UK Nonlinear News Book Review

An Introduction to Financial Option Valuation:
Mathematics, Stochastics and Computation

D. J. Higham

Cambridge University Press 2004, 0-521-547571, 24.99 (paperback); 0-521-838843 , 50 (hardback), 296 pages

Another textbook for undergraduate mathematical finance? The question was prompted by the impression that there were too many already. So when some time became available and I began to read through, I came to the task with the feeling that I ought to be elsewhere. Well, these feelings were cancelled by a well organized and well written text. The book "does what it says on the cover", is written in plain English and I think is an excellent introductory text. It will be useful to students from a wide range of backgrounds and an essential complement to the standard undergraduate course which embeds mathematical finance into probability theory. Finally, with it being studded with references, it provides an easy entry into deeper material.

Professor Higham has carefully restricted the scope of this book. There is little explicit material on interest rates, for example. However, the text gets as far as American style securities and some of the more exotic options. For the reviewer, a pure mathematician, the discussion of numerical approximation and the use of Matlab routines for illustrating key ideas was most welcome. There is a web site for the book containing Matlab code, online solutions for some of the exercises, colour versions of some of the figures, errata and so on. All in all, this is a much bigger book than it appears.

Chris Barnett,
Imperial College London.

UK Nonlinear News would like to thank Cambridge University Press for providing a copy of this volume for review.