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Financial Modelling with Jump Processes (Chapman & Hall/CRC Financial Mathematics Series)

By: Rama Cont Peter Tankov
Binding: Hardcover
Publisher: Chapman & Hall
ISBN: 1584884134
ISBN-13: 9781584884132
Released: 30 Dec 2003
RRP: £49.99
Average Rating:

Customer Reviews

Impressive book with a hiccup - By: , 15 Oct 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 & 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 (locallly) optimal hedging in the presence of jumps. I'm afraid they haven't done their homework properly in this case. They claim near the bottom of 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 & 341 go on to compute the locallly risk minimizing hedging coefficients based on the false premise. I hope this can be fixed in the next edition.