by Salih N. Neftci
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Product Description
This popular text, publishing Spring 1999 in its Second Edition, introduces the mathematics underlying the pricing of derivatives. The increase of interest in dynamic pricing models stems from their applicability to practical situations: with the freeing of exchange, interest rates, and capital controls, the market for derivative products has matured and pricing models have become more accurate. Professor Neftci's book answers the need for a resource targeting professionals, Ph.D. students, and advanced MBA students who are specifically interested in these financial products. The Second Edition is designed to make the book the main text in first year masters and Ph.D. programs for certain courses, and will continue to be an important manual for market professionals.
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Average Customer Review:
0 of 0 people found the following review helpful:
 Read for inutition after learning from more rigourous book, 2010-02-19
This book seems very odd to me in a way similar many other text books I have read over the years. The author tries to convince the reader that the prerequisites are minimal. However, the problem sets appear more difficult than the author lets on. For example, if you really need to be remined of the integration by parts formula, can you actually complete the problem #9 in chapter 3 without getting frustated and quiting. Also, I have taken calculus through real analysis and simple measure theory. Without this background, I would think the problem sets would be very difficult or unenlightening. with the background suggested by Neftci, I would be surprised if you really leaned anything, rather than being tricked into thinking you learned something.
That being said, in my humble opinion, I feel the only way you would learn anything from Neftci is by studying a more difficult book by Steele or Shreve and then go back and learn the many intutive insights Neftci provides. If you do not have the background for those books, are you really getting anything from Neftci anyways?
To sum it up, Neftci provides excellent intuition. After leaning Stochastic Calculus from a more rigorous book, Neftci's book would be a nice "extremely quick" read where you wouldn't have to work out one equation, and gain a lot of useful intuition. However, if you try to start with Neftci and go to Steele you will start from nearly ground zero and have learn everything as if you have never seen it before. So, Steele and Shreve will completely eliminate the work you will have to do to benefit from Neftci, but if you do all the hard work to memorize and trick yourself into thinking you are learning, you will have to do all the work over again to actually learn stochastic calculus from another book. Also, after Steele and Shreve you can move through more advanced text books more quickly.
Neftci: Excellent intuition, but you cannot really "learn" anything from this book that will move you through more advanced treatments the way other slightly more difficult text books will.
0 of 0 people found the following review helpful:
 Truly excellent!, 2009-07-04
This book was recommended to me for its excellent introduction to stochastic calculus.
I spent much time reading the reviews before purchasing the book, as I wanted to ensure it a good return on investment.
This book is highly readable and very well written. It covers vast areas of the mathematics underlying financial derivatives pricing. As a practitioner I most valued the insight and intuition the book imparts, each topic is developed consistently and heuristically, leading to a qualitative understanding of assumptions and methodology which might not be initially apparent from more purely mathematical accounts when one is taking a first approach to a subject.
It is not a book on finance in the sense that Hull or Das might be -- but builds a good foundation of tools for Quantitative Finance.
Highly recommended.
5 of 5 people found the following review helpful:
The Best Beginner's Book on Stochastic Calculus Ever Written, 2009-04-06
This book can be summarized in one sentence:
It is the single most gentle introduction to stochastic calculus ever written.
Seriously. You will NOT find a more gentle introduction to this topic. Neftci took a very difficult topic and wrote a very simple and clear book on the subject material.
This book does not dot the i's and cross the t's the way Shrieve does. It's not the clever tour de force that Baxter and Rennie is. You will not be an expert in stochastic calc after reading it. Not by any stretch of the imagination.
However, you'll have a few things that are more valuable than being an expert at stoch calc:
1. You'll have a gut feeling for what all this stuff means. Ever take a really difficult class and you got A's on all the homeworks and tests, but at the end of the semester you scratch your head and wonder what the heck you just learned? Yes, Shrieve, Øksendal, and a whole bunch of others will make you an expert. But you'll get very little gut feeling understanding from those books. They teach you about calculations, and are very skimpy on the meaning or any kind of intuition. This book is ALL ABOUT intuition and meaning.
2. You'll learn what you need to know. Face it. Stoch calc is a part of all financial engineering programs. But how many quants really use it? For every Peter Carr or Bruno Dupire there are hundreds of quants whose main purpose in life is to calculate cashflow waterfalls on Excel or price a CDS using some company's automated CDS pricing program. For the VAST majority of us, stochastic calculus is mostly for our interviews. We're asked what Girsanov's theorem is. Maybe we're asked to price some weird derivative. Maybe. Most likely we're asked to compute something mindless like the change in some function of a stochastic variable. Unless you're interviewing for some kind of quant R&D position, everything you need to know for your interview is in this book. I promise you.
3. You'll be competent enough to have an intelligent conversation with someone about stochastic calc. You'll be in a better position to read and understand the more advanced books and actually "get it" rather than parrot a bunch of calculations.
I can guarantee you -- the people who don't like this book are either the wrong audience for it and should be reading something more advanced, or they're a bunch pretentious a******s who think that a book's value is proportional to how densely packed it is with arcane equations.
And, no, I don't shy away from nuclear chicken scratching. I have a PhD in theoretical physics. I've done my fair share of reading and writing chicken scratching. I'm not impressed by advanced formalism. It has a proper time and place. I *am* impressed by clarity of thought and exposition, and in this regard, this book is in a universe all its own.
Baxter and Rennie comes close, but their book is subtle and clever. And it doesn't cover the wealth of topics this book covers. I love their book, but this book is ultimately more useful. Think about the difference between Feynman's physics books compared to other beginning texts. To see the real beauty of Feynman's approach, you really need to know the topic.
0 of 0 people found the following review helpful:
One of my top book list in Financial Engineering, 2009-01-21
This book introduces mathematics of derivative in a clear way. Strong mathematical background is not required to understand the logic of the contents. The strength of the book is that it shows the relationship between PDE and the martingale method with good example. The proof of Ito lemma is easy to understand too. Paul Wilmott's book has skipped the proof. It is a good complement with Paul Wilmott's Quantitative Finance.
0 of 2 people found the following review helpful:
Not a good book to read, even for beginners, 2008-12-05
This was the first book I read (cover to cover) when I decided to consider quantitative finance. It was suggested to me by a friend.
Unfortunately the book offers very little in return for investing your time into reading it. I find it poorly edited; the author repeats certain things over and over again. It's true that he gives an introduction to the BS world, but it's just way too lengthy for an intro.
A good intro is Baxter & Rennie's: short, to the point, and informative. After that I find Shrieve's two volumes superb. Shrieve really knows what he is talking about, and I think he uses the right amount of math, and nothing more.
Conclusion: don't waste your time with Neftci, there are much better books out-there.
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