Financial Engineering: Derivatives and Risk Management

Rating:
Summary: Ideal Intro bk for a Financial Engineering/Risk Mgt course
Review: This is probably the ideal introductory textbook for advanced undergrad or MBA/MSc Finance majors for their first Financial Engineering or Risk Management courses.

New students of these subjects would benefit more from reading this textbook than from reading the much more celebrated (whether deserving or not is up to debate) and yet much more expensive John Hull's classic 'Options, Futures, and other Derivatives', despite the fact that Hull's book is a favorite among many college professors (Hull's book was, incidentally, the textbook used in my MBA options and derivatives course)

There are many reasons that I feel this book represents good value and provides a smooth introduction into the world of financial engineering:

1. Comprehensive: All the major financial products and derivatives are thoroughly covered. Advanced topics such as Chooser options and real options are included as well.

2. Available computer/spreadsheet models: To supplement the excellent coverage in the textbook, the author have made available codes on his website for students to download and to further their self-study. The spreadsheets are professionally done and I found them very useful, either as learning tools or as template to develop more advanced models.

3. Clarity of exposition: The style is straightforward, avoiding unnecessary jargons. Yet the authors walk you through each step of the way using examples, graphs(plenty of them), fully developed equations, and tables.

4. Math and theoretical Rigor: This book does not lack mathematical rigor. Technical appendices are included as well, e.g. Ito's Lemma. If needed, relevant literature is quoted for the student to further his/her study.

5. Solid Value: this book can be had for less than fifty dollars. A bargain compared to many other finance books of similar caliber. Getting this book is like getting two for the price of one: both the financial engineering section and that of risk management could have been sold as two separate volumes.

With this book the authors have paved the way for the new students of FE and Risk management to explore these fascinating world. You will not regret the purchase.