis was described in an intriguing fashion in the book and movie The Big Short. It basically resulted from deceptive grading of mortgage-backed securities such that investors who thought they had the ultimate default-proof asset in fact had assets that not only could collapse, but -- in fact -- were bound to.)

Even though this book is a concise introduction, it shouldn't be confused for a simple guide. It is not only mathematically intense but also jargon dense. It's not a complete waste for someone without any advanced mathematics and / or economics / finance background to read, but there will be large patches that will likely be lost on one. (And if you're not at all used to reading scholarly writing, it may be excessively daunting.)

If you want a quick guide to the field of quantitative finance, and you have an understanding of the mathematical notation used in calculus and statistics, I'd recommend this book. If you are interested in the topic but aren't at all mathematical, you might start elsewhere (the aforementioned, The Big Short, might be a good place.)

[Alessio Montella · Rating 3 out of 5]

An introduction to the world of mathematical finance. It must be said that without a somewhat good knowledge of maths and some of the terms the book would be difficult to follow.

Topics include the general notion of risk in finance as well as its more specific types, such as credit and interest rate risk. The book also include the concepts of portfolio management and the theory of option pricing.

[Osian Shelley · Rating 4 out of 5]

Concise overview of concepts, but a good mathematical background is needed to follow many sections.

[Tinwerume · Rating 3 out of 5]

Honestly it's *too* short. I was hoping for a very short but still rigorous introduction. Instead it's just kind of messy.

[Yves Verbiest · Rating 2 out of 5]

The math is fine, quite engaging and entertaining but such a waste of human cognitive ability to spend it on financing options.