Principles of Financial Engineering

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

About the Author

Professor Salih N. Neftci, completed his PhD at the University of Minnesota and subsequently taught at George Washington University. Presently, he teaches at the Graduate School, City University of New York and at the New School University. Professor Neftci is a Research Associate at FAME, Switzerland and has a visiting appointment at the ISMA Centre, Reading University, U.K. Professor Neftci is well known for his book “An Introduction to the Mathematics of Pricing Financial Derivatives” – one of the standard texts in most university derivatives courses. He has several well-quoted academic papers. His current research and teaching is in the areas of financial engineering, risk management of extreme events, emerging market asset trading strategies, and contingent capital and credit lines. Professor Neftci is also the Head of the FAME Certificate program in Switzerland.