An Introduction to the Mathematics of Financial Derivatives - 2nd Edition - ISBN: 9780125153928, 9780080478647

An Introduction to the Mathematics of Financial Derivatives

2nd Edition

Authors: Salih Neftci
Hardcover ISBN: 9780125153928
eBook ISBN: 9780080478647
Imprint: Academic Press
Published Date: 19th May 2000
Page Count: 527
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Table of Contents

Financial Derivatives: A Brief Introduction. A Primer on Arbitrage Theorem. Calculus in Deterministic and Stochastic Environments. Pricing Derivatives: Models and Notation. Tools in Probability Theory. Martingales and Martingale Representations. Differentiation in Stochastic Environments. The Wiener Process and Rare Events in Financial Markets. Integration in Stochastic Environments: The Ito Integral. Ito's Lemma. The Dynamics of Derivative Prices: Stochastic Differential Equations. Pricing Derivative Products: Partial Differential Equations. The Black-Scholes PDE: An Application. Pricing Derivative Products: Equivalent Martingale Measures. Equivalent Martingale Measures: Applications. New Results and Tools for Interest Sensitive Securities. Arbitrage Theorem in a New Setting: Normalization and Random Interest Rates. Modeling Term Structure and Related Concepts. Classical and HJM Approaches to Fixed Income. Classical PDE Analysis for Interest Rate Derivatives. Relating Conditional Expectations to PDEs. Stopping Times and American-Type Securities. Bibliography. Index.


An Introduction to the Mathematics of Financial Derivatives, Second Edition, introduces the mathematics underlying the pricing of derivatives.

The increased interest in dynamic pricing models stems from their applicability to practical situations: with the freeing of exchange, interest rates, and capital controls, the market for derivative products has matured and pricing models have become more accurate. This updated edition has six new chapters and chapter-concluding exercises, plus one thoroughly expanded chapter. The text answers the need for a resource targeting professionals, Ph.D. students, and advanced MBA students who are specifically interested in financial derivatives.

This edition is also designed to become the main text in first year masters and Ph.D. programs for certain courses, and will continue to be an important manual for market professionals and professionals with mathematical, technical, or physics backgrounds.


Students in master's or Ph.D. programs, market professionals, and professionals with mathematical, technical, or physics backgrounds.


No. of pages:
© Academic Press 2000
Academic Press
eBook ISBN:


PRAISE FOR THE FIRST EDITION: "An excellent treatment of the mathematics underlying the pricing of derivatives." —JOHN HULL, University of Toronto "This book will be a major convenience to derivatives traders, risk managers, and other users and developers of derivatives models. It greatly reduces the cost of entry into the mathematical world of valuation, hedging, and risk measurement for derivatives positions." —J. DARRELL DUFFIE, Stanford University PRAISE FOR THE SECOND EDITION: "As an introduction to the mathematics underlying the pricing of derivatives, the book succeeds admirably." —JOURNAL OF ECONOMIC LITERATURE "This book is a self-contained first step into mathematical finance, and it covers the fundamentals of the topic beautifully. The conclusions and references at the end of each chapter are very useful. The former provides a broad picture of each chapter's content. The latter offer invaluable links for those who would like a more detailed discussion..." —SIAM Review (Society for Industrial and Applied Mathematics)

About the Authors

Salih Neftci Author

Professor Neftci completed his Ph.D. at the University of Minnesota and was head of the FAME Certificate program in Switzerland. He taught at the Graduate School, City University of New York; ICMA Centre, University of Reading; and at the University of Lausanne. He was also a Visiting Professor in the Finance Department at Hong Kong University of Science and Technology. Known his books and articles, he was a regular columnist for CBN daily, the most influential financial newspaper in China.

Affiliations and Expertise

Late of the Global Finance Master’s Program, New School for Social Research, New York, NY, USA