New Edition 2006

Since April 2006, the third edition of "Tools for Computational Finance" is available.

The appendices were organized in a different way, and extended. In this way, more background material, more jargon and terminology are provided in an attempt to make this book more self-contained. New figures, more exercises, and better explanations improve the clarity of the book, and help bridging the gap to finance and stochastics.

The largest addition is a new section on analytic methods (Section 4.8). Here we concentrate on the interpolation approach and on the quadratic approximation. In Chapter 4, more emphasis is placed on extrapolation and the estimation of the accuracy. Some material is devoted to risk-neutrality. The analysis and geometry of early-exercise curves is discussed in more detail. In the appendix, the derivations of the Black-Scholes equation, and of a partial integro-differential equation related to jump diffusion have been rewritten. An extra section introduces multidimensional Black-Scholes models. Hints on testing the quality of random-number generators are given. And again more material is devoted to Monte Carlo simulation. The integral representation of options is included as a link to quadrature methods. Finally, the references are updated and expanded.

Contents
Index

number of pages: 299 (second ed.: 240, first ed.: 224)
number of exercises: 68 (second ed.: 53, first ed.: 49)
number of figures: 74 (second ed.: 58, first ed.: 52)