Chapter 1
Financial Preliminaries
The first three chapters constitute Part I of this book and provide the necessary financial, mathematical and statistical background upon which later chapters on pricing exotic options depend. As an introductory text, the book aims to present a comprehensive treatment of exotic option pricing in the Black–Scholes (BS) framework. Readers who are familiar with this background may skip directly to the applications in Part II and refer back to relevant sections of Part I when necessary.
Part I is divided into three sections: the Financial Preliminaries, the Mathematical Preliminaries and Gaussian Random Variables. The Financial Preliminaries include important concepts such as the no-arbitrage principle, static replication ...
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