Applied Math for Derivatives: A Non-Quant Guide To The Valuation And Modeling Of Financial Derivatives [Hardcover]

John Martin (Author)

Book Description

Publication Date: June 22, 2001 | Series: Wiley Finance

A handy guide/reference for investors, analysts, and students, Mathematics for Derivatives provides an integrated approach to the valuation of financial derivative instruments for a wide range of asset classes. Featuring a user-friendly format, it was designed to be used as both a step-by-step guide to derivative pricing for beginners, and a handy quick-reference for experienced market practitioners in need of a refresher on the intricacies of a specific instrument. Offering comprehensive coverage of derivative instruments, simple valuation methods, and many detailed examples, this book is sure to be warmly received by professional investors, fund managers, brokers, risk managers, analysts, financial software developers, and all who need a working knowledge of the mathematical techniques used in the derivatives industry.
John Martin (Australia) has worked, taught and published extensively in the areas of treasury, derivatives and financial risk management. He was closely involved in the development of the derivatives industry in Australia in roles varying from market trader, risk manager, regulator and educator. He is a Partner at PricewaterhouseCoopers in Australia.

Editorial Reviews

From the Inside Flap

Applied Math for derivatives offers a guide to the economics and valuation of financial derivative instruments which does not require a math degree to understand. It is deliberately targeted at those practitioners and students who wish to move beyond the algebra to the actual implementation of pricing and valuation models - often the difficult part of any derivative modelling exercise. Detailed coverage is provided for forwards, futures, swaps and options across interest rate, currency and equity markets.The book provides a ?hands on? guide to the deconstruction of derivative instruments into their underlying building books based on the fundamental principals of valuation: the ?law? of equivalent value; the time value of money; and modelling uncertainty.The book develops more than eighty operational derivative valuation models from first principals covering forwards, swaps and options.

A disk accompanies the book, which provides working spreadsheet models for all of the major instruments as well as addressing risk management issues such as delta hedge effectiveness and new issue arbitrage. In addition to the detailed information on valuation, the book also provides insights into the drivers behind the development of derivative markets and handy hints on the construction of valuation models.

About the Author

John Martin is the partner responsible for PricewaterhouseCoopers? Australian/NZ Financial Risk Management practice. He has been extensively involved in the development of the risk management and derivatives industry in Australia and has written numerous publications in the areas of risk management, derivatives, real options, deregulation of the electricity industry and performance measurement. John has undertaken consultancy assignments with major corporations and Government instrumentalities in the Asia Pacific region. John has also been a pioneer in the development and implementation of ?at risk? measurement methodologies for non-financial corporations.Before joining PwC, John has held positions with the Reserve Bank of Australia, Commonwealth Bank, TNT Limited, Sydney Futures Exchange, Oakvale Capital. These roles have varied from economist, derivatives trader, risk manager, quantitative analyst to consultant.John has a Bachelor of Economics with Honors and has held positions as a National Council member of the Finance and Treasury Association, Chair of the Securities Institute Financial Risk Management Masters Program and Lecturer at the University of NSW School of Banking & Finance, Master of Finance Program.

Product Details

• Hardcover: 480 pages
• Publisher: Wiley; 2 edition (June 22, 2001)
• Language: English
• ISBN-10: 0471479020
• ISBN-13: 978-0471479024
• Product Dimensions: 7.3 x 1.2 x 10.4 inches
• Shipping Weight: 2.6 pounds (View shipping rates and policies)
• Average Customer Review: 1.7 out of 5 stars  See all reviews (3 customer reviews)
• Amazon Best Sellers Rank: #1,050,640 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

19 of 20 people found the following review helpful:

3.0 out of 5 stars Simple explanation of derivatives valuation done on Excel, August 6, 2001

By 

Reader from New York (New York City, NY) - See all my reviews

This review is from: Applied Math for Derivatives: A Non-Quant Guide To The Valuation And Modeling Of Financial Derivatives (Hardcover)

I agree with the Mr. Phillips about this book merely presenting the basic valuation equations, but I think that is the beauty of this book. Notice the title made a reference to this book beeing intended for 'non-quants'. However this book still provide 'quants' a valuable reference guide when one needs to brush up on the mechanics of a given derivative valuation.

This book is written from a risk-management practitioner point of view and as such it goes in great length in not just showing the different valuation models, which include most of the models in practice, but also the working mechanism of the specific securities market, and the associated exchange and clearing house settlement procedure. The key strong point of this book is that the author wrote every section of the book with conciseness and to the point. Each instrument's characteristics are presented, the associated equations are explained, and the spreadsheet models are shown in detail (included with the accompanying disk). After reading the book one is left with the feeling that finance is really this simple, involving setting the appropiate model to go with the relevant parameters,

One point regarding the editing: it was simply a great pleasure to browse this book. The clean layout of the book, the consistent sequence of presentation of the materials for all the instruments, and the detailed explaination of each of every equation (all the equations all the cells are shown) allows the reader to follow and comprehend the material with ease.

The contents of the books: market mechanism, valuation and model of interest rate forward, foreign exchange forward, equity forward, interest rate swap (the author is really an expert in these types of intruments, showing models of single-rate bond valuation method, simple offset valuation method, zero-coupon yields bootstrapping, zero-coupon yields: forward rate reinvestment, futures strip swap pricing, forward rate offset valuation method, zero-coupon valuation method), cross-currency swaps, equity swaps, equity options, interest rate options, currency options. The disk includes major valuation models of all the derivatives.(most requires just Excel 4.0 version)

Update: Since this book was published over a year ago, many other fine derivatives books have been published. However its straightforward simplicity still makes it a valuable part of a risk manager's personal library. One minor objection even at [...]its list price it is still priced a tad [...] for an introductory/intermediate level textbook. Anyone more quantitative-oriented, might want to check Cuthbertson's Financial Engineering and Risk Management. Comes with software and real life application examples.

1.0 out of 5 stars Dated, Error-Laden, and Useless, June 17, 2011

By 

David S. Butler, Jr., ASA-BV, CPA "David" (Omaha, NE) - See all my reviews

Amazon Verified Purchase

This review is from: Applied Math for Derivatives: A Non-Quant Guide To The Valuation And Modeling Of Financial Derivatives (Hardcover)

I abandoned this book after chapter 4 because of the plethora of errors: typos in the text and errors in the Excel models. The book came with an old 3"x3" "floppy" and was written using Excel 97. The website for the book is inactive. The more serious problem, however, was that the book does not use VBA for modeling, thus making the spreadsheets needlessly cumbersome.

Far better to learn elementary derivatives modeling in Excel would be Rees's Financial Modeling in Practice (2010) and Staunton & Jackson's Advanced Modelling in Finance Using Excel and VBA (2001). The latter suffers from a slight drawback of using Excel 2003, so the macros won't open in Excel 2007. However, you can either use a hot patch from Microsoft's website or (better yet) recreate the macros from scratch yourself.

4 of 7 people found the following review helpful:

1.0 out of 5 stars Just the facts.. and little else, September 10, 2002

By 

Mic Hael G. Phillips (New York, NY) - See all my reviews
(REAL NAME)   

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This review is from: Applied Math for Derivatives: A Non-Quant Guide To The Valuation And Modeling Of Financial Derivatives (Hardcover)

The book provides good reference information with regard to the basic price/yield equations, but John Martin gives short shrift to any discussion of the finance theory behind them. It is not just an academic issue since many instruments will trade a premium or discount to the prices implied by the basic equations.

Go with the classic: Options, Futures, and Other Derivatives (5th Edition) -- by John C. Hull.