10 of 10 people found the following review helpful
on 1 February 2005
Anyone who has started, or is thinking of starting, a career as a quant should read this book. If you buy it, and its sister publication "C++ Design Patterns and Derivatives Pricing", there is no need to buy Hull, or Wilmott, or any other introductory financial mathematics book. It manages to engage the mathematical interest of the reader, without ever loosing its pace and focus; learning from it is a genuine pleasure.
Each chapter concludes with a set of exercises, all of which are pitched at precisely the right level. Having started reading both Hull's book "Options, futures and other derivatives" and Wilmott et al "The mathematics of financial derivatives: a student introduction", I found the speed at which I was able to absorb the mathematics doubled after switching to this book - an impressive feat.
It was recommended to me by a senior member of our quant team, who claims the book contains much that is new and of interest to those with many years experience in financial mathematics. I thoroughly recommend reading it.
27 of 28 people found the following review helpful
on 18 February 2004
In recent years bookshelves (and readers) have groaned under the weight of new First Courses in Mathematical Finance. There is, of course, a huge overlap in content and it is no easy task to write a book which is both better than its predecessors and genuinely novel. In both tasks Mark Joshi has succeeded admirably: this book deserves to become the leader in its field.
Finding the right level of mathematical sophistication is a difficult balancing act in which it is impossible to please all readers. Here, the author has had a clear vision that the principal audience is the practising or potential quantitative analyst (or quant) and writes accordingly; it is impossible to do better than taking an approach of this sort. Such a quant must have a certain minimum level of mathematical background (a good degree in a numerate discipline). By definition, this has to be assumed for a decent understanding of the material, but the author always has an eye on what a quant really needs to know. Integrated into this mathematical work is a good deal of information about how markets, banks and other corporations operate in practice, not found in more academically-oriented books.
The first half of the book includes the core material found in any decent first course on the subject including basic stochastic calculus, pricing of European options through discounted expectation under a risk-neutral measure, the Black-Scholes differential equation and so forth. Where this book really stands out, however, is the exceptional clarity with which the key concepts are separated. Not only are three different ways for deriving the Black-Scholes formula presented (through PDEs, expectation, and the limit of discrete tree-models) ; much more significantly, the different roles played by hedging, replication and equivalent martingale measures in enforcing a price are made crystal clear. In whatever way you already think about this material, you will almost certainly come away with something new from reading this treatment. In my case, for example, I gained a much greater understanding of why “risk-neutral” pricing is so called.
The second half of the book, roughly speaking, covers a selection of more sophisticated material. The major areas covered include interest-rate derivatives and models; and more complicated models for stock price evolution (such as stochastic-volatility, jump-diffusion and variance-gamma) that have been proposed to correct inadequacies in the Black-Scholes model such as its failure to explain market smiles. Once the core ideas have been so thoroughly explained in the first half, a great deal of interesting and diverse material can be covered rapidly yet with a great deal of clarity and coherence, relating the new models to core ideas such as uniqueness of prices and hedging issues.
Those with quantitative finance experience are still likely to find a good deal that is new and worthwhile in this book. And if you a thinking about becoming a quant, I cannot think of a better book to read first.
6 of 6 people found the following review helpful
on 13 May 2007
There's a host of books on quantitative finance basics out there these days - but this one really stands out.
Joshi brilliantly succeeds in conveying the ideas and intuitions underlying the theory, using equations where necessary to clarify his points, but without confusing the issues with a jumble of marginally relevant math.
This is lucidity and simplicity that comes of true mastery - what a contrast to, say, Hull, who tries to cover every base hastily, and as a result comes over as tangled and confusing (in my opinion).
34 of 38 people found the following review helpful
on 18 June 2005
What was once a cross-over subfield of finance with a veneer of mathematics is now a field unto itself, and hence, in the past decade there have been an explosion of books which often replicate or restate what has been said before with little new to add. Also, there remains an unforgiving gap between introductory texts that are too superficial and specialists' mathematics books that are rigorous and difficult works beyond the commitment for mastery of the busy, intelligent, practical front-line quant. In addition, works that were once adequate are now simplistic and under serve their readers by lulling them into false confidence. Into this fray Dr. Mark S. Joshi's "The Concepts and Practice of Mathematical Finance" enters with a modern voice and delivers what previous texts have only promised and failed to. The work lives up to its title by presenting both concepts and practicalities, and makes other works that do neither well obsolete. Those familiar with my other reviews on quantitative finance texts know that I place a premium on clarity, and on this front Joshi deserves six stars, for he is a master of what William Strunk called "the plain style." I am always sensitive to the fact that many of the world's best quants come from nations where English is not the first language. Readers from China, France, Germany, Greece, Italy, Norway, Sweden, Russia and eastern Europe will enjoy Joshi's clarity and find his English easy to follow. It would be impossible to cover everything in quanfin in a single volume, however there is nothing horribly glossed over here and neither is there a single wasted word or equation.
I recommend Amazon review readers refer to the table of contents in the "Look Inside" feature, but my own highlight is how welcome it is that Joshi focuses on risk from the very first word. Since Louis Bachelier risk measurement is what separates quantitative finance from "finance." Other books, including some quantitative finance works, introduce cash flows and value, and add risk as an antecedent. Joshi correctly emphasizes risk first, last, and always, and for that elevation alone his work deserves five stars. From this foundation Joshi then covers very well pricing methods and arbitrage, simple and high dimensional trees, and the useful shortcuts of Ito calculus that makes tractable Zeno's paradox. Joshi also covers risk neutral and martingale methods, continuous barrier options, multi-look exotic options and incomplete markets and jump processes with an aim of showing these as typical problems for the working quant. Joshi's own references, index, and footnotes testify that by no means is he offering the first, nor the last, word on these knotty subjects, but his treatment is welcome just the same.
The target audience for this text is four-fold. The primary audience is for first semester students in a graduate financial engineering program, for Joshi's "Concepts and Practice" will be handy throughout his or her studies and career. For those students unsure of their skills and with a limited budget considering between this and an introductory quantitative finance text I recommend Joshi over, say, Wilmott, for this work is more rigorous and in the long run will provide the better value as a practical companion. Within this audience I include professors looking for a high level foundational text for teaching practical risk management and derivatives pricing: this is the book to adopt, yes, even over Hull.
The second audience is those trained in other science fields: pure mathematics, statistics, physics, etc. who are moving to finance jobs. This volume is an easy "one-stop shop" for you to re-tool your own background towards those topics and techniques used on a quant desk. While by no means covering everything, Joshi speaks your language and after digesting this work all else will fall into place and be understood and used with greater efficiency.
The third and broadest audience is the already trained and practical "quant." Why? My observation is that between reading (for example) Hull and Wilmott, Joshi's "Concepts" unavoidably covers many of the same topics, but also some things they do not and in ways they never could. Joshi is an expert practitioner at the top of his art, and that practical spirit is in every single page. For example, while Hull and Wilmott cover the concept and mathematics of stochastic volatility, Joshi writes from the point of view of the coding quant and discusses the issues of implementation. Joshi's "Concepts and Practice" serves a two fold purpose: it provides an additional voice and explanation of inescapably fundamental material, while bridging the gap of technical deployment for front line practitioners. This is not to say Joshi offers us up a cookbook, for by no means is this such. Anyone who thinks they can simply buy this book and in a sleepy afternoon plug away code and technique and be done is missing the point: for this is a teaching text. Moreover, each house and set of problems and instruments and structured products to offer are different, to say nothing of the platforms one will be working on. That is why they call it "work." Therefore the practical quant should look to this text as a reference guidebook in a tool box.
As a fourth audience I cautiously recommend this book for those oing into exotic product sales, but only those who have grounding in upper level calc, linear and matrix algebra, time series analysis, and trees. Why? Simply put, you will be offering products built by quants who simply assume the knowledge in this book is a given. In addition, your better clients will (or should) have quants speaking this language, and the greater your own understanding of the concerns of your team and your clients the better your sales. If this work is too rigorous, then Wilmott's "Introduction to Quantitative Finance" quickly followed by Joshi's "Concepts and Techniques" is the course to follow.
Who is this work not for? Here are some tests. If you are a quant who can type at five lines of code a minute and can read Shreve and Karatzas drinking beer, then this work is too redundant for you. On my desk is a paper on a stochastic process with drift and viscosity under regime switching. If you are reading the same journal, then this work is too simple for you. If you have no idea what I've written about in the past three sentences, then this work is too hard for you.
In summary, Dr. Mark Joshi advances his excellent reputation as an intelligent, practical, and generous quant in offering "The Concepts and Practice of Mathematical Finance" and I recommend this book's wide adoption in graduate programs and its addition to reference libraries.
9 of 11 people found the following review helpful
on 12 June 2005
I found the book extremely RELEVANT. It is unique amoung all the other books on the subject in that it is a "Everything you need to know, and nothing BUT what you need to know" book.
After reading chapters 13 and 14 I was able to have an implementation of BGM up and running (a suggested exercise in the Appendix) in 2.5 weeks along with Swaption Calibration.
While being complete and thorough it does take the mysticism and unneccessary complexity out of many topics in derivative pricing. The reader is never too far removed from her computer, the author persists in continuously flirting with implementation. For someone preparing for Quant interviews, or even someone who is a junior Quant like myself I cannot think of a better guide into the job. There are certian topics which are not covered such as the short-rate models, however it is difficult to see how the focus of the material could have been left unchanged by including extra topics at the expense of thorough explanations of the basic conecepts.
'Concepts' is also an essential pre-requisite for more advanced and specialised texts such as Brigo & Mercurio.
Movie over 'Rennie & Baxter' theres a new book on the block !
9 of 12 people found the following review helpful
on 30 January 2004
Very nice book indeed.
That, besides, "strong buy", was the the general review.
The rest is mostly for insiders.
The computer exercises/projects alone are worth the price.
Other than that, I especially like
* Seeing Theorem 10.2 as a "text-book result"
for the first time. It is of course all over the
place in Carr's papers, and other books (Wilmott,
Bjork) are close, but not quite there ...
* The discussion of (the illusion of) hedging in
incomplete models in Ch. 15 & 16. Bjork's Chapter 10
says the same, really, but (in the heads of students
at least) it comes out as "short rate models in disguise".
* The chapter on VarGamma-models. For the first time I
believe I know what they're about. (I still think
they're weird, tough.