7.4 Recommended Literature

The classical papers of Black and Scholes (1973) and Merton (1973) which established modern derivatives pricing theory are worth reading. As does this book, Wilmott et al. (1995) present an extensive introduction to mathematics of financial derivatives without martingale theory. Two influential works contributing to modern financial mathematics but which apply more advanced results of the theory of stochastic processes are Harrison and Pliska (1981) and Delbaen and Schachermayer (1994). A discussion of the mathematical foundations of absence of arbitrage is given by Jensen and Nielsen (1996). Korn and Korn (1999) and Korn and Korn (2001) provide a compact introduction to modern financial mathematics. For the advanced mathematician Duffie (1996) and Baxter and Rennie (1996) represent good starts into derivative pricing using martingale theory. Korn (1999) puts the focus on problems arising in hedging and portfolio optimization.