Paul Wilmott on Quantitative Finance, 2 Volume Set (Hardcover)

~ Paul Wilmott (Author) "The first part of the book contains the fundamentals of derivatives theory and practice..." (more)
Key Phrases: notes having similar features, option valuation screen, indicative termsheet, Hong Kong, New York, Trade Date (more...)

Editorial Reviews

Review

"A great achievement that fills a void for everyone who uses charts. Bulkowski has taken an intelligent and thoughtful approach to producing a practical guide to evaluating chart formations." -(Perry Kaufman, author of Trading Systems and Methods, 3rd Edition)

"Not since Edwards and Magee has someone put together so comprehensive an assemblage of market behavior expressed graphically. That you also get a solid statistical assessment of the results of these chart formations is an unexpected and invaluable bonus. No chartist should be without this book."-(John Sweeney, Interim Editor, Technical Analysis of Stocks & Commodities)

"Encyclopedia of Chart Patterns is a book I have wanted to see published for many years. It brings together the patterns found in many diverse charting methods and adds the valuable dimension of performance statistics, trading tactics, and behavioral characteristics of each pattern. It is a valuable contribution to existing literature on charting and should be considered an indispensable reference by any serious chart trader."-(Edward D. Dobson, President, Traders Press, Inc.)

"Having worn out my 1948 first edition of Edwards and Magee's Technical Analysis of Stock Trends, I thought I knew a lot about chart patterns. Thomas Bulkowski's Encyclopedia of Chart Patterns showed me how much more there is to learn. Meticulously researched, complete, and insightful, the Encyclopedia has earned a permanent place on my trading desk as a highly valued resource."-(Thomas A. Bierovic, Manager, Strategy Testing & Development, Omega Research, Inc.)

"A great achievement that fills a void for everyone who uses charts. Bulkowski has taken an intelligent and thoughtful approach to producing a practical guide to evaluating chart formations." -(Perry Kaufman, author of Trading Systems and Methods, 3rd Edition)

"Not since Edwards and Magee has someone put together so comprehensive an assemblage of market behavior expressed graphically. That you also get a solid statistical assessment of the results of these chart formations is an unexpected and invaluable bonus. No chartist should be without this book."-(John Sweeney, Interim Editor, Technical Analysis of Stocks & Commodities)

"Encyclopedia of Chart Patterns is a book I have wanted to see published for many years. It brings together the patterns found in many diverse charting methods and adds the valuable dimension of performance statistics, trading tactics, and behavioral characteristics of each pattern. It is a valuable contribution to existing literature on charting and should be considered an indispensable reference by any serious chart trader."-(Edward D. Dobson, President, Traders Press, Inc.)

"Having worn out my 1948 first edition of Edwards and Magee's Technical Analysis of Stock Trends, I thought I knew a lot about chart patterns. Thomas Bulkowski's Encyclopedia of Chart Patterns showed me how much more there is to learn. Meticulously researched, complete, and insightful, the Encyclopedia has earned a permanent place on my trading desk as a highly valued resource."-(Thomas A. Bierovic, Manager, Strategy Testing & Development, Omega Research, Inc.)

Product Description

In this two-volume work Paul Wilmott, described by the Financial Times as a "cult derivatives lecturer", updates and extends - with 18 new chapters - his earlier classic Derivatives: The Theory and Practice of Financial Engineering (also published by John Wiley). The new material includes chapters on technical trading, volatility modeling, utility theory, trader options, modeling dividends, real options, energy derivatives and analysis of recent derivatives-led fiascos.

Throughout the book's incredibly wide breadth, the author presents to the reader all current financial theories in a manner designed to make them easy to understand and implement. The reader will discover what the author thinks of certain theories, and where an existing concept is dismissed as impractical or unworkable it is always replaced with one of the author's own, alternative theories. Reviews of Derivatives: The Theory and Practice of Financial Engineering.

"It is a serious work that takes the reader all the way from the simplest of notions to the most complicated of recent models. In short, it is the most comprehensive and up-to-date textbook on options that I have seen ... The style is jocular, but the content heavyweight. The aim is to use a mathematical approach at all times but to motivate the development of models with intuition and to use diagrams and spreadsheet solutions whenever possible. It sounds like an impossible mission. Whoever heard of a mathematician who could convey the intuition of a result to those with a less complete training in the subject? Wilmott is an exception: he knows when a result is hard to understand and treats the reader in a sympathetic manner. ... I cannot imagine any derivatives specialist in an investment bank who would not want to have the book available." The Times Higher Educational Supplement.

"...this book has all the qualities necessary to attract impulse buyers expecting the novel which does for/to high finance what Malcolm Bradbury's 'The History Man' does for/to literary academia. ...What the reader gets is a text which will probably come to rank alongside Fabozzi's collected works of Leibowitz as a comprehensive practical reference source for finance theory." Futures and OTC World "Paul Wilmott has succeeded in simplifying the mathematics of financial engineering and he deserves praise for that. Unlike any other mathematical texts, the book uses a crisp and accessible language, relying on plain calculus and avoiding unnecessary formalism of topology and measure theory. It is rich in illustrations and graphs, making it easy for someone with limited maths to understand." --Risk Magazine.

"Paul Wilmott has produced one of the most exciting and classic reference volumes on derivatives which is a must for both students, practitioners, risk managers and the misunderstood."-- Global Trading. Volume 1: This first volume of Paul Wilmott on Quantitative Finance incorporates Parts I-III of this two-volume, seven-part publication. This new book by Paul Wilmott is an extensively updated and expanded edition of the bestselling Derivatives: The Theory and Practice of Financial Engineering. The first third of this volume (introducing the classic financial and mathematical concepts) remains largely the same as in Derivatives, with the remaining two-thirds incorporating the majority of the updating and expansion, plus the addition of a number of completely new chapters, including: Technical methods for predicting market movement Utility theory Derivatives and stochastic control The exercise of American options at non-optimal times Stochastic volatility and mean-variance analysis Dividend modeling.

The author has included numerous Bloomberg screen dumps to illustrate in real terms the points he raises, together with essential Visual Basic code, spreadsheet explanations of the models, the reproduction of termsheets and option classification tables. In addition to the practical orientation of his new publication the author himself also appears throughout the text - in cartoon form only, many readers will be relieved to hear - to personally highlight and explain the key sections and issues discussed. And if that wasn't enough, there is also a movie quiz hidden within the pages...

Volume 2 This second volume of Paul Wilmott on Quantitative Finance incorporates Parts IV-VII of this two-volume publication. Throughout this volume, many of the chapters which also appeared in the first edition - Derivatives: The Theory and Practice of Financial Engineering - have been extensively expanded and updated and in addition there are 11 completely new chapters, including: Mortgage-backed securities Pricing and optimal hedging of derivatives Increased uses of non-probabilistic interest-rate models Valuing a firm and the risk of default An analysis of financial crashes The modeling of bonus compensation for traders Real options Energy derivatives.

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Product Details

• Hardcover: 1064 pages
• Publisher: Wiley (January 15, 2000)
• Language: English
• ISBN-10: 0471874388
• ISBN-13: 978-0471874386
• Product Dimensions: 10.2 x 7.8 x 2.8 inches
• Shipping Weight: 5.8 pounds
• Average Customer Review: 3.8 out of 5 stars  See all reviews (30 customer reviews)
• Amazon.com Sales Rank: #1,214,955 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

39 of 45 people found the following review helpful:

4.0 out of 5 stars Good set of books...but needs exercises, April 18, 2001

By	Dr. Lee D. Carlson (Baltimore, Maryland USA) - See all my reviews (TOP 100 REVIEWER)    (REAL NAME)

This book is a lengthy overview of some modern techniques in financial engineering. If viewed from the standpoint of applications of partial differential equations to finance, then this book is a reasonably complete treatment. The author does spend a great deal of time on the more bread-and-butter topics of financial modeling and less on more specialized topics, as for example weather and energy derivatives, where the use of partial differential equations is of upmost importance. There are of course alternative approaches to financial modeling from the mathematical perspective, such as techniques from the theory of stochastic processes and martingales, but a consideration of such techniques would swell the book to over twice the size, and there are other good books that cover thses approaches in detail.

The author uses Visual Basic and Excel spreadsheets to compute the relevant financial quantities, and given the popularity of spreadsheets in finance, this is appropriate. The numerical solution of partial differential equations is most efficiently done using C (or Fortran) and no doubt the author does recognize this, for he does mention translating existing code in C to Visual Basic.

My only major objection to the book is the lack of exercises, which were a major selling point to me in the author's earlier book on derivatives. Having such exercises is indispensable in understanding results of this nature.

The first few chapters of Volume 1 give an elementary introduction to the theory of derivatives and stochastic calculus. The author does remain concrete in his explanations, and he gives a fairly straightforward derivation of the Black-Scholes equation. This is followed by a very quick discussion of Green's function solutions of the equation and introduction to the Greeks. Generalizations of the Black-Scholes model are discussed later, in the context of dividends, foreign currency, and time-dependent parameters. The author does not give a critical analysis of the Black-Scholes equation in these chapters. This would have been useful to both the practitioner and a newcomer to the field. Also, the Black-Scholes can be derived in many different ways, and it would have been instructive to see some of these alternative derivations. There are derivations of the Black-Scholes equations based on concepts from information theory, and these shed light on the limitations of this equation. All of the concepts in these chapters can be found in the author's earlier book on derivatives. The second half of the first volume is an overview of the mathematical techniques used to deal with path-dependent and "exotic" options. Consultation of the references is mandatory for a complete understanding of the ideas in these chapters, for the author is a little lacking on details. In addition, more discussion is needed on case history validation of the many formulas given in these chapters: are these formulas useful in practice? The author also introduces some new concepts in this volume that are not in the derivatives book, one being stochastic control. Also, the author introduces a similarity reduction technique for partial differential equations that is very much like the techniques used in neutron reactor physics. Physicists-turned-financial-engineers will see the similarity between these two approaches.

The last part of the first volume deals with extending Black-Scholes. The author discusses the problems with Black-Scholes but his treatment is too hurried. A better approach might have been to give (historical) examples of what might happen, from an investment/risk management perspective, if the assumptions of Black-Scholes are followed to the letter. He does give references though for a more in-depth discussion. Volatility surfaces, viz a viz the Fokker-Planck equation, are discussed here, and effectively. Again, the physicist reader will pick up on the dialog immediately. Information-theoretic techniques, via entropy minimization, are used, interestingly. It is refreshing to see in this part that the author gets down to an empirical analysis of some important issues (volatility for example).

The second volume is somewhat more specialized that the first and outlines in the first chapters fixed income products, swaps, and interest rate derivatives. Phase plane analysis is employed in the discussion on multi-factor interest rate modeling. The treatment here is too curt and needs considerable expansion. The theory of stability of fixed points under the influence of noise is non-trivial and requires careful consideration. A departure from the framework of partial differential equations occurs in the discussion of the Heath, Jarrow, and Morton model. Noting that this model is non-Markovian, he introduces Monte Carlo simulation as a technique to calculate the expected present values. He remarks that the simulation time to carry this out is very long. The sluggishness of Monte Carlo simulations in this model and others in financial engineering has motivated many researchers and start-up firms to devise techniques to speed up the simulations. Indeed, a whole industry has grown in recent years offering packages and algorithms to speed up Monte Carlo.

Risk and portfolio management are also discussed in this volume, beginning with modern portfolio theory. The most interesting and well-written part is on asset allocation in continuous time. Energy derivatives, an up-and-coming field are also discussed. The author is un-sure of himself in this chapter, but he does give a general but elementary introduction to the subject. This is an area that needs a lot more investigation and research given its importance.

The last part of the book addresses numerical methods, and there is some source code in Visual Basic. Monte Carlo simulation is discussed again, along with an introduction to low-discrepancy sequences. These sequences have been used extensively in recent years to improve the efficacy of Monte Carlo simulations. The author's treatment is very terse but he does give many references.

The author has done a fine job in these two volumes, and he spices up the reading with a litte humour, which does not detract at all from the seriousness of the topics, but instead makes for more enjoyable reading.

19 of 22 people found the following review helpful:

1.0 out of 5 stars Wilmott is no Feynman, August 3, 2000

By A Customer

I own a copy of Wilmott's "Derivatives", which I find to be a useful, if somewhat superficial, reference for a wide variety of financial problems. It was worth buying. In his new opus, Wilmott makes an obvious attempt to copy the style and insight of "The Feynman Lectures on Physics". However, Wilmott falls rather short, and cannot deliver anything beyond what is in his previous books. Forget the boxed set and fancy signature, and stick with the previous book.

36 of 45 people found the following review helpful:

5.0 out of 5 stars Wilmott strikes again, July 6, 2000

By A Customer

I have been an appreciative reader of the previous books by Paul Wilmott, and I eagerly bought this updated edition of Derivatives right away. There was no surprise: this is possibly the most comprehensive book on mathematical finance up to date. Several new chapters have been added, some of them addressing very interesting subjects such as stochastic control (one of my favourites), and many others have been expanded. For instance, American options are explained more thoroughly in this edition. You won't need a PhD in math to read the book: it takes little mathematical knowledge to understand the models to a good level of accuracy (strange as it may sound, the author succeeds in demonstrating it is so), and the derivation of more subtle quantitative subjects is straightforward. Wilmott as usual includes some funny lines throughout the text that make the reading light and enjoyable. The drawing boxes depicting the author himself providing concise advice on what issues to focus on may certainly look childish, yet I think they are of some help to the reader. Actually, I think it's impossible to conceive a topic in derivatives theory (and practice, as the author reminds) not covered in these volumes. Do not expect Paul Wilmott on quantitative finance to provide a useful quick reference for formulas and basic ideas, though. The thick and heavy two volumes are a nightmare to carry around (despite the stylish box that accomodates them) and you won't like to browse through the index jumping from one book to the other. Overall, I think this book is a must for all those interested in financial mathematics. Students and first-timers can not, in my humble opinion, find a better textbook for developing a wide knowledge of mathematical finance, and they will certainly read it cover to cover and will have hard time putting it down. More experienced readers might find the level of exposition, especially in the first chapters, quite introductory, but they certainly will appreciate the broad scope of the book and the unconventional yet very enjoyable style with which the subjects are explained. Moreover, Wilmott is available for answering questions and exchanging ideas and opinions, and I think that's a huge resource, considering how greatly knowledgeable he is. There are only two small drawbacks with this book: the price tag and the ugly suit worn by the author (who, surprisingly enough, seems proud of it) in a picture on the back cover of one of the volumes, but serious Wilmott enthusiasts will happily accept both. As a matter of fact, I'm already looking forward to hear about his next (4 volumes, 2K pages?) release.