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Stochastic Financial Mathematics

In: Money and Mathematics

Author

Listed:
  • Ralf Korn

    (TU Kaiserslautern)

  • Bernd Luderer

    (TU Chemnitz)

Abstract

We give an overview of basic notions from probability theory including discrete probability distribution and probability distributions with density. We explain the Law of Large Numbers, the central Limit Theorem as well as the Theorem of de Moivre-Laplace. Moreover, stochastic modeling of stock prices is described with a special focus on geometric Brownian motion. Further, we give an insight into mathematical foundations of option pricing (e.g. the risk-neutral market model and the Black-Scholes formula).

Suggested Citation

  • Ralf Korn & Bernd Luderer, 2021. "Stochastic Financial Mathematics," Springer Texts in Business and Economics, in: Money and Mathematics, chapter 66, pages 295-308, Springer.
    • Handle: RePEc:spr:sptchp:978-3-658-34677-5_66
    DOI: 10.1007/978-3-658-34677-5_66
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