Volume 2 of 4 · PDF edition

Volume 2: Derivative Pricing and Interest Rate Models

Move from stochastic processes and no-arbitrage pricing to Black-Scholes, simulation, finite differences, exotic options, and interest rate models calibrated to market data.

Every chapter remains free to read online. This paid edition gives you the carefully typeset PDF, companion notebooks, and every future update for this volume.

Pages
~664 pages
Chapters
16 chapters
Price
$29 one-time
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Quantitative Finance, Volume Two: Derivative Pricing and Interest Rate Models cover

Author and edition details

About the author and Volume 2 PDF edition

Michael Brenndoerfer, author of Quantitative Finance

Michael Brenndoerfer

Michael has spent more than a decade working across software engineering, data, AI, and business. He writes to understand difficult ideas more deeply and to share what he learns in a clear, practical way.

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Important: This book is for education and research. It does not provide investment, trading, legal, tax, or other professional advice, and examples are not recommendations.

Edition
Volume 2 PDF 2026.08.1
Published
Last reviewed

From method to decision

What you will learn

  • Derive risk-neutral pricing results from Brownian motion, Itô's lemma, dynamic hedging, and the no-arbitrage principle.
  • Choose between trees, Monte Carlo simulation, and finite differences for different derivative-pricing problems.
  • Model rates and price caps, floors, swaptions, and other interest rate derivatives with practical calibration constraints in view.

Audience and prerequisites

Who this volume is for

Quantitative analysts, financial engineers, and advanced students who need to understand how derivative models are built, solved, calibrated, and used.

Prerequisites: Comfort with probability and calculus is helpful. Volume 1 develops that foundation, but experienced readers can start here.

Free online preview

Start with “Black-Scholes Formula and European Option Pricing”

Closed-form solutions for European calls and puts, formula components, and basic Greeks introduction.

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Exact contents

16 chapters across 3 parts

Part V: Stochastic Calculus and Pricing Theory

  1. 01Stylized Facts of Financial Returns
  2. 02Brownian Motion and Random Walk Models
  3. 03Itô's Lemma and Stochastic Calculus
  4. 04No-Arbitrage Principle and Risk-Neutral Valuation
  5. 05Derivation of the Black-Scholes-Merton PDE
  6. 06Black-Scholes Formula and European Option Pricing
  7. 07The Greeks and Option Risk Management
  8. 08Implied Volatility and Volatility Smile

Part VI: Numerical Methods for Derivative Pricing

  1. 01Binomial Tree Option Pricing
  2. 02Monte Carlo Simulation for Derivative Pricing
  3. 03Variance Reduction Techniques in Simulation
  4. 04Finite Difference Methods for Option Pricing
  5. 05Exotic Options and Complex Derivatives

Part VII: Interest Rate Models and Derivatives

  1. 01Short-Rate Interest Rate Models
  2. 02Advanced Interest Rate Models (HJM and LMM)
  3. 03Valuation of Interest Rate Derivatives

Volume 2 PDF + notebooks

Own this ~664-page edition

Get the PDF, companion notebooks, and every future update and erratum for this volume. Your purchase is credited toward the complete edition.

  • Carefully typeset PDF
  • Companion notebooks for the included chapters
  • Future updates and errata included
  • Portable offline reading

Volume 2 of 4

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This volume or the complete book?

Volume 2: Derivative Pricing and Interest Rate Models

~664 pages focused on Part V: Stochastic Calculus and Pricing Theory, Part VI: Numerical Methods for Derivative Pricing, Part VII: Interest Rate Models and Derivatives.

$29

The complete Quantitative Finance book

All four volumes in one 3,288-page PDF with the full set of companion notebooks. Buying three distinct volumes unlocks the complete book automatically.

$79

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Also in the series

Explore the other volumes

Volume 1 · ~883 pages

Foundations and Financial Instruments

Mathematics · Equity and Fixed Income · Forwards, Futures, Options, Swaps, and Credit

Explore Volume 1

Volume 3 · ~770 pages

Econometrics, Portfolio Construction, and Risk

Econometrics · Portfolio Theory · Market, Credit, and Liquidity Risk

Explore Volume 3

Volume 4 · ~1011 pages

Quant Trading, Execution, and Deployment

Trading Strategies · Market Microstructure · Backtesting · Production Systems

Explore Volume 4

Version history

Kept current, not frozen in time

Each PDF purchase includes future editions. When the book changes, the updated copy appears in My books at no extra cost.

Current release

Edition 2026.08.1

Editorial improvements.

Earlier releases2

  1. 2026.08.0

    Editorial improvements throughout the book, with clearer explanations, refined presentation, improved plots and visualizations, and refreshed companion code.

  2. 2026.07.0

    Initial complete-book and four-volume PDF release with companion notebooks.

Educational material only. This book does not provide investment, trading, tax, or legal advice. Examples explain methods and are not recommendations.