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73 of 81 people found the following review helpful
5.0 out of 5 stars The best intro book ever!
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...
Published on July 14, 1999 by G. Pritsch

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13 of 17 people found the following review helpful
2.0 out of 5 stars A good first draft not a useful text
I used this text for a graduate course on financial derivatives in an applied mathematics program. The text generally made a good selection of the topics covered, but often key insights and proofs were missing. There were few useful examples and the end-of-chapter exercises were both too few in number and were not well thought out. The material could have been better...
Published on November 25, 2004 by R Frey


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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
By 
G. Pritsch (USA, New York) - See all my reviews
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This review is from: An Introduction to the Mathematics of Financial Derivatives, Second Edition (Academic Press Advanced Finance) (Hardcover)
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 analysis...is 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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26 of 26 people found the following review helpful
5.0 out of 5 stars The Best Beginner's Book on Stochastic Calculus Ever Written, April 6, 2009
This review is from: An Introduction to the Mathematics of Financial Derivatives, Second Edition (Academic Press Advanced Finance) (Hardcover)
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, Řksendal, 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. Most likely we're asked to compute something mindless like the change in some function of a stochastic variable. Unless you're interviewing for some kind of quant R&D position, everything you need to know for your interview is in this book. I promise you.

3. You'll be competent enough to have an intelligent conversation with someone about stochastic calc. You'll be in a better position to read and understand the more advanced books and actually "get it" rather than parrot a bunch of calculations.

I can guarantee you -- the people who don't like this book are either the wrong audience for it and should be reading something more advanced, or they're a bunch pretentious a******s who think that a book's value is proportional to how densely packed it is with arcane equations.

And, no, I don't shy away from nuclear chicken scratching. I have a PhD in theoretical physics. I've done my fair share of reading and writing chicken scratching. I'm not impressed by advanced formalism. It has a proper time and place. I *am* impressed by clarity of thought and exposition, and in this regard, this book is in a universe all its own.

Baxter and Rennie comes close, but their book is subtle and clever. And it doesn't cover the wealth of topics this book covers. I love their book, but this book is ultimately more useful. Think about the difference between Feynman's physics books compared to other beginning texts. To see the real beauty of Feynman's approach, you really need to know the topic.
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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
This review is from: An Introduction to the Mathematics of Financial Derivatives, Second Edition (Academic Press Advanced Finance) (Hardcover)
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
This review is from: An Introduction to the Mathematics of Financial Derivatives, Second Edition (Academic Press Advanced Finance) (Hardcover)
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
5.0 out of 5 stars Remarkable Introduction to Serious Math, Serious Finance, and Real-World Applications, June 13, 2006
This review is from: An Introduction to the Mathematics of Financial Derivatives, Second Edition (Academic Press Advanced Finance) (Hardcover)
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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19 of 23 people found the following review helpful
5.0 out of 5 stars Ties everything together, January 7, 2003
By A Customer
This review is from: An Introduction to the Mathematics of Financial Derivatives, Second Edition (Academic Press Advanced Finance) (Hardcover)
This book is superb. The author seems to predict all the questions the reader might come up while reading and answers them in footnotes or in the main text. This type of progression lets the reader to clearly understand all the basic materials which are prereqs for other more advanced concepts.
Before this one, I read the books by Hull and Wilmott. Hull's text was very good, but the material seemed rather disjoint. I really couldn't grasp the link between tree methods for pricing options, equivalent martingale measure to price options and lastly Black-Schole's PDE methods. However, Neftci links all these three concepts and shows that they are all equivalent under a few assumptions such as Markov. The book is worth reading for this purpose alone. Also, I found Hull's zero coupon bond pricing formula for different interest rate models a bit mysterious. Neftci first justifies the Feynman-Kac formula and beautifully derives a PDE for pricing bonds for these rate models.
However, because the book is such a hassle-less reading the reader is left scratching his head when it comes to think about problems outside those presented in the text. For example, how can we price path dependent options or fix the error of assuming self-financing portfolio when deriving BS PDE. Also, the last chapter on optimal stopping time is full of errors and not explained well at all. Neftci probably included this chapter for completeness.
There is a relatively minor commitment to reading this book but there is a huge payoff. The book reads like a novel and you are nowhere completely cheated since he mentions where he is doing all the handwaving. It clearly explains stochastic processes and explains concepts such as filtration, mean squared convergence, etc. which should prove fruitful when consulting more rigorous sources on it such as Oksendal, Bjork, etc.
Anyways, don't take my words for it just try it for yourself. I am now reading Musiela and Rutkowski and it's a rather smooth transition from Neftci.
PS: Who cares about mathematical rigor anyways. What stocks really follow geometric brownian motion with constant drifts and volatility, etc. There would be no progress made if we care about such nonsense. What matters is what works not what is most mathematically sound and well-defined.
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7 of 7 people found the following review helpful
4.0 out of 5 stars An ideal guide for introductory mathematics on derivatives, December 29, 2003
By 
"debdeep15" (Tuscaloosa, Alabama United States) - See all my reviews
This review is from: An Introduction to the Mathematics of Financial Derivatives, Second Edition (Academic Press Advanced Finance) (Hardcover)
Neftci does a good job in introducing the mathematics of financial derivatives to its readers. This book is ideal for MBA level quant finance knowledge. It does not go into rigorous mathematical depth but does a smart job of discussing the physics behind the principles of pricing derivative securities. The best part about this book is its parallel handling of PDE approach and the equivalent martingale measure. There is sufficient coverage for introductory level fixed income pricing mechanisms. The book does a good job in the end by converging the ideas of the two pricing methods. This gives a lot of clarity in the science behind such derivative contracts.
Although the theory is covered clearly the problems are not correlated with the chapter contents. Do not get disheartened if you are not able to ace the problems. Rather use this book to build the base and clear the concepts.
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10 of 12 people found the following review helpful
4.0 out of 5 stars Good book for the right audience, June 26, 2004
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This review is from: An Introduction to the Mathematics of Financial Derivatives, Second Edition (Academic Press Advanced Finance) (Hardcover)
It is amazing that people are not willing to take it what it is, an 'introduction' to mathematics of financial derivatives. The 'reader from New York' of 'notation challenged' seemed to have wanted a rigourous treatment of SDE, yet is sorely disappointed not to find it in this book. IMO it gives an extremely clear exposition of the various tools of SDE and having read it has allowed me to progress to books in which mathematical rigor is stressed over intuition. So in a nutshell this book achieved its stated goal of offering an intuitive and heuristic explanation of mathematics of derivatives to the novices taking their first steps in the financial engineering land.
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4 of 4 people found the following review helpful
5.0 out of 5 stars On a Class by Itself for Clarity and Pedagogical Value, October 19, 2000
By A Customer
This review is from: An Introduction to the Mathematics of Financial Derivatives, Second Edition (Academic Press Advanced Finance) (Hardcover)
I have voted my dollars for Mr. Neftci by buying the first and second editions of his introductory textbooks. This, despite some careless errors which I hope have been corrected. Why? Only because of his ability to integrate knowledge under a common theoretical umbrella. He does a wonderful job in explaining the evolution from traditional calculus and differential equations to their stochastic versions and to convey the latter's significance to practical matters of finance. In our age of much technical specialization and little knowledge integration, individuals such as him are highly valuable. Disciplines are becoming so specialized that most authors seem to have lost the capacity to adequately and usefully convey their expertise in non-esoteric and conciliatory terms, leading to confusion and to islands of technical scholasticism unable to communicate with other branches of knowledge, let alone with the "layman".
I recommend this book to those who seek understanding of this interesting field and who reward authors not only for their knowledge, but for their seemingly forgotten pedagogical responsibility when deciding to write a book.
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4 of 4 people found the following review helpful
4.0 out of 5 stars A very Good Intro Book, December 21, 2000
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This review is from: An Introduction to the Mathematics of Financial Derivatives, Second Edition (Academic Press Advanced Finance) (Hardcover)
It has been 2 days and 8 chapters through the Neftci book and I find it to be the best introduction into asset pricing that I have found. The explanations are clear and make sense. Furthermore the examples used are very inciteful. THe highlights however are the introduction to stocastic calculus, a and a very clear representation of martigales. There are a couple of downsides to this book, one is a lack of solutions to the exercises and the other is a shortage of exercises. I feel that I probably won't get as much out of this text for these reasons.
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