Modeling Derivatives in C++ (Wiley Finance) [Paperback]

Justin London (Author)

Book Description

ISBN-10: 0471654647 | ISBN-13: 978-0471654643 | Publication Date: September 17, 2004

This book is the definitive and most comprehensive guide to modeling derivatives in C++ today. Providing readers with not only the theory and math behind the models, as well as the fundamental concepts of financial engineering, but also actual robust object-oriented C++ code, this is a practical introduction to the most important derivative models used in practice today, including equity (standard and exotics including barrier, lookback, and Asian) and fixed income (bonds, caps, swaptions, swaps, credit) derivatives. The book provides complete C++ implementations for many of the most important derivatives and interest rate pricing models used on Wall Street including Hull-White, BDT, CIR, HJM, and LIBOR Market Model. London illustrates the practical and efficient implementations of these models in real-world situations and discusses the mathematical underpinnings and derivation of the models in a detailed yet accessible manner illustrated by many examples with numerical data as well as real market data. A companion CD contains quantitative libraries, tools, applications, and resources that will be of value to those doing quantitative programming and analysis in C++. Filled with practical advice and helpful tools, Modeling Derivatives in C++ will help readers succeed in understanding and implementing C++ when modeling all types of derivatives.

Editorial Reviews

About the Author

Justin London is the founder and visionary of GlobalMaxTrading.com (GMT), The World’s Online Financial Supermarket®, a global online trading and financial technology company, as well as GlobalMaxAuctions.com, The World’s Online Trading Exchange ®, a global B2C and B2B auction and trading company. He has analyzed and managed bank corporate loan portfolios using credit derivatives in the Asset Portfolio Management Group of a large bank in Chicago, Illinois. He has developed fixed-income and equity models for trading companies and his own quantitative consulting firm. London has written code and algorithms in C++ to price and hedge various equity and fixed-income derivatives with a focus on building interest rate models. A graduate of the University of Michigan, London has five degrees, including a BA in economics and mathematics, an MA in applied economics, and an MS in financial engineering, computer science, and mathematics, respectively.

Product Details

• Paperback: 768 pages
• Publisher: Wiley (September 17, 2004)
• Language: English
• ISBN-10: 0471654647
• ISBN-13: 978-0471654643
• Product Dimensions: 9.2 x 7.5 x 1.8 inches
• Shipping Weight: 3.1 pounds (View shipping rates and policies)
• Average Customer Review: 3.3 out of 5 stars  See all reviews (37 customer reviews)
• Amazon Best Sellers Rank: #517,855 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

80 of 85 people found the following review helpful:

3.0 out of 5 stars Mildly useful, July 14, 2005

By 

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

This review is from: Modeling Derivatives in C++ (Wiley Finance) (Paperback)

Like some other reviews (some of which have been removed by Amazon) have pointed out, this book is comprehensive, covers most of the right topics yet have some major flaws that prevent it from being truly useful to the students of financial engineering. It successfully COMPILES and DOCUMENTS the derivatives models in C++ but it is less sucessful in TEACHING the process of building these C++ modules. I look forward to a 2nd edition.

The author makes an honest attempt to show the mathematical and financial theories underpining the models and present the associated C++ code. However, the models and the associate codes are presented in a encyclopedia-like fashion. Moreover the codes are 'borrowed' from various sources, including the open source quantlib project, thus there's a lack of consistency. From page to page, you are directed to codes with very different coding styles. Therefore there's disjointed feel to this book.

What I would like to see a its 2nd edition are the following:
1. Relegate the code snippets to the appendix section (or just put them in the CD) and present only the neccesary codes next to the models.
2. Write his own codes or just adopt quantlib's library directly and change the title to Derivatives C++ 2nd edition: a quantlib approach. Consistency in the coding is important.
3. Decide what's the target audience of the book and what is the main object of this book? is it to teach people 'HOW' to map derivatives models to C++, is it to document 'WHAT' derivatives models and the associated C++ codes are out there.

Overall this book is promising, is ambitious in its coverage, but would benefit from a major revision. For its efforts and intentions, I would rate is 3 stars.

An alternative way (IMHO a much better way) to learn Derivatives C++ programming is to take a bottom up approach and learn the various components separately:

Mathematical Finance: Hull (2005, comprehensive coverage of derivatives models); Wilmott/Howison/Dewynne (1995, The mathematics of financial derivatives); Joshi (2005, The Concepts and practice of mathematical finance)

Mapping of mathematical models to computer programs (pseudocodes): Clewlow/Strickland (1998), Lyuu (2001), Seydel (2003)

Programming in C++: any introductory book in C++ would do (I like Deitel & Deitel); Object-oriented C++ and STL

Also need to learn the linear algebra and how to manipulate matrices and system of linear equations in C++.

40 of 41 people found the following review helpful:

1.0 out of 5 stars no understanding, October 11, 2005

By 

Charle Dupond (London) - See all my reviews

This review is from: Modeling Derivatives in C++ (Wiley Finance) (Paperback)

The author does not understand what he is writing. He just has done a compilation of existing resources. Mainly Clewlow, Brigo and some open sources

1. The code:
a. Some examples cannot compile and/or crash. Example array[-1]
b. More "funny". He tried to use a control variable to reduce errors in Monte Carlo. Unfortunately (section 2.8) he uses as control ... another Monte Carlo. This is simply crazy, we must use an exact solution as control
c. Even more "funny" the calcul of sigma p 653. After calculating it at the beginning of the program it let it constant for the rest of the program. The key point here is that sigma is not constant but varies as function of the time
It is just some examples but the book is full of mistakes and crazy things

2. The text. The text is a copy of Clewlow for the equity and single factor interest rate part and Brigo for the other part. Unfortunately since the author does not understand what he is writing it is just a BAD copy. incomprehensible.

3. About the comments. It seems that the author has a lot of time to loose writing various comments using different names. With so bad code nobody could give 5 stars. Therefore it is not difficult to know from which are the comments...

This book is expensive and not worth the money. Better take the Clewlow and Brigo.

35 of 38 people found the following review helpful:

2.0 out of 5 stars weak, July 15, 2005

By 

stochasticmind "rose" (usa) - See all my reviews

Amazon Verified Purchase

This review is from: Modeling Derivatives in C++ (Wiley Finance) (Paperback)

The codes in the book which are not from the freely distributed source are not properly integrated. The Author claims
that he has written various classes and objects but you can
find few "main()" program in the book that allows you to see
if and how all these classes actually work
by instantiating the classes as working objects and
testing them. A big collection of code fragments, even if it all works, which we cannot be sure of, is not very helpful.