Using a financial-engineering approach, this volume demonstrates how to take the basic ideas of arbitrage theory and apply them to the design and analysis of financial products. It develops the theory progressively, focusing on specific relations between financial instruments in the cash, forward and options markets. The authors describe the nuances between theoretical and practical uses of mathematical models in day-to-day trading, and discuss specific risks, like pin risk and stop-loss risk, and their relation with dynamical hedging and mathematical models.