Modelling with the Itô integral or stochastic differential equations has become increasingly important in various applied fields, including physics, biology, chemistry and finance. However, stochastic calculus is based on a deep mathematical theory.
This book is suitable for the reader without a deep mathematical background. It gives an elementary introduction to that area of probability theory, without burdening the reader with a great deal of measure theory. Applications are taken from stochastic finance. In particular, the Black Scholes option pricing formula is derived. The book can serve as a text for a course on stochastic calculus for non-mathematicians or as elementary reading material for anyone who wants to learn about Itô calculus and/or stochastic finance.
Modelling with the Itô integral or stochastic differential equations has become increasingly important in various applied fields, including physics, biology, chemistry and finance. However, stochastic calculus is based on a deep mathematical theory.
This book is suitable for the reader without a deep mathematical background. It gives an elementary introduction to that area of probability theory, without burdening the reader with a great deal of measure theory. Applications are taken from stochastic finance. In particular, the Black Scholes option pricing formula is derived. The book can serve as a text for a course on stochastic calculus for non-mathematicians or as elementary reading material for anyone who wants to learn about Itô calculus and/or stochastic finance.
Modelling with the Itô integral or stochastic differential equations has become increasingly important in various applied fields, including physics, biology, chemistry and finance. However, stochastic calculus is based on a deep mathematical theory.
This book is suitable for the reader without a deep mathematical background. It gives an elementary introduction to that area of probability theory, without burdening the reader with a great deal of measure theory. Applications are taken from stochastic finance. In particular, the Black Scholes option pricing formula is derived. The book can serve as a text for a course on stochastic calculus for non-mathematicians or as elementary reading material for anyone who wants to learn about Itô calculus and/or stochastic finance.
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Preface
‘Ten yours ago I would not have dared to wit bok ike his: no-sgoous
‘treatin of mathemati theory admit tat T would have be ane,
land Tam aad tha most of my elleagucs in mathemati link He th
Floweer, my experience with students and practitioners coined me that
there iss etzong demand for popular mathemati,
Tstarvd wetng this bok at ote note In 192 wes Ipespared a course
on stochastic ealeuls for the students of th Commerce Faculty at Vicon
University Welington (Now Zealand). Since! had fein ving toils
orfloUhary and investment anal I wat expected to tach something
Tinew batter At that tine, seff members of economics snd athemates
departments already discased the wo the Dlack and Soles option ping
formula course on stochastic nance were offered a lng netatons nc
as BTH Zirich, Columbia and Stanford: and there was geeral agrement
that ot only sadests and staf members of couemcr ad snathenatis de
Dartneas, but aso practioner in nati Istiatons should Know more
oat tis new top
‘Soon Treaiaed that thre was mot very much erature which could be
ed for teaching stodastie cleus at rather sementary level at ily
‘ararect the fact thats combination of 'lentary" and “Mocastie cea?
Ibe contradiction niece. Sorat alu rqutes advan matbenatieal
techniques this theory cannot be fly understood one does ot tuw sbout
the bar of acu theory, fanctosl analyse an the theory of wochastie
‘racemes, However, Lezogly belive that an interested person wo knows
About demeatary probably thory and who can handle the rues of inte
‘atin and direnntion abl to understand the tai Mes of occ
faleulus. This is supported by my experience which Tne in coures fr
‘conomics, stasis and matbematis students at VUW Weligton andthe
Degarineat of Mathematics in Groningen. T gt the sane inresion ss &
lecturer of erash cures om stocatc enue st the Samet Schoo of the