Review
Authors of financial engineering texts face a quandary: how technical to make a book? It is easy to alienate readers by being too technical, but it is just as easy to write a fluff book that communicates nothing of substance. With this book, authors Bingham and Kiesel have got the balance just right... It is mathematically rigorous but with a practical, reader-oriented focus. Results are expressed formally as mathematical theorems, but the authors skip most proofs. The narrative moves along at a nice clip so you never get bogged down in minutia... Who is the book for? Almost anyone who has a strong background in maths and wants a command of financial engineering theory. www.riskbook.com

Product Description
Since its introduction in the early 80s, the risk-neutral valuation principle has proved to be an important tool in the pricing and hedging of financial derivatives. This book provides a self-contained treatment of the probabilistic theory behind the risk-neutral valuation principle and its application to the pricing and hedging of financial derivatives. On the probabilistic side, both discrete- and continuous-time stochastic processes are treated.

These foundation and general principles of modern stochastic finance are established in the first six chapters, which are essentially revised and updated versions of the corresponding chapters in the first edition.

Chapters 7 and 8, which treat incomplete markets and interest rate theory, are completely restructured and greatly expanded in order to include recent developments. A new ninth chapter discusses aspects of modelling credit risk.

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