Product Description

Five new chapters, numerous additions to existing chapters, and an expanded collection of questions and exercises make this Second Edition an essential part of everyone's library. Between defining swaps on its first page and presenting a case study on its last, Neftci's introduction to financial engineering shows readers how to create financial assets in static and dynamic environments. Poised among intuition, actual events, and financial mathematics, this book can be used to solve problems in risk management, taxation, regulation, and above all, pricing.

* The Second Edition presents 5 new chapters on structured product engineering, credit markets and instruments, and principle protection techniques, among other topics
* Additions, clarifications, and illustrations throughout the volume show these instruments at work instead of explaining how they should act
* The Solutions Manual enhances the text by presenting additional cases and solutions to exercises

Product Details

• Amazon Sales Rank: #23024 in Books
• Published on: 2008-12-15
• Original language: English
• Number of items: 1
• Binding: Hardcover
• 696 pages

Review
"This is the first comprehensive hands-on introduction to financial engineering. Neftci is enjoyable to read, and finds a natural balance between theory and practice."
- Darrell Duffie, James I. Miller Professor of Finance, The Graduate School of Business, Stanford University

"Neftci's book captures much of the excitement of the recent surge of theoretical and practical work on financial engineering. A variety of readers will be interested in this book, including lay people who are interested in better understanding how financial markets can be used to share and mitigate risks and practicioners who are interested in constructing and valuing new securities."
- Thomas Sargent, Professor of Economics at NYU, and a Senior Fellow at the Hoover Institution, Stanford University -- Review

Review
"Its focus on financial engineering and the actual use of derivative instruments makes Neftci's book an extremely useful complement to the standard introductions to derivative pricing and financial mathematics. The value of the text has been enhanced further by the addition of five chapters on structured products and credit derivatives not present in the first edition."
--Rüdiger Frey, University of Leipzig

"Since its publication in 2004, Neftci's book has become the de facto reference text for financial engineering practitioners and academics. With renewed and extended emphasis on structured products engineering, Neftci keeps the material relevant and up to date for the current state of the financial markets."
--Dan Stefanica, Baruch College

From the Back Cover
On a topic where there is already a substantial body of literature, Salih Neftci succeeds in presenting a fresh, original, informative, and quite up-to-date introduction to financial engineering. Seeking not to introduce financial instruments but instead to describe the methods of synthetically creating assets in static and in dynamic environments and to show how to use them, his book complements all currently available textbooks, from John Hull's popular editions to more mathematical books such as one by Musiela-Rutkowski. The book introduces a rationale that can be used for obtaining synthetic instruments for any purpose. It emphasizes developing methods that can be used in order to solve risk management, taxation, regulation, and above all, pricing problems.

About the Author
Salih N. Neftci completed his Ph.D. at the University of Minnesota and subsequently taught at George Washington University, Boston College, and the Graduate Institute for International Studies in Geneva. He currently serves as a professor at the Graduate School of the City University of New York and at the ISMA Centre, University of Reading. Professor Neftci is also head of the FAME Certificate Program, an intensive 5-week training course of young market professionals and academics, and he participates in the FAME Ph.D. program as well. In addition to teaching, Professor Neftci works with financial institutions on applied pricing and risk management problems.

"Neftci's book captures much of the excitement of the recent surge of theoretical and practical work on financial engineering. A variety of readers
will be interested in this book, including lay people who are interested in better understanding how financial markets can be used to share and mitigate
risks and practitioners who are interested in constructing and valuing new securities."
- Thomas Sargent, Professor of Economics at NYU, and a Senior Fellow at the Hoover Institution, Stanford University

Customer Reviews

A triumph of clarity with a welcome balance of techne & arte
In a word: Salih N. Neftci's `Principles of Financial Engineering' is a triumph. Neftci's `Principles' joins Mason and Merton's "Cases in Financial Engineering" as the field's premier fundamental texts, most especially for students, but of practical use for practitioners as well. Neftci's chief strength in this work is the same that has made his "An Introduction to the Mathematics of Financial Derivatives" deservedly famous: clarity. Where other authors get bogged down in dark obscurantism, such as Beaumont's unsatisfying and inadequate "Financial Engineering Principles," or Galitz's risk management book, inappropriately titled "Financial Engineering: Tools and Techniques to Manage Financial Risk," Neftci sheds clear sunlight on the field of constructing structured products with the building blocks of financial instruments. He is the most gifted writer in practical financial mathematics, and his legions of fans are not wrong: there is no one better than Neftci at breaking down complex concepts in clear, digestible bites and then reassembling the whole. Neftci's `Principles' improves upon, and indeed replaces, Cuthbertson and Nitzsche's "Financial Engineering: Derivatives and Risk Management" for applicability and lucidity, and replaces Mashall's "Financial Engineering: A Complete Guide to Financial Innovation" in scope. But Neftci does not sacrifice addressing difficult or complex structures through useless over simplicity, as sadly is the case with Eales's "Financial Engineering," rather he builds his explanations smoothly and logically, shedding light on the topics at hand by continually clearly demonstrating a replicating portfolio that mimics the instrument using other asset classes. For example, he begins by addressing the construction of cash flows with forward contracts, and then moves on to interest rate derivatives, swaps, repos, and then puts them all together for dynamic replication methods and the construction of synthetics. Each chapter builds and sheds light on the next instrument and technique. By the time Neftci addresses options and applications to bond convexity strategies and credit derivatives, we are in a position of strength. Most notable is Chapter 14, which clearly reviews volatility trading and discusses both the strengths and pitfalls, before turning to the nearly endless problem and opportunities of volatility smiles. He does not turn away from the problem of pricing in the presence of smiles, and uses the example of trading in the FX markets to shed light on strategies. For those working on synthetic and structured products desks, this will be the premier text. For those working on credit derivatives and other derivatives desks, this work assists in clarifying basic financial engineering concepts that then are more appropriately addressed in specialized texts, Schönbucher's "Credit Derivatives Pricing Models," for example. For those seeking a more rigorous mathematical foundation to financial engineering, Capinski & Zastawniak's "Mathematics for Finance: An Introduction to Financial Engineering" or the works of Steven Shreve and Ioannis Karatzas are the volumes to turn to. But for a solid work for a student who wishes to be a practitioner, Neftci is always the first choice. For the instructor, this book, coupled with the above-mentioned `Cases' will provide the exact balance between techne and arte that provides students with the best education for engineering structured products. There is a single caveat to my otherwise wholehearted praise for this book: those already deeply familiar with these topics will find little new here: this is not a groundbreaking work announcing new techniques or research. Rather, the strength of Neftci's `Principles' again is clarity clarity clarity. This is a most welcome volume, the one I wish I had had as a graduate student, which leaves this reviewer envious of those who will benefit and have stronger careers due to its current availability. We owe Neftci our thanks.

I can't praise this book too highly!
As someone who teaches derivatives to practitioners and in a Masters program, I can't praise this book too highly. It is clear, comprehensive and, most importantly, concentrates on practical applications. I was particularly pleased with the chapter on repo, which is usually underestimated in importance, without requiring a whole, specialist book.

For someone with a fundamental, but non-quantitative background in financial markets (MBA or CFA level), this is the ideal place to go next before more specialised and quantitative books. The advantage of having studied this book first will be to have a clear picture of the forest for the trees.

My only (small) criticism is that the book would have been even better if it had included a chapter (or two) on the multi-tranche asset backed security structure followed by cash and then synthetic CDOs. I do hope that might be rectified in the next edition.

Bravo!

An excellent reference for professionnals and students
Principles Of Financial Engineering came as an excellent surprise to me, it will probably make a lot of people feel more intelligent about themselves as it explains fairly complex technicalities in a comprehensible way. Neftci book is a very good reference for market professionals like myself in need of a rapid answer, or anyone with a desire to understand more about fixed income and derivatives. Graphical illustrations enhance the text and should make it particularly easy for finance students to understand subjects like synthetic alterations using various financial instruments.