Copula Methods in Finance

Preface.List of Common Symbols and Notations.1 Derivatives Pricing, Hedging and Risk Management: The State of the Art.1.1 Introduction.1.2 Derivative pricing basics: the binomial model.1.2.1 Replicating portfolios.1.2.2 No-arbitrage and the risk-neutral probability measure.1.2.3 No-arbitrage and the objective probability measure.1.2.4 Discounting under different probability measures.1.2.5 Multiple states of the world.1.3 The Black-Scholes model.1.3.1 Ito's lemma.1.3.2 Girsanov theorem.1.3.3 The martingale property.1.3.4 Digital options.1.4 Interest rate derivatives.1.4.1 Affine factor models.1.4.2 Forward martingale measure.1.4.3 LIBOR market model.1.5 Smile and term structure effects of volatility.1.5.1…