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Probability theory textbook: Secret weapon or red herring?

Posted 02-01-2009 at 01:33 AM by Marid Audran

As interesting as the Rosenthal probability text is to me, I wonder whether I'm doing myself a disservice by spending much time on it. My hope is that I'll better understand the underlying theory (e.g., measure theory) and thus be better equipped to do challenging exam problems (not to mention being more ready to actually use probability in the workplace). But it's clear that others have tried to understand the deeper theory too and mostly found it unnecessary (see, for example, this thread on Ito's...
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and another!

Posted 01-26-2009 at 12:52 AM by Marid Audran

ASM MFE manual, after noticing that they don't know when they'll ship the Rosenthal.

The part-time teaching gig has caused a (hopefully temporary) delay in ramping up my studies. I think that if I am to break into this industry that I'll have to get a better handle on that--as Gilda Radner said, "There's always something."
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Just ordered another book

Posted 01-25-2009 at 01:34 AM by Marid Audran
Updated 01-25-2009 at 01:41 AM by Marid Audran

I believe McDonald, Derivatives Markets, has a deserved reputation for being unclear about the probability/statistical theory. I browsed A First Look at Rigorous Probability Theory, by Jeffrey Rosenthal, at an area college library, and got a good impression. After trying to read McDonald on Ito's Lemma and related subjects today, I broke down and ordered the Rosenthal*. Mind you, I'm coming from a theoretical math background--others might not need or be interested in what's in that book.
...
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Binomial option pricing: forward price must lie in between "up" and "down" prices

Posted 01-06-2009 at 11:03 PM by Marid Audran

Formula (10.4), p. 317, states that
where u,d are what today's spot price will be multiplied by in case the stock price goes up or down, respectively; r is the risk-free rate; is the dividend rate; and h is the time period length. Exercise 10.21, p. 341, asks you to show that there are arbitrage opportunities if one of these inequalities is violated. The most concise solution, I think, is to use Formula (5.7), p. 134:
...
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Area newbie searches forum before posting a question, finds answer

Posted 01-03-2009 at 05:53 PM by Marid Audran
Updated 01-03-2009 at 06:12 PM by Marid Audran

(headline in the style of The Onion)

I had occasionally searched forums in the past, only to find either (a) nothing or (b) a set of three dozen links, none of which exactly answered my question.

I was wondering about a certain passage in McDonald, Derivatives Markets. So, with some reluctance, I searched the forum--and lo and behold I found a thread about the precise passage I was confused about, including sensible explanations.

Film at 11
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