Quantitative Finance

Chapter 1

Introduction

This is an introductory book on financial mathematics. It is neither mathematically rigorous nor incredibly realistic about actual markets. It is designed to be a book that helps its reader to gain a certain amount of practice with the basic techniques of financial mathematics, but more importantly, to gain significant intuition about what they are, what they mean, how they work, and, perhaps, most importantly, what happens when they stop working.

To me, the whole beautiful idea of financial mathematics is that it recognizes that risk is something that can be shaped and altered. This idea is the source of many of the most famous ideas of financial mathematics, from Markowitz’s mean variance portfolio theory, to the Black ...