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Mathematical finance : a very short introduction
Davis M., Oxford University Press, Inc., New York, NY, 2019. 160 pp.  Type: Book (978-0-198787-94-5)
Date Reviewed: Dec 2 2020

There are some similarities between areas of computer specializations and mathematical finance, for example, stochastic methods and statistics or risk modeling. It should be interesting for computer specialists to get acquainted with how these methods are used in a totally different field, and Davis’ book will be helpful with this. On the other hand, this might be a good first book on finance-related problems, where computer methods have been used for some years. Therefore, a professional in computer science who would like to shift interests a little bit will find a good introduction.

The book shows the basic knowledge of a quant, that is, a specialist working on the mathematical modeling of finances (for instance, investments in a stock exchange). Chapter 1 is an introduction to the whole field, covering fundamental concepts on how money is treated in financial modeling and how financial markets work, including their basic transactions. The next chapter introduces the related concept of risk and its modeling. Readers acquainted with time series analysis can find well-known models, though applied here in a different context. Chapter 3 presents the most classical topic in mathematical finance: option pricing.

Next, chapter 4 takes into account mathematical finance models and the fact that money also has a cost, that is, interest rate. The next chapter covers the quantification of credit risk. Chapter 6 then elaborates on the next big issue in finance: fund management. Chapter 7 is devoted to risk management, while the last chapter discusses the 2008 crisis, including the new avenues in mathematical finance taken up in response. All the topics are presented in a similar way: first basic intuitions and fundamental concepts are introduced, and then Davis covers some aspects of mathematical modeling, related examples, and most prominent results.

For a book published in the “A Very Short Introduction” series, Mathematical finance is not that easy to follow and for sure is not for every reader (contrary to some other books in this series that can be comprehended without previous background knowledge). First, to understand the mathematical background, readers should know quite a lot of theory (on probability and calculus). What I mean is it would be good to have some intuitions provided by graduate-level courses. Second, computer specialists are often familiar with mathematical modeling grounded in discrete mathematics, which makes grasping the way mathematical modeling is done by quants in finance not that easy. Nevertheless, the author strives to explain all the basic ideas in order to show more advanced issues. Generally, such a short book can provide no more than a taste and some basic results. Davis’ book may even spur interested readers to reach for a rich book like Options, futures, and other derivatives [1].

More reviews about this item: Amazon

Reviewer:  Piotr Cholda Review #: CR147127 (2105-0109)
1) Hull, J. C.; , Options, futures, and other derivatives (9th ed.). Pearson, London, UK, 2014.
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