Book Description
Implementing Derivatives Models Les Clewlow and Chris Strickland Derivatives markets, particularly the over-the-counter market in complex or exotic options, are continuing to expand rapidly on a global scale, However, the availability of information regarding the theory and applications of the numerical techniques required to succeed in these markets is limited. This lack of information is extremely damaging to all kinds of financial institutions and consequently there is enormous demand for a source of sound numerical methods for pricing and hedging. Implementing Derivatives Models answers this demand, providing comprehensive coverage of practical pricing and hedging techniques for complex options. Highly accessible to practitioners seeking the latest methods and uses of models, including
* The Binomial Method
* Trinomial Trees and Finite Difference Methods
* Monte Carlo Simulation
* Implied Trees and Exotic Options
* Option Pricing, Hedging and Numerical Techniques for Pricing Interest Rate Derivatives
* Term Structure Consistent Short Rate Models
* The Heath, Jarrow and Morton Model
Implementing Derivatives Models is also a potent resource for financial academics who need to implement, compare, and empirically estimate the behaviour of various option pricing models. Finance/Investment
Customer Reviews:
Best book of implementing IR option models.......2007-09-18
Best book of implementing IR option models that I found while I was writing my masters thesis. It has full algorithms for most of the models presented and also simulations of the results. This book complemented with Interest-Rate Option Models: Understanding, Analysing, and Using Models for Exotic Interest-Rate Options (Wiley Series in Financial Engineering)is a good set to IR Option background.
Great book.......2007-01-31
Learnt a great deal from this book. I bought this because I had to learn some stuff for work, on a project. The book helped me learn the concept easily and understand the content.
good introduction.......2006-02-14
Very good introduction or summary for the most basic models that are used in the industry. However, it is not very detailed for more complicated models.
You can do it but you do not understand.......2005-10-11
This books is very valuable for equities derivatives. In particular the implementations are very clear even if it is only sketch and not real implementations.
Unfortunately it does not explain the real points behind (martingale, risk neutral). So you know how to do it but you do not know why you do it. For this you should read the Baxter.
Another bad point is that the interest rate derivatives are covered just for the single factor rate models and the HJM model and not the LIBOR-Market model which is the most useful model.
Fills a gap, but needs polish.......1999-10-13
Even more than Wilmott's book, C&S's book gets into the details of pricing derivatives. The choice of topics is truly excellent, and the copious source code included is a superb move. I am currently using this book (and others) to teach a class in Financial Programming.On the other hand, errors are frustratingly frequent. Not so much in the source code, but in the prose. It would be nice to see a floppy disk of code come with the book, a la Hull. There are no exercises in the text, which I consider to be an egregious error, because exercises are really the only way to learn the material.C&S try to make finite difference schemes seem less intimidating by expressing them in terms of probabilities (to stress the link between trees and more general lattices). This works OK for explicit schemes, but for the more important implicit and Crank Nicolson schemes is weird and unnatural. It fails to give the reader any clue as to how to do finite differencing on his own. (Their odd changes of variables don't help, either.) Wilmott's treatment of the subject of finite differencing is far superior.
Book Description
How to trade the markets by integrating Chaos Theory with market sentiment
In the first edition of Trading Chaos, seasoned trader and psychologist Bill Williams detailed the potential of Chaos Theory-which seeks to make the unpredictable understandable-in trading and it revolutionized financial decision-making. The Second Edition of Trading Chaos is a cutting edge book that combines trading psychology and Chaos Theory and its particular effect on the markets. By examining both of these facets in relation to the current market, readers will have the best of all possible worlds when trading.
Bill Williams, PhD, CTA (Solana Beach, CA), is President of Profitunity.com, a leader in the field of education for traders and investors. Justine Gregory-Williams (Solana Beach, CA) is President of the Profitunity Trading Group and a full-time trader.
Download Description
How to trade the markets by integrating Chaos Theory with market sentiment
In the first edition of Trading Chaos, seasoned trader and psychologist Bill Williams detailed the potential of Chaos Theory-which seeks to make the unpredictable understandable-in trading and it revolutionized financial decision-making. The Second Edition of Trading Chaos is a cutting edge book that combines trading psychology and Chaos Theory and its particular effect on the markets. By examining both of these facets in relation to the current market, readers will have the best of all possible worlds when trading.
Bill Williams, PhD, CTA (Solana Beach, CA), is President of Profitunity.com, a leader in the field of education for traders and investors. Justine Gregory-Williams (Solana Beach, CA) is President of the Profitunity Trading Group and a full-time trader.
Customer Reviews:
Great book - very intense.......2007-08-27
I've been looking for a book like this for a while. I first came across Bill Williams through the Metastock indicators and the Expert System. After loading an expert called "PS Fractal Trading System 2" I was amazed at the signals.
Having read through the book - I have the following quibble. There is a huge difference in the parameters of the alligator in what comes with Metastock (v9 and v10) and what the book gives. The book says the green line is 13 bar smoothed average offset 8 bars into future. Likewise the red is 8 bar offset 5, and the green is 5 bar offset 3. However this does not correspond to the Metastock indicator he provides. For the curious, the Metastock ones referred to in page 206 of book have the following values: Green: 9 period EMA of Median offset 3. Red: 15 period offset 5, and Blue 25 period offset 8
It is the right book at the right time.......2007-07-06
This book has methods to get buy signals before the lows and sell signals before the highs. This will help one sell into strength and buy into weakness. It has helped me get my positions off. I have recommended this book to all of my trading friends. It will take careful study to fully understand it. This book is original, all mechanical and all objective. The three wise men make up very powerful trading tools.
Good book.......2007-01-09
Another great book from Bill Williams!
Interesting for trend trading and for good living.
Bill Williams is the REAL DEAL.......2006-12-18
I am a BIG believer in Bill Williams and his body of work.
I have personally met with Bill, taken his home study course and even attended a private tutorial. Bill is the real deal. He is a *highly* profitable trader and Bill trades EXACTLY like he describes in his books (simplified over time, so Trading Chaos, 2nd Ed. is the LATEST and most refined method).
If you just want to trade with no other background information, Buy Trading Chaos, 2nd Edition (not this book) and start with chapter seven. When you get to the end of the book, you'll say, "That's it?!?! Than can't be it!" That's what I said. I then went on to take his home study course (13 weeks) and then went to a private tutorial. 95% of the methodology is IN THE BOOK! The more advanced stuff is for those who are scaling into positions and want more aggressive money management techniques.
Who am I to say this works? I started trading Bill's techniques from scratch. In LESS than 6 months I was up 95% in a medium sized account. I found some like-minded investors and we started our own Hedge Fund (more specifically, a commodity pool). I called Bill personally and he spoke with me at length about how I should flow into and out of my positions, etc. He went far above and beyond the call of duty. I cannot speak to how well my Pool is doing (not legal to disclose - considered solicitation of investors), so I cannot give figures of returns for the Pool.
Buy Trading Chaos 2nd Edition and then buy "New Trading Dim mentions" (his second book) and read chapters 9 - 11. Those chapters will give you more ideas of the SCOPE of just what is possible when you simplify your trading and align it with natural market tendencies (chaos principles).
Good luck and Good Trading!
-- Q
The truth about how to become a successful trader.......2006-09-01
I purchased this book because I was trading with a method that used the awesome oscillator. I figured I should know something about the person who created it. I got much more than that. The book helped me to quit focusing on trading techniques and to start looking at my own mental state for trading. Turning inward has allowed me build better confidence in myself and my method. That in turn allows me to trade with a mindset which successful traders have. The fact that the book also presents a very viable trading method is just an added bonus. This book and "Trading In The Zone" by Mark Douglas transformed my trading career.
Book Description
Value-at-risk (VaR) is a measure of market risk that has been widely adopted since the mid-1990s for use on trading floors. This is the first advanced book published on VaR. It describes how to design, implement, and use scalable production VaR measures on actual trading floors. It takes readers from the basics of VaR to the most advanced techniques, many of which have never been published in book form.
Practical, detailed examples are drawn from markets around the world, including: Euro deposits, Pacific Basin equities, physical coffees, and North American natural gas.
Real-world challenges relating to market data, portfolio mappings, multicollinearity, and intra-horizon events are addressed in detail. Exercises reinforce concepts and walk readers step-by-step through computations.
Sophisticated techniques are fully disclosed, including: quadratic ("delta-gamma") methods for nonlinear portfolios, variance reduction (control variates and stratified sampling) for Monte Carlo VaR measures, principal component remappings, techniques to "fix" estimated covariance matrices that are not positive-definite, the Cornish-Fisher expansion, and orthogonal GARCH.
* First advanced text on Value-at-Risk
* Practical, detailed examples drawn from markets around the world
* Exercises reinforce concepts and walk readers step-by-step through computations
Customer Reviews:
The Bible.......2006-03-30
I work in finance as a software developer. I had done some work with risk management and had read Jorion's book and Butler's. When I had to do my own VaR implementation, a colleague recommended Holton's book. It is amazing. The level of domain expertise is above anything else out there. It is sophisticated and well written. I thought I knew about VaR before reading Holton, but I didn't really. Now I know about VaR.
I noticed that someone has been posting negative reviews of the book here on Amazon. Those reviews are blatantly dishonest. I assume they are posted by a jealous competing author.
Holton is the bible.
Not helpful.......2005-06-27
This book looks good only at first sight. However, try and solve the exercises and you see there is more to VaR than the author wants us to believe. This book is too incoherent to be of any use. Just take a look at the index: A lot of things are introduced but are never used again later in the book. This makes me wonder why they were introduced at all. Some examples from the index: Hessian, GARCH, Markov process, etc.
The biggest fault however in my opinion is the treatment of Monte Carlo, the most essential tool for VaR calculation: Condensed in roughly 30 pages compared to roughly 110 pages for mathematical preliminaries and probability cannot cater to the same audience.
A good book on VaR.......2005-06-25
A good book on VaR, but finally lost its charming. Incomplete and solved cases in a pathetic manner. Theory: 80%, Practice: 10%, pathetic exercises 10%. This book doesn?t reflect its complete main purpose: theory and practice. I would choose mastering Value at Risk by Cormac Butler and Value At Risk by Jorion. My rate is 2 stars. Do it again. Don?t forget solved cases in spreadsheets.
A Smart Book.......2005-06-08
There are plenty of elementary books on VaR. This is an exception. It is a smart book for practitioners. It covers practicalities such as data cleaning, day counts and modeling intra-horizon events. It explains cutting-edge theory such as quadratic VaR, variance reduction techniques and holdings remappings. It introduces all the mathematics you need to know.
The prerequisites are modest -- about the same as for John Hull's book "Futures, Options and Other Derivatives." Holton does use some more advanced concepts, such as the Cornish-Fisher expansion or moment generating functions. He explains all of these before using them. Actually, he goes out of his way to make the mathematics accessible, devoting several chapters to explaining essential concepts. There are chapters on probability, statistics, the Monte Carlo Method, etc. Later in the book, whenever technical concepts come up, you will find an accompanying reference to an explanation in one of the earlier mathematics chapters. In this regard, the book is wonderfully self contained!
The author does make extensive use of matrix notation. This may take some getting used to if your background in linear algebra is limited, but it is worth it. Formulas that would be extremely complicated become simple when expressed with matrices. The author's notation is intuitive and used consistently throughout the book. If you see a symbol on page 10, it is going to mean exactly the same thing on page 310.
If you are serious about value-at-risk, this is the book to read.
no words needed - just buy it!.......2005-01-18
the ultimate resource for VAR theory and practice.
excellent writing, math and all.
don't spend time and money elsewere, just buy it!!
Book Description
A groundbreaking collection on currency derivatives, including pricing theory and hedging applications.
"David DeRosa has assembled an outstanding collection of works on foreign exchange derivatives. It surely will become required reading for both students and option traders."-Mark B. Garman President, Financial Engineering Associates, Inc. Emeritus Professor, University of California, Berkeley.
"A comprehensive selection of the major references in currency option pricing."-Nassim Taleb. Senior trading advisor, Paribas Author, Dynamic Hedging: Managing Vanilla and Exotic Options.
"A useful compilation of articles on currency derivatives, going from the essential to the esoteric."-Philippe Jorion Professor of Finance, University of California, Irvine Author, Value at Risk: The New Benchmark for Controlling Market Risk.
Every investment practitioner knows of the enormous impact that the Black-Scholes option pricing model has had on investment and derivatives markets. The success of the theory in understanding options on equity, equity index, and fixed- income markets is common knowledge. Yet, comparatively few professionals are aware that the theory's greatest successes may have been in the derivatives market for foreign exchange. Perhaps this is not surprising because the foreign exchange market is a professional trading arena that is closed virtually to all but institutional participants. Nevertheless, the world's currency markets have proven to be an almost ideal testing and development ground for new derivative instruments.
This book contains many of the most important scientific papers that collectively constitute the core of modern currency derivatives theory. What is remarkable is that each and every one of these papers has found its place in the real world of currency derivatives trading. As such, the contributing authors to this volume can properly claim to have been codevelopers of this new derivatives market, having worked in de facto partnership with the professional traders in the dealing rooms of London, New York, Tokyo, and Singapore.
The articles in this book span the entire currency derivatives field: forward and futures contracts, vanilla currency puts and calls, models for American exercise currency options, options on currencies with bounded exchange rate regimes, currency futures options, the term and strike structure of implied volatility, jump and stochastic volatility option pricing models, barrier options, Asian options, and various sorts of quanto options.
Customer Reviews:
Excellent choice of papers!.......2001-08-18
DeRosa has picked excellent papers. If one reads the papers in detail, the currency derivatives literature, as well as related derivatives literature, becomes very easy to understand.
Comprehensive.......1999-06-19
This book presents highly technical papers on diverse topics from variuous academics. It would be very helpful to anyone looking to understand theoretical aspects of FX derivatives. Since most papers are written by different authors, notation is not consistent. In addition, academics do not always write like Hemingway. Nevertheless, the book covers everyhting from vanillas to exotics very well.
Book Description
Corporate finance and corporate strategy have long been seen as different sides of the same coin. Though both focus on the same broad problem, investment decision-making, the gap between the two sides--and between theory and practice--remains embarrassingly large. This book synthesizes cutting-edge developments in corporate finance and related fields--in particular, real options and game theory--to help bridge this gap. In clear, straightforward exposition and through numerous examples and applications from various industries, Han Smit and Lenos Trigeorgis set forth an extended valuation framework for competitive strategies.
The book follows a problem-solving approach that synthesizes ideas from game theory, real options, and strategy. Thinking in terms of options-games can help managers address questions such as: When is it best to invest early to preempt competitive entry, and when to wait? Should a firm compete in R&D or adopt an accommodating stance? How does one value growth options or infrastructure investments? The authors provide a wide range of valuation examples, such as acquisition strategies, R&D investment in high-tech sectors, joint research ventures, product introductions in consumer electronics, infrastructure, and oil exploration investment.
Representing a major step beyond standard real options or strategy analysis, and extending the power of real options and strategic thinking in a rigorous fashion, Strategic Investment will be an indispensable guide and resource for corporate managers, MBA students, and academics alike.
Customer Reviews:
Right book for executives.......2007-03-20
I develop practical Game Theory Simulation Models for strategy formulations, experiments, and selection. This book provided me with a practical guide how to use Game Theory and Real Options for strategic analysis.
The use of Real Option with Game Theory was new for me.
Well written this book it is a must for executives.
[...]
Average customer rating:
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An Applied Course in Real Options Valuation
Richard L. Shockley
Manufacturer: South-Western College Pub
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ASIN: 0324259638 |
Book Description
APPLIED COURSE IN REAL OPTIONS VALUATION, offers an excellent guide to option pricing in today's fast paced business world. This innovative text not only provides the theories of option pricing but includes real-world examples and situations.
Customer Reviews:
Excellent Book.......2007-02-07
I took Dr.Shockley's RO course back in school. Dr Shockley's approach to the subject is radically different from any other book I have seen. He's actually taken the time to explain the various models and concepts in finance come together. The approach to options doesn't start with heavy derivations and equations of stochastic processes - it starts with the concepts of NPV, abritrage and leads on to options (and real options). The book is full of handy examples and solid explanations. Pick up any standard text in microeconomics (Silberberg, or Hirshleifer or Henderson and Quandt)- and you will see the one equation repeat over and over again - the First Order Condition tying in the ratio of Marginal Quantities (Costs, Utilities etc), the ratio of prices (wages etc) and the lagrangian multiplier. If finance is related to micro economics, one expects to see atleast one instance of this equation in a standard finance text. I haven't found it any - Dr Shockley's book was the first one I found that tied what we're doing in finance to the underlying concept of equilibrium as defined in microeconomics. Fama's theory of finance is the only other book (that I've looked at) that starts finance where micro left off, but then who has the time or strength to read it after a 10 hour day.
In future editions of this book, I would love to see some development of stochastic processes, the concept of filtrations, Ito's Lemma etc. Dr S can write on this subject at the level that is deeper (and more satisfying) than Wilmott, and more easy to access than say Shimko or Shreve or even Baxter. I think that will add to the value of the book - it can be the gentle introduction to some more advanced concepts, for students and busy practitioners who have very little time (even if they like it) for the math that one sees in some of the advanced derivatives book.
Thanks for putting this book together Dr Shockley!
Book Description
This volume gives language teachers, software designers, and researchers who wish to use technology in second or foreign language education the information they need to absorb what has been achieved so far and to make sense of it. It is designed to enable the kind of critical reading of a substantial literature that leads to a balanced and detailed knowledge of the field. Chapter by chapter, the book builds, through description, analysis, examples, and discussion, a detailed picture of modern CALL.
In this book, the label “CALL” is interpreted broadly to include technology-enhanced language learning, Web-enhanced language learning, and information and communication technologies for language learning. The work is distinguished by its attention to a range of languages rather than just English.
The authors first set the scene and introduce major areas of interest and growth in CALL, and then look in depth at seven important dimensions: design, evaluation, computer-mediated communication, theory, research, practice, and technology. Chapters on each of these topics include a description that reviews the recent literature, identifies themes, and presents representative projects that illustrate the dimension, followed by a discussion that provides in-depth analysis, and a conclusion offering suggestions for further work. Detailed references and links connect the description and discussion with original works and primary sources so the reader can follow up easily on areas of personal interest. Two concluding chapters discuss how the various dimensions might be brought together, the first from a practical point of view, the second with a view to the development of CALL as a whole.
Customer Reviews:
Excellent.......2007-05-12
Mike Levy, the co-author of this book, is one of the pioneers in CALL, and therefore, he will be my supervisor in doing my PhD at Griffith University, Australia.
Book Description
This book aims at a middle ground between the introductory books on derivative securities and those that provide advanced mathematical treatments. It is written for mathematically capable students who have not necessarily had prior exposure to probability theory, stochastic calculus, or computer programming. It provides derivations of pricing and hedging formulas (using the probabilistic change of numeraire technique) for standard options, exchange options, options on forwards and futures, quanto options, exotic options, caps, floors and swaptions, as well as VBA code implementing the formulas. It also contains an introduction to Monte Carlo, binomial models, and finite-difference methods.
Customer Reviews:
Most Practical Financial Engineering textbook.......2006-02-14
Dr Kerry Back in my opinion wrote one the best if not the best practical book in financial Derivatives. In such a crowded field where books are published at an exponential rate; finding a practical book is often a challenge especially since many of them repeat the same information over and over. The best feature of this textbook lies in the problems at the end of chapters. The problems are well chosen and very practical and require the use of VBA/Excel. This book does not get involved with complicated math as so many books in financial engineering do. I am doing a Phd degree in math, I deal with abstract mathematics on a daily basis so am looking for a textbook that will provide a good intuition to the concept of Derivative Securities without sacrificing too much Mathematical rigor. In this regard Dr Kerry Back did a very good job, the book requires only an understanding of non-measure probability theory, calculus, linear algebra and differential equations making it accessible to MBA students and undergraduates as well. I strongly recommend this book to math majors who want a textbook that explain Financial Derivatives well. I also recommend Stochastic Calculus for Finance II by Shreve for readers who want a measure theoric and PDE approcah to Financial Derivatives.
Book Description
Presents day traders with a systematic and rational framework for decision-making in the futures, options and equities markets. Offers complete coverage of day-trading methods including price, time and volume analysis techniques, money and position management strategies, trading systems, computerized trading tactics and much more.
Customer Reviews:
Not practical.......2004-05-22
I anxiously waited for this book to arrive and was disappointed. Though the material may apply to some traders, it was like reading a physics manual. Very little up to date practical info. Candlesticks are not discussed at all. This book may be OK for a casual look over, but there are far better books such as Profitable Candlestick Trading by Bigalow, Toni Turners books, Nissans Candlestick books, Elders books, The Disciplined Trader, The Market Makers Edge, and many others that get into the real meat if you want to learn the art of day, swing, and position trading. Trading is not a get rich quick scheme, it is not gambling, but rather a deliberate planned approach to trading stocks and futures for fun and profit. It takes a lot of hard work and years of study to be consistently successful. You are going to have to focus on the art of the trade, not the money to get it done. Reading all of the books you can find on the subject is definitely suggested. But this one, I cannot recommend.
Tried to encompass a lot, achieved none.......2003-06-29
I had rated the author's first book "Trading rules: Strategies for success" with 5 stars. I never expected such a frustration with this book.
Perhaps the trader did try to make this book as a day trader's manual by including everything he deemed fit into a 322 page book: trading psychology, rules drawn from his own experience, chaos theory and in particular many TA tools like Market Profile, Elliot Wave, Gann Fan, RSI, Stochastics and so on. He then used nearly 40% of the book in 14 cases to elaborate those tools. The problem is, though I believe it's the intent of the author to make the book as concise as possible, it's simply impossible for most, even some professionals, to grasp the usage of the aforesaid TA tools. Even worse, the cases just did not help at all.
In a word, a big disappointment for this one and I suggest those who would like to give the author a try to bet on his first book "Trading Rules: Strategies for success".
Don't waste your money as I did!.......2000-05-17
Way too much unusable information. I kept waking up throughout the book, hoping to get to the parts about day-trading I could put into practice. (It never happened)
Too much Theory.......1999-06-28
I was looking for "How To" Day trading book. Reading this book was torture. I felt Mr. Eng was trying harder to impress upon the reader his vast knowledge of the theory of economics, rather than teaching one how to day trade. I admit, I couldn't force myself to read the whole book. By the time I finished part two, feeling I'd gained nothing out of those 186 awful pages, I moved on to more exciting authors.
This book is soooo technical, it turns you off..........1999-06-15
This book looks good, had one or two good reviews. But I wasted my money on it, because it put me to sleep. Written for the older crowd, with techniques used in the 80's. Definetely did not help me much, even though I sadly read %70 of it.
Book Description
This comprehensive and self-contained treatment of the theory and practice of option pricing describes the role of martingale methods in financial modelling. The emphasis is on using arbitrage-free models already accepted by the market as well as on building new ones but in a way that makes them consistent with the finance industry's derivatives pricing practice. Standard calls and puts, together with numerous examples of exotic options such as barriers and quantos, for example on stocks, indices, currencies and interest rates, are analysed. The importance of choosing a convenient numeraire in price calculations is explained. Mathematical and financial language is used so as to bring mathematicians closer to practical problems of finance and to present to the industry useful mathematical tools.
Customer Reviews:
Excellent introductory book to financial math.......2006-11-03
This book takes you through the math of finance step-by-step, passing through very simple examples first and then slowly adding complexity to the models studied. It is written very clearly and the prerequisites to reading this book are only some basic notions of probabilities (sigma-fields, probability measures).
Sometimes, the problem with math books is that they are "dry" and contain only a succession of theorems and proofs. In this one, the authors make a point of explaining in detail how different theorems and models relate to each other, and make extensive comparisons between them so that you get a better feel for how they work in practice.
The book is primarily a math book and can be light on market specifics. Do not buy this book as a practical "howto" in derivatives trading.
At the Forefront of Modern Mathematical Finance.......2005-05-23
This advanced text provides an excellent account of the current state-of-the art of options pricing/hedging models and interest rate term structure models. The book is accessible to both advanced practitioners of mathematical finance as well as to pure researchers in the field.
The book is in written in a mathematical style and contains rigorous proofs of many results. However, the main focus of the text is to describe the frontier of knowledge in the subject. Each section contains copious references to the literature and is so current that several references are to working papers. Many sections detail open problems and other areas suitable for scholarly research.
In their second edition, the authors provide an extremely useful critique of each modeling paradigm that they investigate. They also provide evidence for their position in the form of literature references which instruct the reader as to the shortcomings/limitations of a particular model. This information should prove quite valuable to model practitioners and implementers.
The authors assume an advanced background from the field of stochastic analysis, although they do provide an appendix which summarizes key results needed from the field. For the stochastic calculus prerequisites, I recommend Rogers & Williams "Diffusions, Markov Processes and Martingales" volumes I and II. Suitable prerequisites are also covered by Karatzas and Shreve in "Brownian Motion and Stochastic Calculus" 2nd edition. A good foundation in arbitrage pricing theory is also needed. I recommend the nice treatment by Bjork in "Arbitrage Theory in Continuous Time" 2nd edition.
The book is divided into two parts. The first part deals with options pricing in equity markets. Chapter 1 sets premlinaries required for the arbitrage theoretic framework, while Chapter 2 has a very nice treatment of discrete time models and finite financial markets.
In Chapter 3, the authors develop the Black-Scholes model along with the Bachelier model using arbitrage techniques. The models are compared and used as benchmark continuous time models and form the basis for all subsequent analysis.
Chapter 4 provides a nice survey of techniques used to price/hedge options in foreign equity and currency markets. The authors assume familarity of the basic workings of foriegn markets.
Chapter 5 is a terrific chapter on valuing American-style options. The American call option is thoroughly studied and approximation techniques for the American put option are introduced. The explicit derivations of the formulas are referenced to the literature.
Chapter 6 provides an introduction to exotic options, although the authors vary their use of the term 'exotic' to meaning 'not a standard European-style or American-style' in this chapter to meaning 'no readily available liquid market' in Chapter 7. The descriptions are quite accessible and the basic properties of the options are described along with pricing formulas (assuming the Black-Scholes framework).
Chapter 7 provides as complete an accounting as I have ever seen of the generalizations of the Black-Scholes model and motivates this from the point of view of volatility surfaces. Many of the well-known models are studied in detail, such as CEV, local volatility, and mixture models. The strengths and weaknesses of each model are analyzed. The stochastic volatility models of Wiggins (via Orenstien-Uhlenbeck processes), Hull-White, and Heston are studied, as is the SABR model. The chapter wraps up with a study of the SIV models, describes how the stochastic volatility models can be obtained via limits of GARCH models and surveys Jump-diffusion processes and Levy processes.
The second part of the book is concerned with term structure models and interest rate derivatives. The authors are quite well-know for their many contributions to this study and their treatment is authoritative.
Martingales & Finance.......2003-04-12
I have used this book for two courses in my MSc degree in Financial Maths...well this book is hard to understand at first glance, but, once you are introduced with a good course on stochastic analysis and applied probability, this is an illuminating book...I particularly enjoyed the part on foreing equity derivatives and exotic derivatives.....Harmed with patience this is definitely the book by which you can effectively gain a sound a knowledge on modern mathematical finance theory....reading in conjunction with Bingham-Kiesel book, could help understanding the foundation of the subject.
yes, but ..........2000-03-17
I've been using this book on and off over the last year. At first I was very impressed with the level of detail in the mathematics, especially as it was the only book at the time focussing on risk-neutral methods and covering BGM. But I've become increasing disillusioned with it of late. It's difficult to explain, but although the whole book is written in traditional theorem-proof style, there are no real proofs! (I have a PhD in math and have done research for 10 years so I should know a little about proofs.) The only "proofs" provided are basically symbol shifting, but the heart of the math is strangely absent. This is especially strange given the Springer series in which it appears.
In short, if you want a catalogue of methods this book does the job, but if you want a deeper understanding try Lars Nielsens book.
excellent book for post-John-Hull readers.......1999-08-17
This book covers essentially everything needed for a serious financial math study. It captures the spirit of modern financial math. For people with math, physics or engineering background, when you feel comfortable woth John Hull's books, then this book is right one, and a must one.
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