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Financial Modelling with Jump Processes (Chapman and Hall/CRC Financial Mathematics Series) 1st Edition

by Rama Cont (Author), Peter Tankov (Author)
4.6 out of 5 stars 10 ratings
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WINNER of a Riskbook.com Best of 2004 Book Award! During the last decade, financial models based on jump processes have acquired increasing popularity in risk management and option pricing. Much has been published on the subject, but the technical nature of most papers makes them difficult for nonspecialists to understand, and the mathematical tools required for applications can be intimidating. Potential users often get the impression that jump and Lévy processes are beyond their reach. Financial Modelling with Jump Processes shows that this is not so. It provides a self-contained overview of the theoretical, numerical, and empirical aspects involved in using jump processes in financial modelling, and it does so in terms within the grasp of nonspecialists. The introduction of new mathematical tools is motivated by their use in the modelling process, and precise mathematical statements of results are accompanied by intuitive explanations. Topics covered in this book include: jump-diffusion models, Lévy processes, stochastic calculus for jump processes, pricing and hedging in incomplete markets, implied volatility smiles, time-inhomogeneous jump processes and stochastic volatility models with jumps. The authors illustrate the mathematical concepts with many numerical and empirical examples and provide the details of numerical implementation of pricing and calibration algorithms. This book demonstrates that the concepts and tools necessary for understanding and implementing models with jumps can be more intuitive that those involved in the Black Scholes and diffusion models. If you have even a basic familiarity with quantitative methods in finance, Financial Modelling with Jump Processes will give you a valuable new set of tools for modelling market fluctuations.
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  1. ISBN-10
    1584884134
  2. ISBN-13
    978-1584884132
  3. Edition
    1st
  4. Publisher
    Chapman and Hall/CRC
  5. Publication date
    December 30, 2003
  6. Part of series
    Chapman and Hall/CRC Financial Mathematics
  7. Language
    English
  8. Dimensions
    6.25 x 1.25 x 9.25 inches
  9. Print length
    552 pages
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Editorial Reviews

Review

"Pardon the pun, but I jumped at the opportunity to endorse this book. This book is the first complete treatment of markets rendered incomplete by the reality of jumps in prices and volatilities. If I were you, I would pounce." -Dr. Peter Carr, Head of Quantitative Research, Bloomberg LP and Director of Masters Program in Mathematical Finance, NYU "This book is an extremely rich source of information…the content speaks for itself…" -ISI Short Book Reviews "This book is an extremely rich source of information for recent developments in the use of jump processes in financial modelling, in particular the use of Levy processes. The authors work at a comfortable mathematical pace choosing carefully which proofs to include and exclude and never losing sight of financial interpretation and application. "The authors conclude the main body of their text by saying: 'We hope that the present volume will encourage more researchers and practitioners to contribute to this topic and improve on our understanding of theoretical, numerical and practical issues related to financial modelling with jump processes'. I am quite convinced that this goal will be achieved." -Dr. Andreas E. Kyprianou, International Statistics Institute book reviews "What makes this book attractive is its comprehensiveness. … this is an excellent book. Read it. You will learn much." -Glyn A. Holton, Contingency Analysis "One of the first texts which is entirely devoted to option pricing with non-continuous jump-type stochastic processes … an easygoing presentation where the basic problems of jump models are not additionally obscured by technicalities." -Journal of the Royal Statistics "I love this book. It will be required reading for students entering Levy finance. My judgment is that it will be useful both within academia, particularly to people in stochastics, econometrics, and other fields wanting to develop an interest in finance, and to practitioners." -N.H. Bingham, Journal of the American Statistical Association

About the Author

Rama Cont, Peter Tankov

Product details

  • Publisher ‏ : ‎ Chapman and Hall/CRC
  • Publication date ‏ : ‎ December 30, 2003
  • Edition ‏ : ‎ 1st
  • Language ‏ : ‎ English
  • Print length ‏ : ‎ 552 pages
  • ISBN-10 ‏ : ‎ 1584884134
  • ISBN-13 ‏ : ‎ 978-1584884132
  • Item Weight ‏ : ‎ 1.95 pounds
  • Dimensions ‏ : ‎ 6.25 x 1.25 x 9.25 inches
  • Part of series ‏ : ‎ Chapman and Hall/CRC Financial Mathematics
  • Customer Reviews:
    4.6 out of 5 stars 10 ratings

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Rama Cont

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4.6 out of 5 stars
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Top reviews from the United States

  • Da Yooper
    5.0 out of 5 stars A wonderful book on Levy process
    Reviewed in the United States on January 4, 2006
    Verified Purchase
    The authors not only understand the math, but also integrate the math with financial economics well. I think Levy process is the way to go in the next decade. For example, fundamentally speaking, Brownian motion cannot explain the equity premium puzzle, hence people resort to other factors, such as incomplete market, behaviors, prospect theory, etc. However, behavioral explanations cannot stand in the long run. Prospect theory may reveal what a "normal" person usually do, but once it is revealed, a normal person can get "smarter" and overcome his/her impetus in making suboptimal decisions. Then behavioral andirrational explanation will fail (eventually). One thing I found from my own research is that the Levy process may be an important yet often ignored factor that can explain unexplained issues in finance, hence we do not have to reply on shaky behavioral and irrational arguments. One last point, behavioral can be either rational (good, correct and acceptable) or irrational (bad and should be got rid of. This would be the long long journey for a person who has deep beliefs in science).
    7 people found this helpful
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  • Edoardo Angeloni
    5.0 out of 5 stars The strong quality for a mathematical view in economics
    Reviewed in the United States on January 8, 2010
    Verified Purchase
    This book is an approach to economics in according to a very strong mathematical structure.
    It is simply to explicate the concept why Tankov apply the Lévy processes.
    The Black-Scholes theory is failed and we use the existence of jump to approximate better the financial phenomena.
    One person found this helpful
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  • Quantastic
    5.0 out of 5 stars Great Stuff
    Reviewed in the United States on March 1, 2017
    Verified Purchase
    Excellent coverage of topics. Rama is a true expert in his field.
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  • Freddy
    5.0 out of 5 stars NOT Too much focus on the mathematics
    Reviewed in the United States on March 6, 2006
    There is JUST the right amount of mathematics! Around every mathematical expression, there is a long discussion to explain what's going on. This is the best book there is on applications of Levy processes to finance, no question about it ...
    6 people found this helpful
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  • Ann
    2.0 out of 5 stars Too much focus on the mathematics
    Reviewed in the United States on February 8, 2004
    I miss the step to practice and would like to see these mathematical formulas work. For me it contained too much (unuseful) mathematics and proofs. Good maybe for mathematicians, but for banking people on the edge of being unreadable. It is very time consuming to browse more then 500 pages and then still to have to work out all details to implement things. Also the stochastic volatily models are too briefly covered.
    8 people found this helpful
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  • Academic
    4.0 out of 5 stars Impressive book with a hiccup
    Reviewed in the United States on October 15, 2004
    A book dealing comprehensively with discontinuous asset prices has long been overdue. This is a first attempt to fill the gap in a manner both rigorous and accessible. The reason why it has taken so long for a book of this kind to appear is that price jumps give rise to a host of issues that are simply not present in continuous models such as Black-Scholes. The authors tackle most of them admirably. The book also contains valuable comprehensive bibliography.

    Every pioneer can make a mistake. The authors do not shy away from very complicated questions, such as (locally) optimal hedging in the presence of jumps. I'm afraid they haven't done their homework properly in this case. They claim on page 339 "the minimal martingale measure preserves orthogonality", which happens to be true for continuous price processes but it is false in most models with jumps. Pages 340 and 341 go on to compute the locally risk minimizing hedging coefficients based on the false premise. I hope this can be fixed in the next edition.
    21 people found this helpful
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Top reviews from other countries

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  • Daniele
    5.0 out of 5 stars Ottimo libro
    Reviewed in Italy on March 2, 2012
    Verified Purchase
    Un ottimo volume, anche se contiene molti errori (ma su internet si trovano gli errata corrige). La seconda edizione è promessa da tempo, dovrebbe forse uscire quest'anno.
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  • Severus
    5.0 out of 5 stars Great book, great print
    Reviewed in Germany on November 19, 2020
    Verified Purchase
    The book is great, but that’s widely known. Along with Wim Schoutens‘s book, it’s considered THE standard reference for jump processes in finance.
    I was extremely worried about the print quality, but was pleasantly surprised when the book arrived. The preview here on Amazon suggests that the print is horrible, like an ebook where formulas are low resolution images that are not always in line. The Google Books preview is the same. However, the printed book I received is good, typeset with LaTeX.
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  • CorMag
    5.0 out of 5 stars Super!
    Reviewed in Germany on July 23, 2008
    Verified Purchase
    Meiner Ansicht nach das beste Buch über Sprung Prozesse und ihre Anwendung im Financial engineering.
    Das Buch ist in vier Abschnitte eingeteilt: Mathematische Handwerkszeug, Simulieren und Schätzen von Levy Prozessen, Option Pricing mit Levy Modellen und weiterführende Modelle und Erweiterungen. Schon das einführende Kapitel gibt einen sehr guten Überblick über die Materie und illustriert den "philosophischen" und für die Praxis relevanten Unterschied zu kontinuirlichen Modellen. Grossartiges Kapitel. Märkte sind unvollständig und gehören auch so modelliert! Es folgt die übliche Einführung in Stochastik und stochastische Prozesse. Fand ich auch sehr gelungen, aber nicht unbedingt besser als in anderen Büchern. Die Abschnitte über das simulieren und schätzen von Levy Prozessen und Option Pricing mit Levy Prozessen sind das Herzstück des Buches. Klasse!

    Fazit: Das Buch ist geht ordentlich in die Tiefe ist aber denoch auch für nicht-Mathematiker geeignet (ein bisschen Ehrgeiz muss man aber schon mitbringen). Vorkenntnisse in stochastic calculus sind meiner Ansicht nach jedoch nicht nötig. Wer paralell noch ein paar Paper von Carr und Madan liest, hat meiner Meinung nach einen recht ordentlichen Überblick über die Thematik. Sehr gutes Literaturverzeichnis zur weiteren Vertiefung. Sehr gutes Buch!!!
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