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An Introduction to the Mathematics of Financial Derivatives (Academic Press Advanced Finance) [Kindle Edition]

Salih N. Neftci
4.0 out of 5 stars  See all reviews (52 customer reviews)

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  • Print ISBN-10: 0125153929
  • Print ISBN-13: 978-0125153928
  • Edition: 2
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Book Description

This popular text, publishing Spring 1999 in its Second Edition, introduces the mathematics underlying the pricing of derivatives. The increase of interest in dynamic pricing models stems from their applicability to practical situations: with the freeing of exchange, interest rates, and capital controls, the market for derivative products has matured and pricing models have become more accurate. Professor Neftci's book answers the need for a resource targeting professionals, Ph.D. students, and advanced MBA students who are specifically interested in these financial products. The Second Edition is designed to make the book the main text in first year masters and Ph.D. programs for certain courses, and will continue to be an important manual for market professionals.

Editorial Reviews


"An excellent treatment of the mathematics underlying the pricing of derivatives."
—JOHN HULL, University of Toronto

"This book will be a major convenience to derivatives traders, risk managers, and other users and developers of derivatives models. It greatly reduces the cost of entry into the mathematical world of valuation, hedging, and risk measurement for derivatives positions."
—J. DARRELL DUFFIE, Stanford University

"As an introduction to the mathematics underlying the pricing of derivatives, the book succeeds admirably."

"This book is a self-contained first step into mathematical finance, and it covers the fundamentals of the topic beautifully. The conclusions and references at the end of each chapter are very useful. The former provides a broad picture of each chapter's content. The latter offer invaluable links for those who would like a more detailed discussion..."
—SIAM Review (Society for Industrial and Applied Mathematics)

Book Description

Includes 6 new chapters!

Product Details

  • File Size: 6778 KB
  • Print Length: 527 pages
  • Publisher: Academic Press; 2 edition (June 22, 2000)
  • Sold by: Amazon Digital Services, Inc.
  • Language: English
  • ASIN: B00391L89O
  • Text-to-Speech: Enabled
  • X-Ray:
  • Word Wise: Not Enabled
  • Lending: Not Enabled
  • Amazon Best Sellers Rank: #749,265 Paid in Kindle Store (See Top 100 Paid in Kindle Store)
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Customer Reviews

Most Helpful Customer Reviews
27 of 27 people found the following review helpful
This book can be summarized in one sentence:

It is the single most gentle introduction to stochastic calculus ever written.

Seriously. You will NOT find a more gentle introduction to this topic. Neftci took a very difficult topic and wrote a very simple and clear book on the subject material.

This book does not dot the i's and cross the t's the way Shrieve does. It's not the clever tour de force that Baxter and Rennie is. You will not be an expert in stochastic calc after reading it. Not by any stretch of the imagination.

However, you'll have a few things that are more valuable than being an expert at stoch calc:

1. You'll have a gut feeling for what all this stuff means. Ever take a really difficult class and you got A's on all the homeworks and tests, but at the end of the semester you scratch your head and wonder what the heck you just learned? Yes, Shrieve, Øksendal, and a whole bunch of others will make you an expert. But you'll get very little gut feeling understanding from those books. They teach you about calculations, and are very skimpy on the meaning or any kind of intuition. This book is ALL ABOUT intuition and meaning.

2. You'll learn what you need to know. Face it. Stoch calc is a part of all financial engineering programs. But how many quants really use it? For every Peter Carr or Bruno Dupire there are hundreds of quants whose main purpose in life is to calculate cashflow waterfalls on Excel or price a CDS using some company's automated CDS pricing program. For the VAST majority of us, stochastic calculus is mostly for our interviews. We're asked what Girsanov's theorem is. Maybe we're asked to price some weird derivative. Maybe.
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73 of 81 people found the following review helpful
5.0 out of 5 stars The best intro book ever! July 14, 1999
Format:Hardcover|Verified Purchase
Students of derivative pricing techniques are often in a dilemma: Coming from their MBA or undergrad course, they have just build a "brealy-myers" type of intuition on options. Moving towards Hull then allows a deeper understanding. But any serious (eg PhD, Wall Street Analyst) student of derivatives needs to undertstand the math behind modern derivatives pricing. Essentially, this research divides into two streams: Solving Partial differential equations and developing equivalent Martingales. Without a rigorous pre-education (Maths, Physics), most students fail to understand (let alone learn to use) these methods. Nefci is the only book that does not assume lots of prior knowledge, as compared to Merton (1992) or Duffie (who is so bold to write "for mathematical preparation little beyong undergraduate assumed" -ask PhD Students how easy this book reads! The answer is its tough!!). In Short, Neftci's book is a true blessing for all "normal" people. Can't wait to get the second edition!
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12 of 12 people found the following review helpful
4.0 out of 5 stars I have found this book very helpful May 21, 2002
While most MBAs are already separated into those strong in math who gravitate towards the mathematically more intense areas such as finance and those who head towards areas less mathematically intense such as marketing and organizational behavior, there are many of us who know we need to strengthen our mathematical understanding. For us, this book by Prof. Neftci is a gift!
Now, I am NOT bashing marketing and organizational behavior. In fact, math can be used to great advantage in those fields, but you do find many who feel very uncomfortable with much beyond algebra and that is ok, too. And it is very possible to work in finance without understanding the math behind the tools and principles taught in the basic courses. However, if you want to go deeper than the basic courses this book can be a great next step.
The truly mathematical seem to feel that this book doesn't go far enough and that may be true if you want to get to the very bottom of the subjects reviewed here. If you think of this book as an intermediate step that gives you more than the simple treatment you get in most MBA courses and not as intense as you would get in "Continuous Stochastic Calculus with Applications to Finance" and that is what you want then this book is for you (and for me).
Plus there is a nice bibliography that can help you dive even deeper.
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14 of 15 people found the following review helpful
5.0 out of 5 stars A valiant and successful attempt December 17, 2000
By A Customer
Neftci makes a valiant and serious attempt at explaining stochastic calculus and related mathematics of financial derivatives to the non-expert. I think he succeeds.
The exposition may not be as rigourous as many people expect it to be, but that's the whole point of the exercise: to give the reader an introductory and motivated first exposure to risk neutral measures, martingales, stochastic differentiation and integration, Ito's lemma, PDE's, stochastic PDE's, equivalent martingale measures, Girsanov's theorem, and a lot more.
This is definitely the very first book that a non-mathematician student of the subject should read. No doubt about that. I guess the burning question now is: Which book makes a natural second read? Baxter and Rennie? Bjork? Bingham and Kiesel? I think it should be one of these three.
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9 of 9 people found the following review helpful
By J.F.
Neftci's book is easily grouped into a large number of texts that provide graduate level (considerable more rigorous than the MBA version) introductions to mathematical finance. Some are written for MBA with want to be exposed to as little math as possible without short changing the financial and valuation aspects and with considerable attention to a broad range of financial products and applications (Hull's classic comes to mind). Others are extremely implementation driven and are more a hybrid of finance and computer programming (Duffy, London, Wilmont). Still others are math books that speak above the heads of almost all practitioners and cover the finance topics poorly (or not at all).

Netfci's book is a rare gem in this field. Excellent coverage of financial topics and fundamentals (Arbitrage Theorem, Forwards Futures, Equity Derivatives, Interest Rate Derivatives), serious graduate level review of financial math and mathematical techniques (Probability, Numeric Processes, Binomial Methods, Stochastic Calculus, Finite Difference, Martingales, Monte Carlo methods), and applications (Bond Pricing, Term Structure Modeling, Exotic Options, Rare Event Modeling).

Best of all, it start assuming very little, builds aggressively, and progresses logically.

The biggest drawbacks are a lack of coverage for credit modeling and credit derivatives, Merton-model and contingent claim models for distressed equity, and more common financial engineering applications (hedging, rebalancing).

It is also remarkable well-written.
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Most Recent Customer Reviews
5.0 out of 5 stars Excellent reading
This book is very well-written and contains excellent material for people like little-old-me, who need a bit of a helping hand and additional patience on the subjects of maths and... Read more
Published 11 months ago by Nicola
5.0 out of 5 stars A great teacher
This book really helped me a lot. It was appointed as an introduction to more advanced mathematics of financial derivatives, but it is a great introduction.
Published 20 months ago by Luis Otavio Facanha
1.0 out of 5 stars Kindle edition: piece of junk
The book itself deserves 5 stars. But the kindle edition is a piece of junk. Mathematical symbols did not transfer properly. What a shame!
Published on March 1, 2013 by O. E. Ergungor
5.0 out of 5 stars Excellent background reading material for Hull
I started out reading Hull, the classic on derivatives. Once I reached Black-Scholes I stalled. This book unstalled me because it spells out all the background mathematical... Read more
Published on January 16, 2012 by Yuri Niyazov
5.0 out of 5 stars i found this book very helpful
the reason i like this book is that it builds a lot of intuition. it is not math heavy, for that there are other books in the market. Read more
Published on December 5, 2011 by rajan S.
5.0 out of 5 stars best introduction to stochastic calculus and derivatives pricing
Very good for intuitive learning of stochastic calculus and derivative pricing..without detailed formal complex mathematical assumpions.. Read more
Published on November 19, 2011 by chandra
5.0 out of 5 stars good
This book is my textbook to study master in financial engineering. However, it is a little difficult to me on stochastic. Read more
Published on October 26, 2011 by SICHEN LIU
5.0 out of 5 stars Take care with the package
Item in fantastic condition, but the package could have a stronger piece of paper. One of the books had a small bend.
Published on May 10, 2011 by Rodrigo C. Goncalves
5.0 out of 5 stars Hits the mark very well, just know if this is the book for you!
First, this book hits the mark 100% and it fills a specific void in derivative books.
And that is really the key as to whether you find this book perfect or if you finding it... Read more
Published on January 23, 2011 by Marc Mest
2.0 out of 5 stars Read for inutition after learning from more rigourous book
This book seems very odd to me in a way similar many other text books I have read over the years. The author tries to convince the reader that the prerequisites are minimal. Read more
Published on February 19, 2010 by L. Gaul
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