Derivative Pricing in Discrete Time

"Derivative Pricing in Discrete Time" offers a solid introduction to the mathematical modeling of financial markets and the rational pricing of derivatives. The book addresses the central question of how to determine a fair price for a derivative such that no trader can profit risk-free. To keep the mathematical concepts understandable, the work focuses on discrete time models with a limited number of possible future scenarios. It begins with a simple financial model with only one time period, clearly conveying fundamental ideas. As it progresses, more realistic models involving multiple stocks and time periods are discussed, including a comprehensive analysis of incomplete models. The later chapters deal with advanced topics, such as the relationship between discrete time theory and the well-known continuous Black-Scholes theory, as well as a detailed examination of American options. The book is aimed at students of mathematics and other disciplines and does not require prior knowledge of financial markets, only a basic understanding of linear algebra and probability is necessary.