Derivative-security

Learn continuous time finance from this book: you won't be disappointed. I have read almost all the most famous finance books and I must say that this is by far the best one of them. Although somewhat limited in scope, it is masterfully written: everything is explained clearly and carefully. All statements are rigorously proved. I would say it is suitable both for beginners, having a minimum exposure to measure-theoretic probability and willing to spend some time on it, and for advanced students. Personally, I first read the book as a beginner and found it extremely useful, but even now, that I understand and know most of the material, I find it to be an invaluable reference. The level of mathematical sophistication is quite high, so don't expect anything like Neftci, Baxter and Rennie, Mikosch or Bjork. The level is the same of Duffie, but, while Duffie presents a lot of material and most of the time he doesn't provide proofs and explanations (which, personally, I find irritating), this book is limited to few selected topics, but they are explained at length.
Unfortunately, the perfect finance book has not yet been written (finance professionals seem to be too busy and well paid to write good books), but this one is almost perfect. If you really want to understand quantitative finance, I strongly recommend that you invest a good amount of hours in studying this book. Two good books to acompany this one might be Resnick's book on probability and Steele's book on stochastic calculus.

Nielsen has written a virtually self-contained treatise on the subject. Reading this book was a beautiful learning experience: The author's clarity of thought was striking; the examples made particular points transparent; and the exercises made invaluable contributions to understanding.
The three appendices (on measure and probability, the Lebesque integral, and the heat equation), and the first three chapters make the book as self-contained as is possible.
Synopsis: I do not know of a better book on this subject.

This is an excellent textbook on financial mathematics. It is quite mathematical, but self contained, clearly and carefully written. The appendices are very well written condensed reviews of basic technical facts. The book also contains discussions of a topics that I've never seen anywhere else, such as "Arbitrage and Admissibility" and "The doubling strategy". As mentioned in the preface, the book is based on a doctoral-level course, and the author clearly had the benefit of a large amount of feedback from students. Reading it, one can't help notice the presence of a very large number of extra remarks and hints, inserted on every page in order to clarify what must have been a denser original text. Finally, I have to mention the excellent editorial work done by Oxford University Press in producing this book, as compared to similar books published by Wiley.

This is an essential book for anyone interested in evaluating credit risk. It is well written and one of the best in its class in the market.

For more on products, however, especially the explosively growing credit derivatives market, I recommend Tavakoli's "Credit Derivatives" 2nd Edition.

This is probably still the best book on the valuation of credit risk. It is concise, rigorous, yet with many examples and a good treatment of implementation issues.

This book discusses credit risk valuation in detail and quantitatively. The book is very strong on counterparty credit risk of derivatives. That is really the focus, though it also has stuff on general credit risk and credit derivatives (I wish it had more on credit derivatives). It also offers a chapter on general option pricing and risk-neutral valuation principles (brief but very good). What I also liked was the appendix with a short description of the more important and more advanced mathematical concepts used in the book. Although (or perhaps because) not an easy read but rather terse and demanding, I found it to be an extremely valuable resource. It really helped me understand the subject matter and gave me a good idea of how to model such risks.

The cover and page quality make this book a joy to read compared to other derivatives texts on the market.

Even more important, Dr. McDonald's writing is clear and logical. His theory is current and well laid-out. Compared to Hull it has more PDE's and sound theory. Compared to still other derivatives texts, Dr. McDonald gives more applications to supplement the theory.

If I could only recommend one derivatives texts to students and practitioners needing a thorough overview of the market, this would be the one.

Far too many books on derivatives are written by academics who claim to be writing for intelligent professionals but are in fact really trying to impress their colleagues. This book is a wonderful exception to that general rule. It is written by a master teacher who understands the importance of knowing several different ways to solve problems, and who provides numerous examples so that the reader can check his/her own answer. The book also provides software in VBA (Visual Basic for Applications) so that the reader can experiment with the results explained in the text and apply them to his/her own problems.

McDonald is very concerned to explain the intuition behind the numerous formulas presented in the text, and presents the various chapters in an expertly-designed sequence so that new results nearly always become understandable as more general ways of seeing results presented in earlier chapters. The material progresses gradually from basic to complex, so that the dedicated reader becomes thoroughly acquainted with results that have only recently been discovered. As a consequence, this textbook becomes a handy reference work to be kept at one's desk for daily use.

I came across this book more or less by accident, and as I was browsing through it I noted with particular interest several substantial discussions of how derivative pricing can be done with real probabilities so as to arrive at the same results as pricing done with the pseudo-probabilities (or risk-neutral probabilities) discussed in most texts. These sections provided an extremely important clarification of an issue that undoubtedly occurs to nearly all students of derivative pricing but is nonetheless ignored in nearly all of the relevant textbooks and literature. I knew right then that the author understood what questions were occurring in the minds of his students and how to deal with them.

This book is a bit more expensive than some rival texts, but it is entirely worth it because of its tremendous clarity and because of the software that accompanies it. In reality, this book is a bargain.

I had the privilege of using the manuscript of this book for two advanced finance courses I did at Kellogg School of Management (Northwestern University---the Author's home) and just got a chance to read the final published book. This is an excellent book on derivatives markets which should appeal to three types of readers: 1) MBA students doing their first finance course on derivatives; 2) Non-finance professionals who can easily grasp quantitative aspects of derivatives pricing schemes but lack an an intuitive understanding of why, where and how derivatives are used (I was in this category until I attended Kellogg); and, 3) Corporate finance professionals trying to understand different risk management tools. Bob McDonald did a great job in maintaining a good balance between mathematics of derivatives pricing schemes and logical explanations of several economic concepts one would encounter in derivatives. This book is going to be a popular MBA text book very soon.

In the first four chapters of the book, the author assumes that the prices of different derivative securities are known and discusses how these securities can be used for insurance and speculation (Chapter 4 has a nice introduction to risk management). Chapters 5-8 explain pricing methods for futures, forwards and swaps using simple discounting models. Chapter 6 has a lucid discussion on how would "futures contract price vs. time" curves for different commodities differ based on the seasonality, transportation costs and storability aspects specific to each commodity.

Starting in Chapter 9, the author discusses different option pricing models. The material presented in Chapters 10-13, where in the author discusses binomial option pricing models, Black-Scholes formula and delta hedging, is clearly the highlight of this book. I did not find such a crystal clear discussion of binomial pricing models and the rationale behind delta hedging in any other text book. In Chapters 15-17, the author discusses financial engineering (how to create a required payoff from basic building blocks) and corporate applications of derivatives (including real options). In the remaining chapters (Chapters 18-24), I would recommend Chapters 18, 19 and 24 to all the readers. The other chapters are not really necessary unless you plan to work on developing derivatives pricing schemes.

In summary, I strongly recommend this book to every serious student of finance.

Wow, wow and more wow! This book totally rocks the house! Talk about some solid partial differential equations... this one really socks it to ya! I couldn't put it down. I wouldn't put it down. I couldn't believe that anyone would write a book as wickedly clever, funny, witty and engrossing as this.

I've read all of Feeney's works... and I mean ALL of them. This one is clearly the best... no question. No question at all. If you want to read some great finance... if you're really ready to enjoy the best there is... then you're ready to read Feeney.

Great ready for the read of your life. Get ready to see the world a different way. Get ready to go really, really deep into the financial corners of your mind. Travel to your limits and push past them to where you thought it was impossible to go. Learn about yourself, learn about the world, learn about what it takes to be a financial guru.

Feeney - the great mind of finance bringing us insights to share with the next generation. Bravo!

Perhaps the most interesting and compelling finance book I've read in decades. Feeney takes even the most complicated ideas and brings them down to levels that even I could understand. Very well written, insightful and full of telling comments on the markets from one of its true masters. I highly, highly reccomend this book to anyone even remotely interested in the world of finance. I, and all of my colleagues who have read the book, can hardly wait for the sequel... sure to be as fabulous as this version. Two Thumbs Up!

This book is useful for someone looking to either learn about or brush up on the financial derivatives markets

I had a strong background in equity derivative models but found the leap to interest rate models difficult. What are the relationships between short rates, forward rates, and term structure? How do assumptions translate into restrictions on our ability to model the "stylized facts" of interest rates? How are assumption violations "corrected" by practitioners?

This book answers all of these questions in a straightforward yet rigorous manner. Explanations are supplemented with simple examples.

After reading this book, I had the roadmap and analytical context I needed to tackle implementation focused books like Brigo and Mercurio.

As a bonus, this book provides a very nice summary of major valuation tools. (Monte Carlo simulation of martingale processes, development of pricing PDE via Feynman-Kac, development of fundamental solutions, etc.)

If you want a concise, clearly written and excellently explained introduction to the cutting edge interest rate models used in dealing rooms today. Look no further. With an elementary stochastic calculus background from Rennie & Baxter, this book is very readable, even on a crowded train! For those who want more details & case studies, have Interest Rate Models by Brigo & Mercurio as a companion text. With useful tips on Libor & swap market model implementation, and a whole chapter devoted to convexity correction. One of the best texts on the subject I have read.

This book will give risk managers something to think about when they start to implement credit derivatives as part of the strategy.

You can understand the concept of credit derivatives

This book explains and illustrates (with real world examples) how to estimate the value of financial instruments that are traded on listed securitues exchanges, as well as some that are not actively traded. The book provides valuable demonstrations of how wide range practical sources of information can be used to compute prices for commercial mortgages, private-placement bonds, mortgage-backed securities, derivatives, joint ventures, and other financial instruments. Casabona and Traficanti also provide 340 slides that expedite learning...

A useful guide for both the accounting and financial professionals who must tackle valuation on a regular basis. Casabona and Traficanti explain the basics of pricing various types of fixed income securities, equity securities, and the whole gamut of derivatives. I was particularly impressed by the fact that Casabona and Traficanti do not limit themselves to publicly traded instruments; instead, they consider both the public and the nonpublic (i.e., private) markets for securities. The book is well thought out, well organized, and easy to follow . . . I can easily see it becoming a primary resource for the accounting profession and for Boards of Directors of both issuing institutions and of the investment companies that represent the target investment market for many of the instruments discussed.

This book is both enjoyable and informative. I will find time to read it again.

I have just read the first three chapters and it looks like I'll finish it soon. Key Financial Instruments is the only readable book on derivatives that I have come across.

incredibly well written - like JK Rowling of Harry Potter and Michael Lewis of Liar's Poker combined

This is the best book available on interest rate models. Very detailed. Much more focused and readable than Rebonato's book. More pragmatic and explicit than Musiela and Rutkowski. Not as theoretical as Hunt and Kennedy. James and Webber also looks very good, but I'm not that familiar with it. All other books have only bits and pieces on interest rates.

With all the due respect to the other authors I would say that if one is interested in a good theoretical book whihc is also good on the implementation side then the book of Brigo and Mercurion is definetly the best book I have ever read on the subject.

Anyone interested in implementing the LMM/BGM/MSS model in practice is well advised to read it.

I would just say that this is certainly a must have in the field.

In the late nineties I went through Brigo's innovative work on stochastic nonlinear filtering with differential geometry techniques. I was favorably impressed by results and style, particularly in his dissertation and in his 'geometry in present day science' very readable overview. Interesting results are found and nicely told with accurate - but not pointlessly complicated - advanced mathematics for the problems at hand, I reasoned.

I've followed a similar path from control to finance, and having worked with interest rate models, I couldn't help but order this Brigo-Mercurio book. I had high expectations 'cause these two guys are working in a bank on the real thing.

Sure enough I'm not disappointed.

1-factor models are handled with great care, a ton of formulas and recipes are given. I've never seen this kind of analysis of pricing with Gaussian 1-f models. The new upgrade of the CIR model is interesting and accurate. "CIR++" is now my favorite 1-f model. I like the treatment of lognormal 1-f models and the explanation of Monte Carlo and trees -- the flow-chart for Bermudan swaptions is crystal clear! Plots of market implied structures and volatility calibration are useful additions.

The chapter on 2-f extensions has one of the best discussions on volatility, and two tons of useful formulas/recipes. Two dimensional trees!

The HJM chapter size is OK. I agree - the useful models embedded in HJM are short rate models and market models.

Market models - these three chapters alone are worth the book. You'll find yourself nodding as you read the guided tour. They make it look easy all the time. The exposition is focused, clear, intuitive, detailed. There's also new stuff, just check the calibration discussion! Smile modeling begins with a brilliant tour and ends with Brigo-Mercurio's new approach - the mixing dynamics - deserving a whole chapter if expanded.

The detailed explanation on products is a much welcome original addition. Cross currency derivatives!

Quotes - as in Brigo's old work - are a pleasant diversion while reading. The 500 and more pages are a treat given the competitive price.

Still there's room for improvements - more "CIR2++"! Something on 3-f models. Historical estimation of the correlation matrix and low-rank optimized approximations. Expand smile modeling! More hedging. Something on structured products. Cross currency libor model. chapter 9 - other interest rate models - sounds out of place and can be suppressed for other things.

This book rings true and has useful teachings for students, academics and practitioners. Although it requires some background in stochastic calculus, it's hard to beat on the pricing front. Kudos to Brigo and Mercurio! It only harms there aren't enough books like this.

If you are a student just taken up a course in derivatives or risk management you should have this book. if you find john hull more technical, you have Don Chance who covers options and other derivatives in a greater detail and in more words. everything you want to know about how banks etc have risk mangaement systems in place and market risk instruments is here.

in case you want a greater coverage of options and pricing options, you should definatly take a look at Black Scholes and Beyond by Neil Chriss, a work of art.

This is an excellent book for non finance majors who would like to grasp the physical concepts behind different derivatives products traded in the OTC markets. The book is ideal for a preperation read for all aspiring to take Financial Engineering / Derivatives as majors in graduate programs.

If you are interested in the basic concepts governing derivatives without getting into the mathematics of it then this is the ideal book. I recommend this book for any one who is contemplating taking Derivatives as an advanced level course. The book would give a solid foundation to the concepts of risk management.