Product Description

This book aims at a middle ground between the introductory books on derivative securities and those that provide advanced mathematical treatments. It is written for mathematically capable students who have not necessarily had prior exposure to probability theory, stochastic calculus, or computer programming. It provides derivations of pricing and hedging formulas (using the probabilistic change of numeraire technique) for standard options, exchange options, options on forwards and futures, quanto options, exotic options, caps, floors and swaptions, as well as VBA code implementing the formulas. It also contains an introduction to Monte Carlo, binomial models, and finite-difference methods.

Product Details

• Amazon Sales Rank: #355070 in Books
• Published on: 2005-07-21
• Original language: English
• Number of items: 1
• Binding: Hardcover
• 355 pages

Review

From the reviews of the first edition:

"Professor Back has written a superb book on advanced derivatives. The book provides wonderfully clear explanations without sacrificing mathematical accuracy. I highly recommend this book for everyone who wants to understand more about this fascinating and important area."
(Mark Broadie, Columbia University, New York)
"Professor Kerry Back's book fills a void in the derivative literature by providing an excellent and much needed book for a second course in derivatives. The clear presentation and the choice of VBA as the software tool makes this a perfect textbook for such a course. Using VBA via excel is an excellent choice as it exhibits an "open source" environment that is readily available for users."
(Eliezer Z. Prisman, York University, Toronto)

"This book deals with pricing and hedging financial derivatives. … Computational methods are introduced and the text contains the Excel VBA routines corresponding to the formulas and procedures described in the book. This is valuable since computer simulation can help readers understand the theory. … The book under review succeeds in presenting intuitively advanced derivative modelling … . In my opinion, it provides a useful bridge between introductory books and the more advanced literature." (Benjamin Jourdain, Mathematical Reviews, Issue 2006 h)

"This book contains a practical introduction to the mathematics of financial engineering. It can serve as an excellent bridge between the introductory books on derivative securities and those that provide advanced mathematical treatments. … the book presents a very wide spectrum of the problems and methods concerned with pricing and hedging derivatives in a quite accessible way. … it can be strongly recommended not only to be used as a course but also for those wishing to train themselves in this field." (Malgorzata Doman, Zentralblatt MATH, Vol. 1085, 2006)

"The strength of this book is in its clarity in exposition of the complex … modern financial mathematics. The book is self-contained, and a student can learn the key elements of the main toolkits in financial engineering … . Further, the book provides useful exercises and VBA programs so that the students can simulate the results … . I recommend the book to an MBA program … . The book could also be used in some master programs in financial engineering and mathematical finance." (Thomas S. Y. Ho, SIAM Review, Vol. 48 (3), 2006)

From the Publisher
Endorsements:

Professor Back has written a superb book on advanced derivatives. The book provides wonderfully clear explanations without sacrificing mathematical accuracy. I highly recommend this book for everyone who wants to understand more about this fascinating and important area. Mark Broadie, Columbia University, New York

Professor Kerry Back's book fills a void in the derivative literature by providing an excellent and much needed book for a second course in derivatives. The clear presentation and the choice of VBA as the software tool makes this a perfect textbook for such a course. Using VBA via excel is an excellent choice as it exhibits an "open source" environment that is readily available for users. Eliezer Z. Prisman, York University, Toronto

About the Author
Kerry Back holds the Jerry and Kay Cox Professorship of Business and the Thomas W. Leland Memorial Professorship of Finance at Texas A&M University. Before joining Texas A&M in 2005, he was a chaired professor at Washington University in St. Louis. His awards and honors include a Batterymarch Fellowship (1991-92), a best paper award at the Review of Financial Studies (1993) the Reid Teaching Award at Washington University in St. Louis (1997, 1998, 1999, 2001), and the Washington University Distinguished Faculty Award (1999). He is a past editor of the Review of Financial Studies and is currently co-editor of Finance and Stochastics and an associate editor of the Journal of Finance.

Customer Reviews

Most Practical Financial Engineering textbook
Dr Kerry Back in my opinion wrote one the best if not the best practical book in financial Derivatives. In such a crowded field where books are published at an exponential rate; finding a practical book is often a challenge especially since many of them repeat the same information over and over. The best feature of this textbook lies in the problems at the end of chapters. The problems are well chosen and very practical and require the use of VBA/Excel. This book does not get involved with complicated math as so many books in financial engineering do. I am doing a Phd degree in math, I deal with abstract mathematics on a daily basis so am looking for a textbook that will provide a good intuition to the concept of Derivative Securities without sacrificing too much Mathematical rigor. In this regard Dr Kerry Back did a very good job, the book requires only an understanding of non-measure probability theory, calculus, linear algebra and differential equations making it accessible to MBA students and undergraduates as well. I strongly recommend this book to math majors who want a textbook that explain Financial Derivatives well. I also recommend Stochastic Calculus for Finance II by Shreve for readers who want a measure theoric and PDE approcah to Financial Derivatives.

very good book, highly recommended
I definitely agree with other reviewers, besides answers are available. As a matter of fact, I request professor Back whether he has solutions somewhere. He prepared them and emailed to me. What a great person. As a non-quant, I find this book very accessible and clear. Also VBA examples provide useful insight into implementing models, also something I value highly.

Can you use change of numeraire technique?
I have read literally dozens of books on stochastic calculus and derivatives. This one is different in one aspect. It uses the change of numeraire technique wherever it is possible, to make complicated things simple. Most of the books treat it (and use it) only in a small chapter or only refer to the paper of Geman, Jamshidian, El Karoui. I understood this technique before, but here it is used so often that it actually becomes your technique and your weapon. Very powerful, I would like to thank the author. One star less because there are no solutions to exercises.