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Title: Financial Calculus : An Introduction to Derivative Pricing by Martin Baxter, Andrew Rennie ISBN: 0-521-55289-3 Publisher: Cambridge University Press Pub. Date: 19 September, 1996 Format: Hardcover Volumes: 1 List Price(USD): $47.95 |
Average Customer Rating: 4.15 (20 reviews)
Rating: 4
Summary: Excellent introduction to mathematical finance.
Comment: I find this book definitely the best textbook available for a student with a quantitative background wishing to understand the basic ideas behind the theory of arbitrage pricing of derivative assets. Includes advanced topics such as HJM models for interest rates but remains understandable throughout the text. The book succeeds in maintaining a nice equilibrium between mathematical formalism and results of practical relevance.
One very important problem though is the TOTAL LACK of empirical examples and comments on the practical relevance of the various models introduced, which is crucial in any applied field. The text does not give any insight into the limits of the models presented and may lead the uninformed reader to jump to dangerous conclusions as to the applicability of some of the models presented.
There is also a certain amount of lack of scientific transparency involved: the reader is shown two similar-looking curves, one representing geometric Brownian motion and one representing the FTSE index as a 'justification' of the lognormal model for stock prices. The inadequacy of the lognormal model for stock prices is a well known fact with important consequences and should be mentioned in a text meant for students and beginners. For example, little is said about the volatility smile, market imperfections and related issues.
In short, this book is a good introduction to "mathematical finance" -considered as a branch of probability theory, probably the best introductory text written to this day. However it remains a book written by mathematicians with little relevance to finance or (real) financial markets.
Nevertheless, I enjoyed reading it!
Rating: 5
Summary: Absolutely top-notch
Comment: This is an elegant book for students of financial mathematics. You won't see the tedious Theorem/Proof format so common in other similar textbooks. But what it lacks in rigor it more than makes up for in other more important areas: superb writing, clear explanations and brilliant insight into the most popular valuation models. For instance, the concise but very clear derivation of the Black-Scholes formula should impress anyone who has studied the PDE-based derivation covered by Hull and others.
There is little discussion of empirical issues. This, in my opinion, was a wise choice by the authors. Any such discussion would severely dilute the strength of the book -- namely, the fundamentals of stochastic calculus applied to arbitrage pricing. For those interested in empirical features of the markets, I'd suggest "Econometrics of Financial Markets" (Andy Lo, et al).
I find it ironic that the punchline for the whole book -- a chapter on exotic option valuation where probabilistic techniques such as the reflection principle naturally come into play -- did not make it to production. But this excellent chapter is available on the errata Web page under http://easyweb.easynet.co.uk/~mw.baxter/book.html.
This book is a great place to begin study for quantitative MBA students or math students with an interest in option valuation. Supplement this book with Oksendal or Karatzas / Shreve, perhaps, for more in-depth material on stochastic calculus.
Rating: 4
Summary: Hull is much better as a first book
Comment: As a new person on the Wall Street, I picked this book after reading all reviews instead of Hull as my first book.
Reviews said undergraduates can handle this book. Wrong. Despite solid engineering background (IIT), I found this to be rather dry book. Certaily not the first book.
I have started Hull. And found that much more accessible and practically useful. Gets you into solving problems and getting answers.
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Title: Options, Futures, and Other Derivatives (5th Edition) by John C. Hull ISBN: 0130090565 Publisher: Prentice Hall Pub. Date: 03 July, 2002 List Price(USD): $146.00 |
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Title: Introduction to the Mathematics of Financial Derivatives by Salih Neftci, Salih N. Neftci ISBN: 0125153929 Publisher: Academic Press Pub. Date: April, 2000 List Price(USD): $69.95 |
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Title: Elementary Stochastic Calculus With Finance in View (Advanced Series on Statistical Science & Applied Probability, Vol 6) by Thomas Mikosch ISBN: 9810235437 Publisher: World Scientific Pub Co Pub. Date: January, 1999 List Price(USD): $39.00 |
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Title: The Mathematics of Financial Derivatives : A Student Introduction by Paul Wilmott, Sam Howison, Jeff Dewynne ISBN: 0521497892 Publisher: Cambridge University Press Pub. Date: 29 September, 1995 List Price(USD): $37.00 |
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Title: Heard on the Street: Quantitative Questions from Wall Street Job Interviews by Timothy Falcon Crack ISBN: 0970055218 Publisher: Timothy Crack Pub. Date: August, 2002 List Price(USD): $45.00 |
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