Implementing Models in Quantitative Finance: Methods and Cases

Gianluca Fusai and Andrea Roncoroni
Publisher:
Springer
Publication Date:
2008
Number of Pages:
607
Format:
Hardcover
Series:
Springer Finance
Price:
79.95
ISBN:
9783540223481
Category:
Monograph
[Reviewed by
Ita Cirovic Donev
, on
07/15/2008
]

As we all know by now, the field of quantitative finance is large and immensely popular among mathematicians, physicists, computer scientists, and of course finance people. It is safe to say that, by now, there are numerous books available explaining the theory, the models, and computational aspects of quantitative finance. It is, on the other hand, harder to find a reference that will guide the reader through the theory and methods in an applied way, with some computational code to learn from. Implementing Models in Quantitative Finance fills this gap in an efficient way.

As the title suggests the book is divided into two parts.

Part I — Methods

Part one is concentrated on presenting various numerical methods used in problems encountered in quantitative finance. These include Monte Carlo methods, dynamic programming, finite difference methods, numerical solutions of linear systems, quadrature methods, the Laplace transform and copula functions. There is not much formality in the discussion. The authors conecntrate on providing narrative introductions, detailed algorithms, appropriate illustrations and mathematical presentation (formulas) when needed. They strike the right balance on mathematical exposition so as not to crowd the text or dismay the reader, who can instead concentrate on figuring out how to apply each method and how to work it out computationally. Usually, at least in my case, this was an easier way of learning, i.e. by doing it and hence understanding it. Along with the algorithms, the authors present the code, which is always a plus when reading an applied book.

Part II — Problems

Second part of the book deals with problems, i.e. specific cases. There are really a handful of problems ranging from portfolio management and trading, vanilla options, exotic derivatives, interest rate and credit derivatives to financial econometrics. All the problems are structured in the following way:

1. problem statement
2. solution methodology
3. implementation and algorithm