Principles of Financial Engineering


  • Robert Kosowski, Associate Professor of Finance and Director of the Risk Management Lab and Centre for Hedge Fund Research, Imperial College, London, UK
  • Salih Neftci, Late of the Global Finance Master's Program, New School for Social Research, New York, NY, USA

Three new chapters, numerous additions to existing chapters, and an expanded collection of questions and exercises make this third edition of Principles of Financial Engineering essential reading. Between defining swaps on its first page and presenting a case study on its last, Robert Kosowski and Salih Neftci's introduction to financial engineering shows readers how to create financial assets in static and dynamic environments. Poised among intuition, actual events, and financial mathematics, this book can be used to solve problems in risk management, taxation, regulation, and above all, pricing.
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financial engineers, quantitative analysts in banks and investment houses, and other financial industry professionals; graduate students in financial engineering and financial mathematics programs.


Book information

  • Published: November 2014
  • ISBN: 978-0-12-386968-5


"Its focus on financial engineering and the actual use of derivative instruments makes Neftci's book an extremely useful complement to the standard introductions to derivative pricing and financial mathematics. The value of the text has been enhanced further by the addition of five chapters on structured products and credit derivatives not present in the first edition." --Rüdiger Frey, University of Leipzig “Since its publication in 2004, Neftci's book has become the de facto reference text for financial engineering practitioners and academics. With renewed and extended emphasis on structured products engineering, Neftci keeps the material relevant and up to date for the current state of the financial markets.” --Dan Stefanica, Baruch College

Table of Contents

CHAPTER 1 Introduction
CHAPTER 2 Institutional Aspects of Derivatives Markets - An Introduction to Some Concepts and Definitions 
CHAPTER 3 Cash Flow Engineering, Interest Rate Forwards and Futures  
CHAPTER 4 Introduction to Swap Engineering 
CHAPTER 5 Repo Market Strategies in Financial Engineering 
CHAPTER 6 Cash Flow Engineering and FX   Contracts
CHAPTER 7 Cash Flow Engineering and Alternative Classes (Commodities and Hedge Funds)
CHAPTER 8 Dynamic Replication Methods and Synthetics 
CHAPTER 9 Mechanics of Options 
CHAPTER 10 Engineering Convexity Positions 
CHAPTER 11 Options Engineering with Applications 
CHAPTER 12 Pricing Tools in Financial Engineering 
CHAPTER 13 Some Applications of the Fundamental Theorem 
CHAPTER 14 Fixed-Income Engineering 
CHAPTER 15 Tools for Volatility Engineering, Volatility Swaps, and Volatility Trading 
CHAPTER 16 Correlation as an Asset Class and the Smile
CHAPTER 17 Caps/Floors and Swaptions with an Application to Mortgages 
CHAPTER 18 Engineering of Equity Instruments: Pricing and Replication
CHAPTER 19 Credit Markets: CDS Engineering 
CHAPTER 20 Essentials of Structured Product Engineering
CHAPTER 21 Essentials of Credit Structured Product Engineering 
CHAPTER 22 Default Correlation Pricing and Trading
CHAPTER 23 Principal Protection Techniques
CHAPTER 24 Counter-Party Risk, Multiple Curves, CVA, DVA, FVA