Customer Reviews

Finite Difference Methods in Financial Engineering: A Partial Differential Equation Approach (The Wiley Finance Series)

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This book proved to be a useful reference for practical implementation of finite-difference methods for PDEs: several one- and multi-factor financial derivatives pricing models, including local volatility models and models with stochastic volatilities. The methods described in the text are stable, accurate and reasonably efficient. Stability of FD methods is obviously of top concern to the author (as it should be to readers as well), and he goes into extensive detail evaluating the stability of various techniques. The writing is clear and consistent, though a "notational" index or glossary would have been helpful, particularly in the early going. The author provides several practical examples, which lends a refreshing degree of concreteness to the book.

What a joke! This book claims to be adequate for those who have little or no knowledge in the field of PDEs and finite differnces (which is not my case), and believe me you will be just as ignorant after having read the book!

The book is divided into seven parts with the first one dealing with the general theory of PDEs, except that the information content is null! Even the heat equation is not fully solved, whether it is by separation of variables, where the solution is thrown at you in different cases, or by Fourier transform where the author takes the transform of the PDE then conveniently tells you that this can then be solved and converted back into the solution to the problem by "well known" techniques!! Prepostorous!! Furthermore, the entire book is simply a bunch well packed results and definitions with little or no insight as to their practical applications. You will simply learn the EXISTENCE of a certain number of techniques, however you will not have enough information to implement these or gain any insight into them! If you want to learn about PDEs, finite diffenences and their financial applications go for Wilmott, at least the latter won't waste your time!

I used this book to solve a rather difficult PDE and in the end i decided that a binomial tree approximation would save me time instead of reading this.
First it is not a beginer's book, second it wastes millions of precious time to the classification of PDEs in a very dense writting style cut in small chapters. In some cases it presents no proofs, or it assumes knowledge of mathematics that does not even cover. For example at some point syas that to check sth toy need Fourier and no presentation of the method is shown. In short to difficult to read, not for a beginner

Daniel J.Duffy introduces Finite Difference methods for solving partial differential equations that arise in numerical pricing of derivatives. There are seven sections in the book. They are:
Part I The Continuous Theory of Partial Differential Equations - A short introduction to partial differential equations and their applications to financial engineering.
Part II Finite Difference Methods: the Fundamentals - There are three chapters that introduce Finite Difference methods to approximate initial value and initial boundary value problems. Another two chapters apply the methods to Black-Scholes equation. He did a nice job to approximate the solutions to problems with small volatility or large drift,...
Part III Applying FDM to One-Factor Instrument Pricing
Part IV FDM for Multidimensional problems
Part V Applying FDM to Multi-Factor Instrument Pricing and
Part VI Free and Moving Boundary Value Problems
There are altogether 18 chapters (about 180 pages) that thoroughly introduce the application of FDM techniques to a wide range of options (pricing) modelling. The exposition is clear and concise.
The last part
Part VII Design and implementation In C++ - The last four chapters design for readers having programming literacy.
To fully appreciate the materials of the book, readers should have at least one year training in partial differential equations and knowledge in financial derivatives at about the same level as John Hull's book - Options, Futures and Other Derivatives, 5e.
If the book contains a few applications to real world data, it will be perfect to primers in this field.

Having bought many books in Financial Engineering this is one of the most useful. The source code is atleast alot better than the other books that claim to be the best. I give this book 4 stars and recommend quants to buy this book.