Principles of Financial Engineering book cover

Principles of Financial Engineering

Five new chapters, numerous additions to existing chapters, and an expanded collection of questions and exercises make this Second Edition an essential part of everyone's library. Between defining swaps on its first page and presenting a case study on its last, 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.

Primary: financial engineers, quantitative analysts in banks, investment houses, and other financial industry professionals; graduate students in financial engineering and financial mathematics programs.

Hardbound, 696 Pages

Published: December 2008

Imprint: Academic Press

ISBN: 978-0-12-373574-4


  • "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


  • 1. Introduction2. The Hedge Fund Industry3. Cash Flow Engineering and Forward Contracts4. Engineering Simple Interest Rate Derivatives5. Introduction to Swap Engineering6. Repo Market Strategies in Financial Engineering7. Dynamic Replication Methods and Synthetics8. Mechanics of Options9. Engineering Convexity Positions10. Options Engineering With Applications11. Pricing Tools in Financial Engineering12. Some Applications of the Fundamental Theorem13. Fixed-Income Engineering14. Tools for Volatility Engineering, Volatility Swaps, and Volatility Trading15. Volatility as an Asset Class and the Smile16. Credit Markets: CDS Engineering17. Essentials of Structured Product Engineering18. Credit Indices and their Tranches19. Default Correlation Pricing and Trading20. Principle Protection Techniques21. Caps/Floors and Swaptions with an Application to Mortgages22. Engineering of Equity Instruments: Pricing and Replication


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