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Investment Science [Hardcover]

by David G. Luenberger
4.2 out of 5 stars  See all reviews (17 customer reviews)


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Book Description

July 3, 1997 0195108094 978-0195108095
Fueled in part by some extraordinary theoretical developments in finance, an explosive growth of information and computing technology, and the global expansion of investment activity, investment theory currently commands a high level of intellectual attention. Recent developments in the field are being infused into university classrooms, financial service organizations, business ventures, and into the awareness of many individual investors. Modern investment theory using the language of mathematics is now an essential aspect of academic and practitioner training.
Representing a breakthrough in the organization of finance topics, Investment Science will be an indispensable tool in teaching modern investment theory. It presents sound fundamentals and shows how real problems can be solved with modern, yet simple, methods. David Luenberger gives thorough yet highly accessible mathematical coverage of standard and recent topics of introductory investments: fixed-income securities, modern portfolio theory and capital asset pricing theory, derivatives (futures, options, and swaps), and innovations in optimal portfolio growth and valuation of multiperiod risky investments. Throughout the book, he uses mathematics to present essential ideas of investments and their applications in business practice. The creative use of binomial lattices to formulate and solve a wide variety of important finance problems is a special feature of the book.
In moving from fixed-income securities to derivatives, Luenberger increases naturally the level of mathematical sophistication, but never goes beyond algebra, elementary statistics/probability, and calculus. He includes appendices on probability and calculus at the end of the book for student reference. Creative examples and end-of-chapter exercises are also included to provide additional applications of principles given in the text.
Ideal for investment or investment management courses in finance, engineering economics, operations research, and management science departments, Investment Science has been successfully class-tested at Boston University, Stanford University, and the University of Strathclyde, Scotland, and used in several firms where knowledge of investment principles is essential. Executives, managers, financial analysts, and project engineers responsible for evaluation and structuring of investments will also find the book beneficial. The methods described are useful in almost every field, including high-technology, utilities, financial service organizations, and manufacturing companies.

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Editorial Reviews

Review

"A great book. Professor Luenberger has created a masterpiece that can serve as both an excellent introduction for novices and as a rich source of examples and well explained fundamental principles for more advanced readers."--Milan Lukic, University of Wisconsin-Oshkosh

"Outstanding book. Very intuitive development of a reasonably mathematical subject. Log-optimal integrated into main budget theory. Excellent."--Edwin T. Burton, University of Virginia

"An excellent text. It is unique in being as precise as a mathematically oriented reader could wish re: financial jargon."--Viswanath Ramakrishna, University of Texas at Dallas

Advance Praise

"Options and continuous-time finance are important enough to warrant a whole course in MBA programs. David Luenberger's book makes continuous time finance accessible to any student who has mastered elementary calculus and probability theory, and motivates the subject by using it to solve a broad range of option-type problems relating to stock, bond, and commodity markets." -- Jack Treynor, President, Treynor Capital Management, Inc.

"This textbook takes a refreshing approach to the science of investing. It is extremely well-written. Financial principles and ideas are laid out clearly and in an orderly fashion. The proofs to theorems are elegant yet intuitive." -- Joseph Cherian, Department of Finance, School of Management, Boston University

"Investment Science is a wonderful textbook treatment of investment theory for the quantitatively-minded undergraduate or masters student. This book is typical of David Luenberger's uncanny way of simplifying complex technical material without loss of rigor. He divides and conquers the subject, starting with the basics of simple fixed-income securities, and building up to the valuation and hedging of derivative securities in a dynamic setting under uncertainty. There is a lovely interplay of arbitrage calculations, portfolio selection for individual investors, and market equilibrium. The book will be especially valuable for those entering the subject from other quantitative fields."--Darrell Duffie, Stanford University Graduate School of Business

"The book is very clearly written and introduces advanced concepts (e.g. duration and convexity of bonds) in relatively simple and intuitive ways early in the book. There are lots of carefully thought out examples to illustrate important points and applications of particular methodologies. Overall, the book does a great job of taking a reader who knows essentially nothing about finance from very basic concepts up through rather advanced valuation topics." -- James E. Hodder, University of Wisconsin-Madison

"This text is a breakthrough in the organization of very important theory." --Lloyd Nirenberg, Director, Business Development, National Semiconductor Corp.

"This book provides great insights and practical approaches for anyone interested in the relation between markets and decisions. It is written in a unique and creative manner." --Nick V. Arvanitidis, CEO,IDEA GmbH., and Former CEO, Sequus Pharmaceuticals

About the Author


David G. Luenberger, Professor in Engineering-Economics Systems & Operations Research, Stanford University. He has written several successful books with Addison-Wesley and John Wiley publishers.

Product Details

  • Hardcover: 512 pages
  • Publisher: Oxford University Press, USA (July 3, 1997)
  • Language: English
  • ISBN-10: 0195108094
  • ISBN-13: 978-0195108095
  • Product Dimensions: 9.6 x 7.7 x 1.2 inches
  • Shipping Weight: 2.2 pounds
  • Average Customer Review: 4.2 out of 5 stars  See all reviews (17 customer reviews)
  • Amazon Best Sellers Rank: #97,991 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews
28 of 28 people found the following review helpful
4.0 out of 5 stars good but not excellent March 14, 2007
By jim
Format:Hardcover
This book serves very good introduction to mathematical finance. Particularly,
I enjoyed the discussion of bonds immunization, mean-variance theory, CAPM, APT.
It's most suitable for senior undergraduates or any junior graduate students.
But it doesn't deserve 5 star for the following reasons:

1) Most of the theories discussed so far in the book are TOO idealized and
over simplified. Financial data is dynamic and massive. In model quantitative/computational finance, the most important thing is to understand what the data says rather than what one thinks the data structure might be. With the book, one probably can only do some macroeconomic/very coarse analysis. Author should incorporate more data analysis evidence together with proposed theories.

2) The proof of ito's lemma is wrong(i.e. "Deltaz^2 --> deterministic as Deltat --> 0"). It's surprising since most books make the same mistake. It is the law of the large number contributes to the equality!(i.e. integration sense). The misunderstanding of the proof might lead to the misunderstanding of the hedging process.

3) In the commodity option pricing session, author demonstrated the use of futher market to price the option. This should be discussed further (i.e. black's model).

4) The volatility pumping session should be further researched. The explanation is
not satisfactory.
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35 of 37 people found the following review helpful
5.0 out of 5 stars A very good introductory book April 17, 1998
Format:Hardcover
This textbook introduces the basics of asset pricing theory and portfolio optimization at a level suitable to advanced undergraduates. The mathematics seems to be just right for practitioners: no martingales, no girsanov theorem, but a complete treatment of binomial lattices and a semi-quantitative introduction to diffusion processes and to stochastic calculus. Problems are very well chosen. The organization of the text is standard, except for the last two chapters, related to optimal growth portfolio and to real options. Final remark: the book is excellent for self-study. I learnt the subject from Prof. Luenberger himself, and he was repeating each single word from the book, saying (as a disclaimer) that "it's not me copying the book... it's the book that copies what I said. After all, I wrote it." Needless to say, the class was excellent.
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21 of 24 people found the following review helpful
5.0 out of 5 stars One of the few books I have purchased twice. September 9, 2003
Format:Hardcover
This is the best book by far on the theory of finance. The book covers all the important fundamental concepts and develops them into practical models without going overboard and introducing every possible variation on the model. the style is both conversational and mathematical. It is replete with discussions about the material, but it doesnt gloss over the math. I took professor Luenbergers course at Stanford, and it piqued my interest in finance enough to pursue it professionally. (At the time, I was a masters student in electrical engineering.) I purchased several other books in finance. I dont even know where they are now, every time I have a question or need to build a new model, I go straight to Luenberger. This book is so good, I bought a second copy just as a backup, in case I lose my copy and the book goes out of print.
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7 of 8 people found the following review helpful
5.0 out of 5 stars Good book to understand quantitative finance June 10, 2005
Format:Hardcover|Verified Purchase
Luenberger was a professor of optimization and his books on that subject are also very good. Clear and Precise. But sometimes he is extremely concise, so that you need to work a bit to completely understand a point.

In this book, we have again the same style (after all, it is the author style): Clear and precise book, GOOD choice of notation (I cant say the same thing about HULL's books) but sometimes extremely concise.

Overall, a good book to start learning and on a solid foundation.
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4 of 4 people found the following review helpful
1.0 out of 5 stars Good Organization, Poor Content October 16, 2012
Format:Hardcover|Verified Purchase
The book was a required study material in my Investment Science course at U - graduate school. While organization of material seems reasonable for new to finance world, the content lack few critical (for learning and understanding) components:
1. Inconsistent notation: sometimes even within adjacent pages.
2. Many proofs of theorems lack rigor.
3. On one occasion - duration explicit formula is wrong - does not look like a typo.
4. Too many typos at critical places - have a finance dictionary handy while reading it.
5. Some examples assume the reader is in kindergarden, and painfully go through unnecessary (simple algebra) steps, while other omit critical steps, or sometimes worse give a hand-waiving argument. I also took the time to reproduce (in excel, R, Matlab) some of the numerical examples in the first 5-6 chapters, and the accuracy (numerical) of the answers are off - not sure what sort of computing software was used to produce the examples, but good cooking!
(1) star - seen much better quality finance/investment texts.
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11 of 14 people found the following review helpful
5.0 out of 5 stars One of my favorite finance books July 7, 1998
By A Customer
Format:Hardcover
This should be a required text for all financial engineering and computational finance students. Dr. Luenberger's treatment of portfolio allocation and derivatives is the best I have read. Finance is finally beginning to make sense. Bala Shetty is a professor of information and operations management at Texas A&M University in College Station,Texas.
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12 of 16 people found the following review helpful
5.0 out of 5 stars Perfect for advanced undergraduated courses. October 8, 1998
Format:Hardcover
It is very difficult to find a book on investments with a clear quantitative background that fits the necessity of advanced students. Luenberger's explanations and exercices are the finest I have ever read. His book is a good step for those who want to keep on studying portfolio analysis, CAPM, asset pricing and stochastic process.
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Most Recent Customer Reviews
4.0 out of 5 stars Luenberger has made Investment Science easy
If you have ever wanted to know more about investments and the science and formulations behind the practice, this is a well written and easy to understand book that gives you a... Read more
Published 3 months ago by Heather R Bowen
4.0 out of 5 stars Great book thats still good!
Even in its first edition (the second is coming out later this year), it is still relevant. Great examples and very useful for my classes.
Published 9 months ago by Z. Flohr
5.0 out of 5 stars Excellent introduction to financial mathematics
I used this book for an undergraduate intro to financial mathematics course. As an electrical engineering student, I had no previous exposure to the subject, but this book did a... Read more
Published on May 22, 2008 by Pravit
1.0 out of 5 stars It might be a good finance book,
but it's a terrible math book.

Too often, explanations, examples, and problems do not clearly explain the meanings of variables and applicable assumptions. Read more
Published on August 13, 2007 by tenuki
5.0 out of 5 stars superb coverage of subject matter
Prof. Luenberger currently teaches at Stanford and this book is used as the textbook for a 2-quarter series in investment science there. Read more
Published on July 29, 2007 by quality seeker
5.0 out of 5 stars Investment Science must have
Great book, covers lots of material and goes beyond by using the log utility to portfolio growth. Great buy!!!!
Published on March 23, 2005 by Eileeneugenia Raswan
5.0 out of 5 stars Excelent book! Great clarity and depth in the subject
I attended his courses at Stanford and indeed he's an eminence in the subject, and all his wisdom has been printed in this excellent book. Read more
Published on October 6, 2000 by Antonio J. Macias
3.0 out of 5 stars Very useful tool for students
I think this is a very good book for students and professionals working in the world of modern finance.
Published on July 30, 1998 by María Alzúa (malzua@pecom.com.ar)
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