Introduction to the Mathematics of Financial Derivatives (Academic Press Advanced Finance) (Hardcover)

by Salih N. Neftci (Author) "This book is an introduction to quantitative tools used in pricing financial derivatives..." (more)
Key Phrases: derivative asset price, arbitrage theorem, synthetic probabilities, Monte Carlo (more...)

Editorial Reviews

Review
Praise for the First Edition:
"An excellent treatment of the mathematics underlying the pricing of derivatives."
- John Hull, University of Toronto, Canada

"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."
- Journal of Economic Literature -- Review

Review
PRAISE FOR THE FIRST EDITION:
"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

PRAISE FOR THE SECOND EDITION:
"As an introduction to the mathematics underlying the pricing of derivatives, the book succeeds admirably."
—JOURNAL OF ECONOMIC LITERATURE

"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)

See all Editorial Reviews

Product Details

• Hardcover: 527 pages
• Publisher: Academic Press; 2nd edition (April 2000)
• Language: English
• ISBN-10: 0125153929
• ISBN-13: 978-0125153928
• Product Dimensions: 9.3 x 6.9 x 1.7 inches
• Shipping Weight: 1.8 pounds (View shipping rates and policies)
• Average Customer Review: 4.0 out of 5 stars See all reviews (65 customer reviews)
• Amazon.com Sales Rank: #83,024 in Books (See Bestsellers in Books)

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Customer Reviews

Most Helpful Customer Reviews

102 of 112 people found the following review helpful:

3.0 out of 5 stars Good explanations, with serious hand-waving, October 12, 1999

By A Customer

This review is from: An Introduction to the Mathematics of Financial Derivatives (Hardcover)

I used this book to teach a Financial Mathematics course, and found its explanations to be generally clear and good. However, part of the reason the text seems so clear is that it doesn't explain much of what's really going on. It covers the right material, but not really in such a way that the reader can then go on to apply the knowledge gained.This is evidenced by the complete (and almost unforgiveable) lack of exercises in the book. It is very easy to feel you understand this sort of material, only to be completely lost when you actually have to solve a problem. Neftci will not help in this regard. I understand that it is difficult to create good exercises, but their absence almost makes me wonder if Neftci realized he was not explaining things in enough detail to let the student actually work with the knowledge. Exercises are the only way to really learn this subject.A basic problem with all these texts is that, try as they might, they cannot impart true understanding unless the student can grasp real analysis at, say, an undergraduate level typically reached by students at a good engineering school. This text tries to avoid the problem by failing to mention any of the analysis...that's not likely to work.

61 of 66 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 (REAL NAME)

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!

11 of 11 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.