Diagrams or Figures in Stochastic Finance

[Griffiths]

Hi, ALL!
I am an Economist and have no deep background in Advanced Maths but have VBA and Finance background. I am interested in the Financial Engineering program but I find it more difficult especially when it comes to Stochastic processes in Finance. When I read the comments from this forum it seems that almost everyone is interested in programming languages and not Stochastic Processes in Finance. Stochastic processes use the Set and Measure Theory or convergence as a base to understanding its theories. I think it can be easier for a person who has no thorough Maths background to see more diagrams or figures in discrete- and continuous-time Stochastic Finance. Can anyone help me with the material that has many diagrams or figures on Stochastic processes with Applications to Financial Markets. Please recommend textbooks or reading material.
Thanx.

 

[ritesh]

Hi Griffiths,

I think I am too in the same boat as about learning stochastic processes in Finance. There are good textbooks by Steven Shreve on stochastic calculus which uses Measure theory as the starting point. Instead I prefer starting with - Introduction to Mathematics of Financial Derivatives by Salih Neftci ...That seems as a good starting book.

 

[Sanket Patel]

I would highly recommend Neftci's "An Introduction to the Mathematics of Financial Derivatives." Paul Wilmott is also quite a pedagogue. Check out Wilmott's "Mathematics of Financial Derivatives." And if you really have some time, read his 3-volume set, "Paul Wimott on Quantitative Finance."

The 3 books I mentioned should be easier to read Shreve, but you will to read Shreve at one point or another. Shreve 1 & II will essentially form the foundation for the stochastic calc you will be using for graduate study.

 

[alain]

Hi, ALL!
I am an Economist and have no deep background in Advanced Maths but have VBA and Finance background. I am interested in the Financial Engineering program but I find it more difficult especially when it comes to Stochastic processes in Finance. When I read the comments from this forum it seems that almost everyone is interested in programming languages and not Stochastic Processes in Finance. Stochastic processes use the Set and Measure Theory or convergence as a base to understanding its theories. I think it can be easier for a person who has no thorough Maths background to see more diagrams or figures in discrete- and continuous-time Stochastic Finance. Can anyone help me with the material that has many diagrams or figures on Stochastic processes with Applications to Financial Markets. Please recommend textbooks or reading material.
Thanx.

Stochastic calculus and Measure theory is the base for everything and I know it is very abstract. I don't think a figure would help since the nature of problem is "stochastic". Hence it's driven by probabilities. There is no easy way or short cut to learn this stuff. My advice is to hit Shreve I and II. Also, we used a liitle book in measure theory which I find very good and concise but it's really abstract and all full of Math. The authors are Jacod and Procter. This book will cement the foundation. Good Luck!!

 

[bigbadwolf]

Please recommend textbooks or reading material.

Shreve Vol. 2 (Stochastic Calculus for Finance) is the bible for quants. It's so beautifully written, e.g., the proof that Brownian motion is continuous everywhere but differentiable nowhere. Shreve has also co-authored a couple of books with Karatzas, including one titled Methods of Mathematical Finance (I think), but it's difficult to recommend these books as they're meant more for mathematicians. Another book I've found useful and sufficiently rigorous is Klebaner's Introduction to Stochastic Calculus with Applications.

 

[Griffiths]

Thank You Quantneters. I appreciate all your recommendations. I hope this can be a very good idea to try to present stochastics in diagrams as they are all based on sets symbols e.g. sample space, measurable space, probaility space. I don't think there is no way for shortcuts to stochastic processes, it can be there if given more attention. For quant students or researchers, here is a topic that needs to be explored. I welcome more input

 

[Vic_Siqiao]

start from basic math, especially real analysis/ measure theorem, then stochastic process.

to learn math, first u need to have the interest, then everything is becoming clear after ur hard work.

 

[Sanket Patel]

start from basic math, especially real analysis/ measure theorem, then stochastic process.

to learn math, first u need to have the interest, then everything is becoming clear after ur hard work.

That is very true.

Griffiths,

If you decide to pick an Analysis book, I highly recommend "Yet Another Introduction to Analysis" by Victor Bryant.