The Concepts and Practice of Mathematical Finance

By Mark S. Joshi

Book Overview

An ideal introduction for those starting out as practitioners of mathematical finance, this book provides a clear understanding of the intuition behind derivatives pricing, how models are implemented,... This description may be from another edition of this product.

• Format: Hardcover
• Language: English
• ISBN: 0521514088
• ISBN13: 9780521514088
• Release Date: November 2008
• Publisher: Cambridge University Press
• Length: 558 Pages
• Weight: 2.38 lbs.
• Dimensions: 1.2" x 6.7" x 9.8"

Customer Reviews

Very useful book

This is a great book for those who want to learn quantitative finance, but don't have the benefit of being enrolled in a financial engineering program. It has the advantage of being self-contained and begins instruction from the ground up: you can "cold start" on the subject with this book. Just a basic knowledge of differential equations (non-stochastic) is required. It is natural to compare Joshi's book with Hull, but I would recommend reading them together as they have complementary strengths. Hull is over-simplified but provides financial intuition and descriptions of real-world practices. However it does not have modern notation. It also does not teach you how to solve actual pricing problems from the mathematical or computational point of view. Joshi's book does all of that and even helps you develop some mathematical intuition for the models. It also has some computing projects in c++ that a student could do. The real comparison should be with Neftci's mathematical finance book and Baxter and Rennie. I think Joshi's book is much better than either of the two. I could barely read Neftci after a while because of the errors and bad organization. B & R is way too formal in my opinion for such an applied subject. Joshi's book has good notation and organization which builds confidence in the author, plus it is very applied so you feel you are learning something useful. It has none of that lemma-proof style which can be so unappealing to non-pure mathematicians.

Excellent and very comprehensive book

I found it by far the most useful introductory book on pricing financial derivatives. The text is easy to understand, and the author gives lots of attention to small but important details. It also doesn't stop at the Black-Sholes theory and gives a lot of information on what's beyond the basic Black-Scholes pricing. I was especially happy to see chapters devoted to pricing fixed income derivatives. At the end of the book there is a set of programming projects which were very useful to me. Without doubt I'd recommend it to any student in Financial mathematics.

An outstanding book in a crowded field

In recent years bookshelves (and readers) have groaned under the weight of new First Courses in Mathematical Finance. There is, of course, a huge overlap in content and it is no easy task to write a book which is both better than its predecessors and genuinely novel. In both tasks Mark Joshi has succeeded admirably: this book deserves to become the leader in its field.Finding the right level of mathematical sophistication is a difficult balancing act in which it is impossible to please all readers. Here, the author has had a clear vision that the principal audience is the practising or potential quantitative analyst (or quant) and writes accordingly; it is impossible to do better than taking an approach of this sort. Such a quant must have a certain minimum level of mathematical background (a good degree in a numerate discipline). By definition, this has to be assumed for a decent understanding of the material, but the author always has an eye on what a quant really needs to know. Integrated into this mathematical work is a good deal of information about how markets, banks and other corporations operate in practice, not found in more academically-oriented books.The first half of the book includes the core material found in any decent first course on the subject including basic stochastic calculus, pricing of European options through discounted expectation under a risk-neutral measure, the Black-Scholes differential equation and so forth. Where this book really stands out, however, is the exceptional clarity with which the key concepts are separated. Not only are three different ways for deriving the Black-Scholes formula presented (through PDEs, expectation, and the limit of discrete tree-models) ; much more significantly, the different roles played by hedging, replication and equivalent martingale measures in enforcing a price are made crystal clear. In whatever way you already think about this material, you will almost certainly come away with something new from reading this treatment. In my case, for example, I gained a much greater understanding of why "risk-neutral" pricing is so called.The second half of the book, roughly speaking, covers a selection of more sophisticated material. The major areas covered include interest-rate derivatives and models; and more complicated models for stock price evolution (such as stochastic-volatility, jump-diffusion and variance-gamma) that have been proposed to correct inadequacies in the Black-Scholes model such as its failure to explain market smiles. Once the core ideas have been so thoroughly explained in the first half, a great deal of interesting and diverse material can be covered rapidly yet with a great deal of clarity and coherence, relating the new models to core ideas such as uniqueness of prices and hedging issues.Those with quantitative finance experience are still likely to find a good deal that is new and worthwhile in this book. And if you a thinking about becoming a quant, I cannot t

A must read for anyone interested in mathematical finance

The modern paradigm within mathematical finance is the use of martingalemethods for the pricing of options; an understanding of it is critcal not only to quants who use these mathematical tools on a dayto day basis, but also to risk professionals in general when understanding therisks inherent in a new product. At present, however, there are very few accessible texts that discuss this at a level that is suitable for the (sizeable) interested audience; texts either do nothave adequate coverage of the martingale methodology, concentrating on theolder less insightful pde methods, or concentrate (too much in thereviewers opinion) on mathematical rigour and require a substantial understandingof probability theory before one is able to understand and appreciatethe finance.Mark Joshi's book fills this niche admirably: it is mathematically rigorous where it needs to be, but more importantly "physically" insightful --- theauthor takes considerable pain in assisting the reader in developing an intuition both for the models used and the products that arepriced. However, the mathematics is all there; more importantlyfor the finance professional there are details on how to implement the various models described. Again in marked contrast to other texts availablethe book includes a number of relevant exercises (with solutions) andcomputer projects --- features which this reviewer welcomes.The book is also to be applauded on the fact thatit does not end after a discussion of the Black Scholes stock case ! Insteadthe second half of the book discusses, admittedly assuming a slightly higherlevel of mathematical sophistication (but never beyond, what one wouldexpect of a good physical sciences/mathematics graduate), multiasset options,the LIBOR market model, stochastic volatility and jump diffusion models.This again is a key strength of the text, rendering these subjects farmore accessible to a wider audience.In short this is a book which anyone who is interested in mathematicalfinance should have on their book shelf.