Book description
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, 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.* 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
Table of contents
- Cover Image
- Table of Contents
- Title
- Copyright
- Dedication
- Preface
- Chapter 1. Introduction
- Chapter 2. An Introduction to Some Concepts and Definitions
-
Chapter 3. Cash Flow Engineering and Forward Contracts
- 1. Introduction
- 2. What Is a Synthetic?
- 3. Forward Contracts
- 4. Currency Forwards
- 5. Synthetics and Pricing
- 6. A Contractual Equation
- 7. Applications
- 8. A “Better” Synthetic
- 9. Futures
- 10. Conventions for Forwards
- 11. Conclusions
- Suggested Reading
- Exercises
- CASE STUDY: HKMA and the Hedge Funds, 1998
- Hedge Funds Still Bet the Currency’s Peg Goes
- Chapter 4. Engineering Simple Interest Rate Derivatives
- Chapter 5. Introduction to Swap Engineering
- Chapter 6. Repo Market Strategies in Financial Engineering
- Chapter 7. Dynamic Replication Methods and Synthetics
- Chapter 8. Mechanics of Options
- Chapter 9. Engineering Convexity Positions
- Chapter 10. Options Engineering with Applications
- Chapter 11. Pricing Tools in Financial Engineering
- Chapter 12. Some Applications of the Fundamental Theorem
-
Chapter 13. Fixed-Income Engineering
- 1. Introduction
- 2. A Framework for Swaps
- 3. Term Structure Modeling
- 4. Term Structure Dynamics
- 5. Measure Change Technology
- 6. An Application
- 7. In-Arrears Swaps and Convexity
- 8. Cross-Currency Swaps
- 9. Differential (Quanto) Swaps
- 10. Conclusions
- Suggested Reading
- APPENDIX 13-1 Practical Yield Curve Calculations
- 1. Par Yield Curve
- 2. Zero-Coupon Yield Curve
- 3. Zero-Coupon Curve from Coupon Bonds
- Exercises
- Chapter 14. Tools for Volatility Engineering, Volatility Swaps, and Volatility Trading
-
Chapter 15. Volatility as an Asset Class and the Smile
- 1. Introduction to Volatility as an Asset Class
- 2. Volatility as Funding
- 3. Smile
- 4. Dirac Delta Functions
- 5. Application to Option Payoffs
- 6. Breeden-Litzenberger Simplified
- 7. A Characterization of Option Prices as Gamma Gains
- 8. Introduction to the Smile
- 9. Preliminaries
- 10. A First Look at the Smile
- 11. What Is the Volatility Smile?
- 12. Smile Dynamics
- 13. How to Explain the Smile
- 14. The Relevance of the Smile
- 15. Trading the Smile
- 16. Pricing with a Smile
- 17. Exotic Options and the Smile
- 18. Conclusions
- Suggested Reading
- Exercises
- Chapter 16. Credit Markets: CDS Engineering
- Chapter 17. Essentials of Structured Product Engineering
-
Chapter 18. Credit Indices and Their Tranches
- 1. Introduction
- 2. Credit Indices
- 3. Introduction to ABS and CDO
- 4. A Setup for Credit Indices
- 5. Index Arbitrage
- 6. Tranches: Standard and Bespoke
- 7. Tranche Modeling and Pricing
- 8. The Roll and the Implications
- 9. Credit versus Default Loss Distributions
- 10. An Important Generalization
- 11. New Index Markets
- 12. Conclusions
- Suggested Reading
- Appendix 18-1: A History of Credit Indices
- Exercises
- Chapter 19. Default Correlation Pricing and Trading
- Chapter 20. Principal Protection Techniques
- Chapter 21. Caps/Floors and Swaptions with an Application to Mortgages
- Chapter 22. Engineering of Equity Instruments: Pricing and Replication
- References
- Index
Product information
- Title: Principles of Financial Engineering, 2nd Edition
- Author(s):
- Release date: December 2008
- Publisher(s): Academic Press
- ISBN: 9780080919973
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