This book teaches financial engineering in an innovative way: by providing tools and a point of view to quickly and easily solve real front-office problems. Projects and simulations are not just exercises in this book, but its heart and soul. You will not only learn how to do state-of-the-art simulations and build exotic derivatives valuation models, you will also learn how to quickly make reasonable inferences based on incomplete information. This book will give you the expertise to make significant progress in understanding brand new derivatives given only a preliminary term sheet, thus making you extraordinarily valuable to banks, brokerage houses, trading floors, and hedge funds.
Financial Hacking is not about long, detailed mathematical proofs or briefs summaries of conventional financial theories; it is about engineering specific, useable answers to imprecise but important questions. It is an essential book both for students and for practitioners of financial engineering.
MBAs in finance learn case-method and standard finance mainly by talking. Mathematical finance students learn the elegance and beauty of formulas mainly by manipulating symbols. But financial engineers need to learn how to build useful tools, and the best way to do that is to actually build them in a test environment, with only hypothetical profits or losses at stake. That's what this book does. It is like a trading desk sandbox that prepares graduate students or others looking to move closer to trading operations.
Foreword vii
Part 1 Vanilla World 1
Chapter 1 Risk 3
Chapter 2 Arbitrage 19
Chapter 3 Trading Puzzles 27
Part 2 Vanilla Derivatives 41
Chapter 4 Black-Scholes 43
Chapter 5 Simulation 65
Chapter 6 Puzzles and Bugs 89
Part 3 Exotic Derivatives 121
Chapter 7 Single-Asset Exotic Options 123
Chapter 8 Multi-Asset Exotic Options 139
Part 4 Exotic Worlds 149
Chapter 9 The Best Trade in the World? 151
Chapter 10 Variance Swaps 163
Chapter 11 Esoteric Worlds and Derivatives 177
Overview
This book teaches financial engineering in an innovative way: by providing tools and a point of view to quickly and easily solve real front-office problems. Projects and simulations are not just exercises in this book, but its heart and soul. You will not only learn how to do state-of-the-art simulations and build exotic derivatives valuation models, you will also learn how to quickly make reasonable inferences based on incomplete information. This book will give you the expertise to make significant progress in ...