Mathematical Techniques in Finance : Tools for Incomplete Markets

Rating:
Summary: The Best Option Pricing book I've read!,
Review: After reading million books on derivative pricing, this one is the only one which defenitely combines a practical approach to it. You'll start learning about all the maths you need and all the building blocks, all by examples. And suddenly on Chapter 11, it puts it all together and effortless you can price any option with any payoff you can imagine, I got impress withmyself. I work at Credit Suisse First Boston and we have it in all the Quant's desks.

Rating:
Summary: Very good coverage, practical orientation
Review: Consider first, this book's subtitle, "Tools for Incomplete Markets." A "complete market" (the kind assumed by the Black-Scholes-Merton model) is one in which any derivative product can be dynamically replicated by means of cash and the underlying asset. An incomplete market, then, is one is which the world of derivatives and their underlyings do not match each other in the point-by-point replicable manner implied by that definition of completeness. This failure to match makes for a necessary imperfection in hedging. That, of course, is the real world, where traders practice, as Scholes and Merton famously discovered in Greenwich, CT not long ago!

A variety of illustrations of this practical emphasis might be adduced. In the preface, for example, Dr. Cerný tells us frankly that in his experience "is it hard to understand the Itô calculus, but it is possible to get used to it and to apply it quickly and consistently...." [italics in original.]

Rating:
Summary: Hands-on & easy to read
Review: This is a great little book. I would put it in my category of 'original' books on quant finance, which includes books written by Paul Wilmott, Mark Joshi, Rick Osband and Neftci.

The reason being that the author uses a more informal style than most quant books and is very hands-on. If you're interested in understanding quant models and eventually applying them in the real world, then this is the kind of book you want. If you're looking for mathematical beauty and formalism, then look elsewhere.

The editors could have done a better job with some of the flow and formatting - maybe next edition (it is sometimes hard to link the text to the figures and tables).

Great book.