Principles of Financial Engineering

Principles of Financial Engineering presents a fresh, original, informative, and up-to-date introduction to financial engineering.

Rather than introducing financial instruments, this book describes the methods of synthetically creating assets in static and in dynamic environments, and shows how to use them. It offers clear links between intuition and underlying mathematics and an outstanding mixture of market insights and mathematical materials. It emphasizes developing methods that can be used to solve risk management, taxation, regulation, and above all, pricing problems. It explains issues involved in the day-to-day life of traders, using non-mathematical language. It provides a careful and concise analysis of the LIBOR market model and of volatility engineering problems. Exercises and case studies at end of each chapter as well as on-line Solutions Manual are available.

This book will be a useful resource for anyone learning about practical elements of financial engineering. It can also serve as a resource for professionals and academics in all areas of quantitative finance.

"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

"...an excellent book on which to base an initial course in a financial engineering or mathematics program ....[It] has a breadth and consistency that make it an excellent introduction to what practitioners need to know."—Financial Analysts Journal