Principles of Financial Engineering

Principles of Financial Engineering

2nd Edition - December 1, 2008

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  • Author: Salih Neftci
  • eBook ISBN: 9780080919973

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Principles of Financial Engineering, Second Edition, is a highly acclaimed text on the fast-paced and complex subject of financial engineering. This updated edition describes the "engineering" elements of financial engineering instead of the mathematics underlying it. It shows you how to use financial tools to accomplish a goal rather than describing the tools themselves. It lays emphasis on the engineering aspects of derivatives (how to create them) rather than their pricing (how they act) in relation to other instruments, the financial markets, and financial market practices. This volume explains ways to create financial tools and how the tools work together to achieve specific goals. Applications are illustrated using real-world examples. It presents three new chapters on financial engineering in topics ranging from commodity markets to financial engineering applications in hedge fund strategies, correlation swaps, structural models of default, capital structure arbitrage, contingent convertibles, and how to incorporate counterparty risk into derivatives pricing. Poised midway between intuition, actual events, and financial mathematics, this book can be used to solve problems in risk management, taxation, regulation, and above all, pricing. This latest edition of Principles of Financial Engineering is ideal for financial engineers, quantitative analysts in banks and investment houses, and other financial industry professionals. It is also highly recommended to graduate students in financial engineering and financial mathematics programs.

Key Features

* The Second Edition presents 5 new chapters on structured product engineering, credit markets and instruments, and principle protection techniques, among other topics
* Additions, clarifications, and illustrations throughout the volume show these instruments at work instead of explaining how they should act
* The Solutions Manual enhances the text by presenting additional cases and solutions to exercises


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

Table of Contents

  • 1. Introduction
    2. The Hedge Fund Industry
    3. Cash Flow Engineering and Forward Contracts
    4. Engineering Simple Interest Rate Derivatives
    5. Introduction to Swap Engineering
    6. Repo Market Strategies in Financial Engineering
    7. Dynamic Replication Methods and Synthetics
    8. Mechanics of Options
    9. Engineering Convexity Positions
    10. Options Engineering With Applications
    11. Pricing Tools in Financial Engineering
    12. Some Applications of the Fundamental Theorem
    13. Fixed-Income Engineering
    14. Tools for Volatility Engineering, Volatility Swaps, and Volatility Trading
    15. Volatility as an Asset Class and the Smile
    16. Credit Markets: CDS Engineering
    17. Essentials of Structured Product Engineering
    18. Credit Indices and their Tranches
    19. Default Correlation Pricing and Trading
    20. Principle Protection Techniques
    21. Caps/Floors and Swaptions with an Application to Mortgages
    22. Engineering of Equity Instruments: Pricing and Replication

Product details

  • No. of pages: 696
  • Language: English
  • Copyright: © Academic Press 2008
  • Published: December 1, 2008
  • Imprint: Academic Press
  • eBook ISBN: 9780080919973

About the Author

Salih Neftci

Professor Neftci completed his Ph.D. at the University of Minnesota and was head of the FAME Certificate program in Switzerland. He taught at the Graduate School, City University of New York; ICMA Centre, University of Reading; and at the University of Lausanne. He was also a Visiting Professor in the Finance Department at Hong Kong University of Science and Technology. Known his books and articles, he was a regular columnist for CBN daily, the most influential financial newspaper in China. Salih Neftci was already suffering from gliosarcoma, a malignant brain cancer, while writing the second edition. It published just 5 months before his death on April 15, 2009.

Affiliations and Expertise

Late of the Global Finance Master’s Program, New School for Social Research, New York, NY, USA

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