Book Description
Bestselling author Salih Neftci presents a fresh, original, informative, and up-to-date introduction to financial engineering. The book offers clear links between intuition and underlying mathematics and an outstanding mixture of market insights and mathematical materials. Also included are end-of-chapter exercises and case studies.
In a market characterized by the existence of large pools of liquid funds willing to go anywhere, anytime in search of a few points of advantage, there are new risks. Lacking experience with these new risks, firms, governmental entities, and other investors have been surprised by unexpected and often disastrous financial losses. Managers and analysts seeking to employ these new instruments and strategies to make pricing, hedging, trading, and portfolio management decisions require a mature understanding of theoretical finance and sophisticated mathematical and computer modeling skills.
Important and useful because it analyzes financial assets and derivatives from the financial engineering perspective, this book offers a different approach than the existing finance literature in financial asset and derivative analysis. 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. It emphasizes developing methods that can be used in order to solve risk management, taxation, regulation, and above all, pricing problems.
This perspective forms the basis of practical risk management. It will be useful for anyone learning about practical elements of financial engineering.
* Exercises and case studies at end of each chapter and on-line Solutions Manual provided
* Explains issues involved in day-to-day life of traders, using language other than mathematics
* Careful and concise analysis of the LIBOR market model and of volatility engineering problems
Customer Reviews:
great book.......2007-05-07
Prof. Neftci gave one of our mandatory course - Financial Engineering, in HEC Lausanne. This book is the reference book for this course. His lecture is great, a lot of jokes and funny stories as well as insights about financial engineering. However, I find out that the book is even better than his lecture.
Simply a must own for anyone with any use for Quant Finance.......2006-08-26
Neftci is one of those rare authors who can begin at the begining, explain his major point and logic without excessive jargon or short-cuts, and do so without sacrificing depth and substance.
In a field were the readable texts are for MBAs or elementary practioneers or for the initiated members of the priesthood, here is one of a few handful of authors (Wilmott and Joshi as well) that are both clear and serious, rigorous and accessible, insightful and a plerasure to read.
I can't praise this book too highly!.......2005-12-09
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!
This is one of the top books on quantitative finance.......2005-11-22
I am a student of Prof Neftci in the Applied Math for Finance MS program at Baruch College. He is a great teacher and has written this wonderful book. This is the text book for the Calibration course he teaches at baruch.
The best thing about it is in the practical approach it is written with. It tries to explain the finance as interpreted by practioners like traders...the engineering of finance rather than the science of it. Knowledge of basic parobability thoery, martingales, PDE and some stochastic calculus is assumed. The book itself has less emphasis on mathematical rigour but there are plenty of other references for that.
The strength of this book is in its practical utility in understanding the market and the rational behind the products that exist in it and the priciples of pricing and hedging those.
Chapter 11 on the Fundamental Asset prcing theory is a gem and is the workhorse for pricing many of the products like swaps or swaptions.
Great!.......2005-11-20
A wonderful book with a great didactic approach! Very clear but never mundane. The best introduction to the field so far. It's only drawback is the sometimes slightly unintuitive notation.
Average customer rating:
- Absolutely Great!
- A Cookbook for Financial Modellers
- Not really satisfying
- Advanced modelling in finance using Excel and VBA
- Highly Recommended
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Advanced modelling in finance using Excel and VBA
Mary Jackson , and
Mike Staunton
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Financial Modeling - 2nd Edition: Includes CD
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ASIN: 0471499226 |
Book Description
This new and unique book demonstrates that Excel and VBA can play an important role in the explanation and implementation of numerical methods across finance. Advanced Modelling in Finance provides a comprehensive look at equities, options on equities and options on bonds from the early 1950s to the late 1990s.
The book adopts a step-by-step approach to understanding the more sophisticated aspects of Excel macros and VBA programming, showing how these programming techniques can be used to model and manipulate financial data, as applied to equities, bonds and options. The book is essential for financial practitioners who need to develop their financial modelling skill sets as there is an increase in the need to analyse and develop ever more complex 'what if' scenarios.
- Specifically applies Excel and VBA to the financial markets
- Packaged with a CD containing the software from the examples throughout the book
Note: CD-ROM/DVD and other supplementary materials are not included as part of eBook file.
Customer Reviews:
Absolutely Great!.......2006-01-11
Advanced Modeling is a fantastic book, and pretty easy to follow with relatively few coding errors. There are some books out there that have errors in the code that they use, which makes it difficult or someone to learn the techniques. Even for those without a solid background in VBA, this book can benefit you to start learning how to code properly. Anyone who is relatively proficient with Excel can definitely gain a new trick or two from reading this book. All you really need to start using this book is a basic understanding of finance concepts (e.g. portolio theory, capital budgeting, binomial options pricing, Black-Scholes, etc.). The techniques that are taught are also useful in other modeling exercises, and not necessarily just for finance-related topics.
A Cookbook for Financial Modellers.......2005-10-19
Yes, the book won't teach you CAPM, Black-Scholes, or much financial theory. But there is NO shortage of those books. There is a shortage of books with real-world Excel solutions to applying financial theory to data. I've had this book for a couple of years and have probably only used 10% of it, only because I don't have time, real business need, to do the rest. I sometimes take it to bed to read and dream of having the time to try out some of their other models. That's the only thing I can add to the other reviews here, the amount of love and passion for the subject put into this book. There's not one extra padded word or graphic in this book. Yes, if there was one book I'd have to take to a desert island with Excel and some financial data this would be it.
Not really satisfying.......2004-06-05
One of the main points of programming books is to help the reader understand the models being programmed. On this count, "Advanced modelling in finance using Excel and VBA" fails miserably. There is very little explanation of the financial concepts and models. Anyone hoping to learn finance from this book will be very disappointed.
The result is a series of programming black boxes and ugly spreadsheets having only limited usefulness.
Although the level of his book is somewhat lower, Benninga's "Financial Modeling" book is much better at explaining the conceptual basis of financial models. A good programmer will be better off with Benninga than with Jackson-Staunton.
Advanced modelling in finance using Excel and VBA.......2004-03-15
This is probably the best book written on financial modeling in excel, definitely worth the $50. Comes with a great CD-ROM. The books strength is its illustration of financial models and implantation in Excel. Since the models focus on static solutions the book is probably of greater use in academics than in industry. It would be great if there was instruction about how to input real time data into Excel and implement the models dynamically. Of particular interest to me is the great VBA code given on the CD, namely the code to calculate autocorrelation, cubic spines, eigenvalues and eigenvectors. This alone was worth the 50 bucks.
There are some major deficiencies in this book. Noticeably absent topics include: bond portfolio immunization; swap pricing; forwards and futures hedging; the ARCH, GARCH and CHARMA models.
My background is in finance, mathematics and computer science. Unlike the guy above, I don't see any need for advanced mathematics in order to study this book. In fact I am sure you don't. The point is to make excel do it for you. However it will a lot easier for those who understand the finance and mathematics behind what they are telling excel to do. I am assuming that those who are considering this book most likely have taken at least one college level calculus course and one statistics course. But I don't think even that is necessary and definitely not stochastic calculus.
Highly Recommended.......2003-03-06
VBA is one of those tools I long knew I should be proficient in but never got around to learning. That is, not until I found this book. It makes it easy for a financial professional to quickly come up to speed and start coding VBA within spreadsheets. The fact that the focus is on financial applications means that you learn coding techniques that will be useful on the job. I highly recommend the book!
Book Description
The seventh edition of Advanced Financial Accounting is a comprehensive and highly illustrated presentation of the accounting and reporting principles used in a variety of business entities. The complete presentations of worksheets, schedules, and financial statements allow students to see the development of each new topic. The book's building block approach introduces concepts with simple examples and then gradually introduces complexity, allowing students to easily keep pace with the material. Because the course often serves students who plan to take the CPA exam, much of Advanced Financial Accounting's end-of-chapter material is provided in the formats as tested on the CPA exam. A wide variety of multiple-choice questions, cases requiring written presentations, and other objective answer format materials helps students even further to reinforce their mastery of text concepts.
Customer Reviews:
Adv. Accounting Review.......2007-07-26
Although helpful, this book was not as good as some of the study guides I have used in the past.
advanced financal accounting book.......2007-02-23
The product I recieved was mis represented it made it sound like it was the actual book. It did not say that it was only the study guide. When I was searching for the item it said it had it in paperbacka which was cheaper so I ordered it then I recieved not what I wanted.
INFORMATIVE.......2006-05-07
This book covers special accounting entities that are not covered in Intermediate Accounting. This book has become helpful in the different organizations I have been employed. Although the material in this book is a lot - it is necessary. Has an excellent section for Not-for-Profit accounting.
Could Have Been Better.......2003-06-30
I liked this textbook because it is nice and clean and uncluttered inside, however I think that the content could have been better. I had trouble with the first chapter having to do with business combinations in that every time a journal entry was recorded, I had no idea whether the author was referring to the common stock of the purchasing company or the common stock of the selling company. After a while, I finally figured it out, but I thought the problem could have been avoided by being more clear. There are many more examples that I have like this one. I may be being picky about the book seeing as how I took this course via independent study, so I did not have the ability to ask an instructor specific questions. I just think that the authors could have done a better job being more clear on many things. In the end, I did end up getting a A in the course!
Good value for the money.......2000-01-19
I have used this book in conjunction with Gleim's CPA review books in preparation for FARE section of the CPA exam. Excellent supplement especially if you look for technical aspects of purchase/pooling accounting. The chapters on consolidation are truly outstanding. Very thorough and comprehensive. The only drawback as with many other textbooks is the lack of answer keys at the end of the chapter. Overall, I would definitely recommend getting it.
Average customer rating:
- Need more examples -- rely on website?
- A better text is available
- errors all over
- solution for the excercises
- Advanced accounting
|
Advanced Accounting
Floyd A. Beams ,
Joseph H. Anthony ,
Robin P. Clement ,
Suzanne H. Lowensohn ,
Floyd A Beams ,
Joseph H Anthony ,
Robin P Clement , and
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Accounting Information Systems (9th Edition)
ASIN: 013066183X |
Book Description
This readable examination of accounting theory and practice offers extensive real-world examples and illustrations throughout—from corporations such as Microsoft, Coca Cola, Hershey Foods, IBM, General Motors, and General Electric. A book-specific Website is available that contains less-frequently covered topics, additional exercises, links to additional references, and more.
Is updated for the latest FASB pronouncements including Business Combinations, Goodwill and Other Intangible Assets. Focuses on parent company accounting using the full or complete equity method in coverage of consolidations. Offers separate coverage of parent company accounting under the cost and incomplete equity methods. Adds a chapter on governmental and not-for-profit accounting.
The perfect reference for accounting professionals looking to check facts or brush up on their skills.
Customer Reviews:
Need more examples -- rely on website?.......2007-07-15
As a student I found this book's transaction examples to be somewhat limited. For instance, in the existing-foreign-currency-transaction hedge examples, both cash-flow and fair-value, only A/R adjustments are treated, there are no *buy side* transactions with A/P illustrated. There are also a lot of minor errors that are distracting.
A better text is available.......2006-07-05
As background for dissusion of the Beams "Advanced Accounting" text, 9th ed.: I took advanced accounting at one university last summer (which covered much of advanced accounting, but no accounting for not-for-profit organizations). Due to scheduling availability, I am taking advanced accounting at a different university this summer...this class WILL cover not-for-profit accounting issues, which is why I am taking it. We used the Hoyle, Schaefer, Doupnik "Advanced Accounting" 7th ed. text last year, and even though the concepts were difficult, the examples assisted greatly, and the text was clear, organized and without noticeable errors.
I wish the same could be said of the Beams "Advanced Accounting" 9th ed. Currently in my study of the fourth chapter, I find the text frequently wanders off topic, and contains surprising errors. For example, on page 106 (Chapt.4), it makes a math error ($30,000 - $1,500 x 80% = $22,500). My calculator indicates the answer should be $22,800. On page 107 it attributes a $93.5k elimination to "Entry b" described on page 106, when the amount actually belongs to "Entry c", described on the same page. This type of error requires the reader to perform a lot of additional work to get to the bottom of the information to be acquired. These are just two of the numerous issues I have uncovered in study of only four chapters. So far, the text compares poorly to the Hoyle, et. al. product, sadly, (which is why I am providing this warning) and I am not looking forward to the rest of the current summer semester!
Please, Prentice Hall, thoroughly review and edit this text before the next edition, and give students their money's worth.
errors all over.......2004-05-16
This text should correct all the errors before it published.
solution for the excercises.......2000-07-01
it is a very good book actually, but i'm having some difficulties in solving the exercise, so i think this book need a complementary book or some kind of manual or solution. But if there is, I would like to be informed about where i can get that kind of book. Thank U!
Advanced accounting.......2000-04-05
I used this book as my self-study material and I benefited from this book a lot. I would recommend using it either as a textbook for Advanced Accounting course or as a reference book for professionals. Here are the few points that I would like to share with you:
1. Logical order The order to display the topics in this book is logical and consistent. This is important for self-study users. At the beginning of each chapter, there's always a paragraph or two summarize the main points that are going to present in the chapter. This gives the reader a whole picture.
2. Clear explanation and examples The book uses easy explanatory languages and the examples are very representative. Each example, the author is showing us every detail steps, so it is easy to follow.
3. Relevant exercises and problems. At the end of each chapter, there are questions that can help to reinforce the concepts. Most questions can be found directly from the material. There are also exercises and problems that are related to the topic presented in the chapter. I remember there is an accounting book I used before that the problems required more knowledge than the chapter actually covered. This not the case in this book. Some of the examples in the chapter could be used as quick reference while working on the problems, too.
The only thing I would recommend, if I need to find some, is that I hope there could be more real life issues mentioned in the book. In this way, readers can relate the knowledge to daily life even closer.
Book Description
An in-depth look at financial risk management
Advanced Financial Risk Management integrates interest rate risk, credit risk, foreign exchange risk, and capital allocation using a consistent risk management approach. It explains, in detailed, yet understandable terms, the analytics of these issues from A to Z. Written by experienced risk managers, this book bridges the gap between the idealized assumptions used for valuation and the realities that must be reflected in management actions. It covers everything from the basics of present value, forward rates, and interest rate compounding to the wide variety of alternative term structure models.
Donald R. Van Deventer (Hawaii) founded the Kamakura Corporation in April 1990 and is currently President. In 2003, he was voted into the Risk Hall of Fame for having made a profound contribution to the field of risk management. Kenji Imai (Hawaii) heads Software Development for Kamakura and participates in selected Japan-related financial advisory assignments. Mark Mesler (Hawaii) heads the information production for Kamakura Risk Information Services.
Customer Reviews:
Great Book for serious reader.......2007-06-29
This book is written by professionals for professionals. Period.
Unless you are serious about risk management, you will not care about some of the little details covered by this book. When you do, you will really appreciate this book.
Formulas are well places, examples are real life relevent, well written. I fell in love with this book when I first read this book.
Introduction to the KRM.......2006-11-19
Risk management, as the authors define it, delineates for the management of a firm the risks and returns of every strategic decision at the institutional and transactional levels. It indicates how the management must change a particular strategy with the goal of aligning the trade-off between risk and return with the optimal long and short-term goals of the firm. If one desires an in-depth quantitative understanding of risk management as it is practiced at the present time, this book offers a comprehensive and useful overview. Although the authors are clearly showing bias towards a particular tool used for risk management, namely the Kamakura Risk Manager @ product which they helped to develop and market, the reader still gains insight into the relevant factors that go into successful risk management and will understand just how challenging this field is. The book is geared towards the student, for there are usually exercises at the end of each chapter. The goal of the book is very ambitious, in that the authors attempt to integrate credit, market, and operational risk, along with asset and liability management, performance measurement, and transfer pricing into a single framework. The justification for this integration is given as the book unfolds, and because of this the reader may frequently feel impatient, and thus tempted to skip ahead. However, readers who do this will miss out on the interesting argumentation and historical analysis the authors give, with each chapter setting up next. There is therefore a heavy dependence between chapters, and this makes a "skim read" more difficult, at least from the standpoint of in-depth comprehension of the subject matter. Those readers who are not experts in risk management, such as this reviewer, but who have a sound background in probability theory, stochastic processes, and financial engineering (at the level of the Black-Scholes model) will find this book ideal. Options theory plays a central role in the book, as the authors propose that the Jarrow-Merton put option is the best comprehensive measure of integrated credit, interest rate, and foreign exchange risk. The authors believe that risk management should make no distinction between credit risk, market risk, operational risk, asset and liability management, performance measurement, and transfer pricing.
The authors begin the book by discussing the difference between risk management from the standpoint of net income and from the standpoint of mark-to-market, and how a failure by some financial institutions to adopt the latter caused them great pain. Their historical commentary on this topic is enlightening for it gives insight into some of the biases concerning risk that exist even at the present time. For this reviewer, one of the most interesting discussions in the book concerned the transaction cost approach to prepayment modeling in asset-backed securities. In this approach, the authors divide the borrowers into three classes, with the first being those who make prepayments even when they should not. The second class are borrowers who prepay at a time when the advantages of prepayment exceeds the transaction costs of doing so. The third class are those borrowers who make prepayments when advantageous to do so, even though in the past they have refrained from doing so. Following the book's paradigm, the authors formulate the prepayment model in terms of options, with the value of the option to prepay being calculated from observable market data. The authors claim that this approach fits the movements in loan prices better than the approaches based on prepayment speeds and prepayment tables, but they do not offer explicit evidence for this claim. In fact throughout the book there are many instances where the authors do not offer any real case studies that would illustrate the superiority of their approach and the use of the Kamakura Risk Manager@. Risk analysts and managers will insist on the availability of these studies before committing themselves and institutional resources to this product or any others that make such claims.
The book should not be viewed therefore as purely a "theoretical" overview of risk management techniques. The authors give examples illustrating the main principles. For example, in their discussion of one-period models they assert that a collection of homogeneous risks are not sufficient, since the likelihood, magnitude, and timing of risks are closely linked. As examples, they quote the debacles in the U.S. Savings and Loan and Long Term Capital Management, and the takeover of Security Pacific Corporation by Bank of America. They also give examples of 'selection bias' in measuring risk.
Many interesting questions are addressed in the book, such as: 1. Why are 'fat-tailed' events important in risk analysis? 2. What is 'transfer pricing' and why is it useful? 3. Should risk be measured in terms of the volatility of the mark-to-market value of the relevant portfolio or in terms of the volatility of the net income? 4. How large should risk limits be for each part of a financial institution? 5. How is the mark-to-market value of a portfolio measured? 6. How is tracking error measured? 7. How is a hedging strategy to be priced? 8. What advantages, if any, are there in using Monte Carlo simulations of returns over a chosen time horizon? 9. What are the implications to credit risk of the new Basel II accords? 10.Why are stress tests important in a hedging strategy? 11.What area of the financial organization should be responsible for credit risk?
The authors also give a thorough discussion of yield curve smoothing, and how to derive the zero-coupon bond prices from observable data. The method of splines seems to be their preferred method of choice as a smoothing technique, which they advertise as being one that allows the calculation of zero-coupon bond prices for a large number of payment dates. They show, interestingly, that a cubic spline of zero-coupon bond yields is the smoothest yield curve.
Great book on the subject. A must have........2006-05-11
I think this book is a must have for everyone involved in managing or supervising interest rate risk. The authors are clear in their explanations and light to read, but they also get in-depth in several technical aspects.
I am a banking supervisor and I had been lookin for a book on this subject for a while, specially one with an emphasis on managing interest rate risk since the Basel committee has very few pointers on this.
The book tackles the most common problems, including the managerial aspects, as well as the techniques frequently used for modelling things like deposits (DDAs), revolving credit and a product by product guide to financial instruments, and much, much more. Definitely a must have, if you can browse through a few sections or the index and you will quickly see what I mean.
Customer Reviews:
Study Guide and Working Papers for use with Advanced Acounting.......2007-02-18
I did not find this study guide very useful.
Study Guide a must!.......2007-01-07
I always do much better in my accounting classes if I use the Study Guides and this is no exception. A must in my book.
Book Description
This book is comprised of 45 articles written by top researchers and theorists in finance. The text is meant to bridge the gap between financial theory and practice. It gives instructors a way to introduce students to academic articles edited to eliminate the methodological content. The articles were originally edited for practitioners, so they are perfect for the MBA student. This reader is the perfect packaging option for any of our Corporate Finance texts.
Customer Reviews:
Review from MBA / GE student.......2005-07-22
This book is excellent reading. Foremost, it discusses clearly all of the major issues today in corporate finance - capital structure, "what investors want", incentives and performance measurement via Accounting versus Economic Value Added models, corporate architecture, etc. The author is extremely engaging, and I must admit, this is the first "text book" I've had that I wanted to keep reading. The author is sarcastic, opinionated, but objective all in one. An excellent purchase for a course or just if you're interested in understanding the way markets and corporate finance truly function.
A good book of ARTICLES but too academic........2004-04-27
Chew's New Corporate Finance is a quite decent book on journal articles on finance issues from a corporate standpoint. Other than your professor's own choice of favourite articles, Chew's may be the next best thing you can get. I won't give it a higher rating (4 or 5 star) because it lacks ground-breaking yet still easy-to-read articles from the less technical journals like Harvard Business Review, etc.
Most of the articles are too academic coming from more or less the same journals. Moreover, the more technical ones have difficult formulas and number-crunching statistics which are more appropriate for MBA and MSc in Finance students, or those in researchers in "high-level derivative work".
I have the second edition (1999) of this book and used it sparingly for my MBA in Finance. And I've browsed through this new edition - what I found was there were not many changes made, only a few new articles have been added. Perhaps inclusion of some non-American articles would do justice to this book. Chew still keeps the classic ones though, which are always relevant. The roundtable discussion on EVA is interesting but Chew does not include criticisms on EVA shortfalls or problems.
On the whole, this text should be a reasonable introduction to high-level Finance and also a good supplementary reading for those doing MBA in Finance. But the editor's selection between technical and easy-to-read-but-important articles still leaves much to be desired.....
practical as well as academic.......2000-05-31
This book challenges you about what you really understand on finance. Before I read this I didn't like finance at all because it seemed too simplified. This book shows how the real world and people think. Especially, its chapter on risk is of a great help. Now I'm interested in some fields of finance such as internal corporate governance, real option, more refined and practical concepts than EVA, etc.
A good reference for motivated MBAs and practitioners.......2000-05-15
As the title of the book clearly indicates, the text advances corporate finance beyond the theory presented in texts like Brealy and Myers. Thus, the text is geared towards a more sophisticated reading audience. In a collection of articles, academics and finance practitioners discuss the real world impact of capital budgeting, dividend/share repurchase policy, financial innovations (e.g. convertibles, commodity-linked bonds, derivatives, etc.), and bankruptcy on firms. Do not be scared off by the "academic" nature of this text. Unlike academic journals, the long-winded discussions on hypothesis testing and experimentation are abandoned (along with the high-level mathematics). The articles are very readable and any empirical evidence is presented in relatively friendly charts and graphs, which do a great job at providing the proper intuition. More importantly, the authors usually include real world anecdotal evidence to support the conclusions, as well.
Excellent summary of various aspects of corporate finance.......1999-09-30
An excellent compilation of articles by top academicians in the field of corporate finance. The articles are ideal for a person who wants to get a good grasp of any area of Corporate Finance. Warning: This is definitely not for the beginners. It is ideal for practitioners who are interested in learning more.
Book Description
Advanced Credit Analysis presents the latest and most advanced modelling techniques in the theory and practice of credit risk pricing and management.
The book stresses the logic of theoretical models from the structural and the reduced-form kind, their applications and extensions. It shows the mathematical models that help determine optimal collateralisation and marking-to-market policies. It looks at modern credit risk management tools and the current structuring techniques available with credit derivatives.
Customer Reviews:
Very helpful.......2007-08-09
The reduced form and structural credit models have been the most popular ones for the pricing of credit sensitive securities and for the estimation of default probabilities and are clearly discussed in this book, along with many other topics of interest to those responsible for the mathematical modeling of credit risk and/or interest rates. The book can be read by anyone with a background in the theory of stochastic processes and those interested in mathematical finance as applied to credit risk will find the book interesting. Only Part I of this book was read by this reviewer.
In order to price a credit sensitive security one needs to be able to calculate default probabilities and be able to construct models of the risk-free interest rate and the recovery rates. One will also need to model the risk premium that investors will require when entering into a credit risk agreement. Lastly, one will need to model the correlations between defaults in the entities that make up a portfolio.
In the structural models of credit, the modeler assumes certain information on the time-dependence of the assets of a firm and its capital structure, and one thinks of the liabilities of the firm as an option on the assets of the firm. In a reduced form model, the time dependence of default is taken to be dependent on exogenous factors via a default rate, and the price of the credit security is calculated using an interest rate modulated by this default rate.
The most well known structural model is the Merton model, which introduced early on in this book, and wherein corporate liabilities are taken to be contingent claims on the assets of a firm. Credit risk arises solely from the uncertainty regarding the market value of the firm. Default probabilities are calculated by assuming that the value of the firm's assets over time is governed by geometric Brownian motion (the authors call this Ito dynamics in this book). Now if the firm has a market value of V (representing the expected discounted future cash flows of the firm), and assuming that the firm is financed by equity and a zero coupon bond with face value F and maturity date T, then taking default to mean that V falls below F, the probability of such a default can be expressed in terms of the standard normal distribution function. The authors show this explicitly in chapter three of the book, and this derivation is of no surprise to those familiar with standard (Black-Scholes) options theory. The payoff for the investors is then equivalent to that of a portfolio consisting of a default-free bond with face value F maturing at T and a European put option on the assets of the firm with strike price F and maturity T. The authors also consider the value of the equity, which is equivalent to the payoff of a European call option on the assets of the firm with strike price F and maturity T. They also show, interestingly, that the values for the equity and the debt depend on the leverage ratio of the firm, but that their sum does not, the latter of which is taken to be an assumption in the Merton model. The market value of the firm is thus independent of its leverage. Defining the credit spread as the difference between the yield on a defaultable bond and the yield on an equivalent default-free zero bond, the authors derive an explicit expression for this quantity.
In a reduced-form model, the default dynamics is prescribed exogenously using a default rate or intensity, and the question now is how to calibrate the intensity to market prices, rather than being concerned with firm default. The default process is actually a jump process, with a jump of size one at default, and has an upward trend. Using standard results from the theory of stochastic processes, the upward trend can be compensated for, with the result that the default time will become unpredictable. In contrast to structural models, the default losses in reduced-form models are expressed in terms of the expected reduction in market value that occurs at default. As in most theories of pricing in the theory of contingent claims, use is made of the concept of a `risk-neutral measure' in reduced-form models. If one thinks of this measure in terms of an arbitrage-free market, then it is straightforward to understand: it is a probability measure in which the present price of a contingent claim is equal to the expected value the future payoff discounted at the risk-free rate. Such a measure is also called an `equivalent martingale measure' in the literature on financial modeling. Given the hazard rate for default at any time and the expected fractional loss in market value if there is a default at this time, then in one of these reduced-form models, called the Duffie-Singleton model, the contingent claim can be priced as if it were default-free. This is done by replaced the short-term interest rate with a default-adjusted short-rate process, called the `risk-neutral mean-loss rate' due to default. The risk-neutral mean-loss rate can be written as the sum of a short-term rate and a credit risk premium, and is time-dependent. Most interesting is that using this rate, one can price the claim as if it were riskless. The present value of the contingent claim is then obtained by discounting using the adjusted short rate, and takes into account the probability and time of default, and the effect of losses on default.
The authors devote a fair amount of pages on the Duffie-Singleton model, the crucial idea of course being the identification of the credit risk premium. The model concentrates on three variables, namely a risk-neutral probability of default at time t on a short time interval that is conditional on no prior default up to t, a `recovery' amount measured in dollars if there is a default at time t, and the riskfree short-term interest rate at t. The market value of the claim at time t can be written as the sum of the present value of receiving the recovery amount (at t + 1) if default occurs, or the market value (at t + 1) otherwise. The challenge lies in calculating this sum since the three variables are entangled. The strategy for dealing with this is to use what Duffie and Singleton called a `recovery-of-market-value' or RMV. The recovery amount is taken to be a fraction of the market value of the contract, and inserting this in the sum allows it to be greatly simplified, as the authors show. Assuming a continuous-time framework, they write the risk-neutral mean-loss rate and the claim in terms of an underlying state variable that obeys a stochastic Weiner process, and using the Feynman-Kac formula show that the price at time zero satisfies a backward Kolmogorov partial differential equation. This is then generalized to the case where the underlying variable follows a jump-diffusion process.
Extremely interesting but quite technical (useful errata).......2001-07-17
I enjoyed this book. It goes over many of the credit risk theories that I had only heard of or skimmed through before. The presentation is very clear and successful. Some typos at the beginning of the book are too bad but the errata on the author's web site is useful, especially for the chapter on Merton. The book seems very complete and very detailed, much more than the other books around. A very useful addition, especially with the available errata for the typos concentrated at the beginning. I believe our current credit risk systems are so out of date with the advanced theories as presented in the book... Things will change...
Easily the Best Credit Risk Book: A Must!.......2001-04-17
This is easily the best credit risk book there is! It is the only book that covers all the theories available. It is well written and covers both the maths and the intuitions. It is up to date too. While the book targets sophisticated readers, it covers more of the ground than any other book I have seen around (and goes much more in depth than any competitor). It is great to finally have a book that goes through the maze of the theories on credit risk.
Interesting, but full of errors.......2001-02-17
The recent developments in credit-risk analysis have been highly quantitative and theoretical. Hugues Pirotte & Didier Cossin provide a comprehensive overview of the most popular credit risk models. Their purpose is to allow practitioners to apply quantitative modeling to this complex area. I think that it is a quite good book: easy to read, clear for most of its explanations but I found too many mistakes in mathematical formulas. The editor could have been more careful with the reader's comfort. On the downside: the chapter on swap credit risk (a model from the authors) is so pretentious that it becomes very irritating and actually damages the quality of the book. In addition, no disk with source code!
Revision, please!.......2001-02-15
The book does a good job in presenting some credit risk models, although it is far from being exhaustive. However, if you are looking for technical details, you best bets are still the original published papers, given the numerous typos. My suggestion: wait for the revised edition!
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Neural Networks in Finance: Gaining Predictive Edge in the Market (Academic Press Advanced Finance Series)
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Genetic Algorithms and Genetic Programming in Computational Finance
ASIN: 3540440984 |
Book Description
Due to the ability to handle specific characteristics of economics and finance forecasting problems like e.g. non-linear relationships, behavioral changes, or knowledge-based domain segmentation, we have recently witnessed a phenomenal growth of the application of computational intelligence methodologies in this field.
In this volume, Chen and Wang collected not just works on traditional computational intelligence approaches like fuzzy logic, neural networks, and genetic algorithms, but also examples for more recent technologies like e.g. rough sets, support vector machines, wavelets, or ant algorithms. After an introductory chapter with a structural description of all the methodologies, the subsequent parts describe novel applications of these to typical economics and finance problems like business forecasting, currency crisis discrimination, foreign exchange markets, or stock markets behavior.
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It's useful, but not advanced........2002-04-04
It might be considered as "advanced" by an accountant.
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