Applied Math for Derivatives: A Non-Quant Guide To The Valuation And Modeling Of Financial Derivatives (Hardcover)

by John Martin (Author) "In this chapter, we discuss the concept of derivative valuation and outline the steps necessary to construct appropriate valuation models..." (more)
Key Phrases: expected forward value, forward expiry date, forward settlement date, Example Suppose, Microsoft Excel, New Zealand (more...)

Editorial Reviews

Product Description
A handy guide/reference for investors, analysts, and students, Mathematics for Derivatives provides an integrated approach to the valuation of financial derivative instruments for a wide range of asset classes. Featuring a user-friendly format, it was designed to be used as both a step-by-step guide to derivative pricing for beginners, and a handy quick-reference for experienced market practitioners in need of a refresher on the intricacies of a specific instrument. Offering comprehensive coverage of derivative instruments, simple valuation methods, and many detailed examples, this book is sure to be warmly received by professional investors, fund managers, brokers, risk managers, analysts, financial software developers, and all who need a working knowledge of the mathematical techniques used in the derivatives industry.
John Martin (Australia) has worked, taught and published extensively in the areas of treasury, derivatives and financial risk management. He was closely involved in the development of the derivatives industry in Australia in roles varying from market trader, risk manager, regulator and educator. He is a Partner at PricewaterhouseCoopers in Australia.

From the Inside Flap
Applied Math for derivatives offers a guide to the economics and valuation of financial derivative instruments which does not require a math degree to understand. It is deliberately targeted at those practitioners and students who wish to move beyond the algebra to the actual implementation of pricing and valuation models - often the difficult part of any derivative modelling exercise. Detailed coverage is provided for forwards, futures, swaps and options across interest rate, currency and equity markets.The book provides a “hands on” guide to the deconstruction of derivative instruments into their underlying building books based on the fundamental principals of valuation: the “law” of equivalent value; the time value of money; and modelling uncertainty.The book develops more than eighty operational derivative valuation models from first principals covering forwards, swaps and options.

A disk accompanies the book, which provides working spreadsheet models for all of the major instruments as well as addressing risk management issues such as delta hedge effectiveness and new issue arbitrage. In addition to the detailed information on valuation, the book also provides insights into the drivers behind the development of derivative markets and handy hints on the construction of valuation models.

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Product Details

• Hardcover: 480 pages
• Publisher: Wiley; Har/Dis Re edition (June 22, 2001)
• Language: English
• ISBN-10: 0471479020
• ISBN-13: 978-0471479024
• Product Dimensions: 10.2 x 7.4 x 1.2 inches
• Shipping Weight: 2.6 pounds (View shipping rates and policies)
• Average Customer Review: 2.0 out of 5 stars See all reviews (2 customer reviews)
• Amazon.com Sales Rank: #1,369,096 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

19 of 20 people found the following review helpful:

3.0 out of 5 stars Simple explanation of derivatives valuation done on Excel, August 6, 2001

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

I agree with the Mr. Phillips about this book merely presenting the basic valuation equations, but I think that is the beauty of this book. Notice the title made a reference to this book beeing intended for 'non-quants'. However this book still provide 'quants' a valuable reference guide when one needs to brush up on the mechanics of a given derivative valuation.

This book is written from a risk-management practitioner point of view and as such it goes in great length in not just showing the different valuation models, which include most of the models in practice, but also the working mechanism of the specific securities market, and the associated exchange and clearing house settlement procedure. The key strong point of this book is that the author wrote every section of the book with conciseness and to the point. Each instrument's characteristics are presented, the associated equations are explained, and the spreadsheet models are shown in detail (included with the accompanying disk). After reading the book one is left with the feeling that finance is really this simple, involving setting the appropiate model to go with the relevant parameters,

One point regarding the editing: it was simply a great pleasure to browse this book. The clean layout of the book, the consistent sequence of presentation of the materials for all the instruments, and the detailed explaination of each of every equation (all the equations all the cells are shown) allows the reader to follow and comprehend the material with ease.

The contents of the books: market mechanism, valuation and model of interest rate forward, foreign exchange forward, equity forward, interest rate swap (the author is really an expert in these types of intruments, showing models of single-rate bond valuation method, simple offset valuation method, zero-coupon yields bootstrapping, zero-coupon yields: forward rate reinvestment, futures strip swap pricing, forward rate offset valuation method, zero-coupon valuation method), cross-currency swaps, equity swaps, equity options, interest rate options, currency options. The disk includes major valuation models of all the derivatives.(most requires just Excel 4.0 version)

Update: Since this book was published over a year ago, many other fine derivatives books have been published. However its straightforward simplicity still makes it a valuable part of a risk manager's personal library. One minor objection even at [...]its list price it is still priced a tad [...] for an introductory/intermediate level textbook. Anyone more quantitative-oriented, might want to check Cuthbertson's Financial Engineering and Risk Management. Comes with software and real life application examples.

4 of 7 people found the following review helpful:

1.0 out of 5 stars Just the facts.. and little else, September 10, 2002

By	Mic Hael G. Phillips (New York, NY) - See all my reviews (REAL NAME)

The book provides good reference information with regard to the basic price/yield equations, but John Martin gives short shrift to any discussion of the finance theory behind them. It is not just an academic issue since many instruments will trade a premium or discount to the prices implied by the basic equations.

Go with the classic: Options, Futures, and Other Derivatives (5th Edition) -- by John C. Hull.