The idea of writing this bookarosein 2000when the ?rst author
wasassigned to teach the required course STATS 240 (Statistical Methods
in Finance) in the new M. S. program in ?nancial mathematics at
Stanford, which is an interdisciplinary program that aims to provide a
master's-level education in applied mathematics, statistics, computing,
?nance, and economics. Students in the programhad di?erent backgroundsin
statistics. Some had only taken a basic course in statistical inference,
while others had taken a broad spectrum of M. S. - and Ph. D. -level
statistics courses. On the other hand, all of them had already taken
required core courses in investment theory and derivative pricing, and
STATS 240 was supposed to link the theory and pricing formulas to
real-world data and pricing or investment strategies. Besides students
in theprogram, thecoursealso attractedmanystudentsfromother departments
in the university, further increasing the heterogeneity of students, as
many of them had a strong background in mathematical and statistical
modeling from the mathematical, physical, and engineering sciences but
no previous experience in ?nance. To address the diversity in background
but common strong interest in the subject and in a potential career as a
"quant" in the nancialindustry,
thecoursematerialwascarefullychosennotonlytopresent basic statistical
methods of importance to quantitative ?nance but also to summarize
domain knowledge in ?nance and show how it can be combined with
statistical modeling in ?nancial analysis and decision making. The
course material evolved over the years, especially after the second
author helped as the head TA during the years 2004 and 2005.
