Tools For Computational Finance

<body stylesrc="../_private/template_title.htm" topmargin="10" leftmargin="10" bgcolor="#FFFFFF" link="#333366" vlink="#000000" alink="#000000"> <div align="left"> <table border="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" cellpadding="0" id="table2"> <tr> <td width="780"> <div align="center"> <table border="0" cellpadding="5" cellspacing="0" height="206" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table3"> <tr> <td align="right" height="198" width="1%"> <p align="left"> <img border="0" src="../images/book_seydel_r_(2002).gif" width="132" height="200"></td> <td valign="top" align="left" height="198"> <table border="0" cellspacing="1" style="border-collapse: collapse" bordercolor="#111111" cellpadding="0" id="table4"> <tr> <td colspan="3" width="0%"> <p class="book_title">Tools For Computational Finance</td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> <img border="0" src="../images/blank_2x2.gif" width="2" height="2"><img border="0" src="../images/blank_2x2.gif" width="2" height="2"></td> <td width="52%" class="book_details_tags" valign="top" height="144" align="left" rowspan="9"> <map name="FPMap2"> <area href="../main/ratings.htm" shape="rect" coords="73, 0, 162, 33"> </map> <img border="0" src="../images_title/seydel4.gif" usemap="#FPMap2" width="188" height="158"></td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" valign="top" height="16" align="left" width="50%"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" height="32" align="center" width="50%" rowspan="2"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> </tr> </table> </td> </tr> </table> <table border="0" cellpadding="10" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="468" id="table5"> <tr> <td> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td></tr> </table> </div> <table border="0" cellpadding="5" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table6"> <tr> <td width="50%" valign="top"> <p align="left" class="body"><strong style="font-weight: 400">In an increasingly crowded field of financial engineering titles, Seydel's <i>Tools for Computational Finance</i> stands out as filling an unmet need. It is an intermediate level text with an extremely practical focus. </strong></p> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="125" align="left" id="table7"> <tr> <td width="120"> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td><td width="5"> </td> </tr> </table> <p align="left" class="body">Read this book immediately after you have read Baxter and Rennie (<a href="../titles/baxter_and_rennie_(1996).htm">1996</a>) or Neftci (<a href="../titles/neftci_s_(2000).htm">2000</a>). Those books introduce a lot of sophisticated financial engineering from a largely intuitive standpoint. Their shortcoming is that they offer little guidance in how to use this knowledge to actually price instruments. Here is where Seydel comes in. With plenty of worked examples and exercises, he walks readers through the practical work of financial engineering.  </p> <p align="left" class="body">You learn how to specify stochastic differential equations (SDEs) to value instruments, and then you learn numerical methods for solving those SDEs. Similarly, you learn how to specify partial differential equations to value instruments, and then you learn the methods of finite differences and finite elements to solve those PDEs. You learn techniques for the Monte Carlo method, including pseudorandom number generation, variance reduction, and quasi-Monte Carlo methods. There is a very nice section on the generation of Halton sequences. Concepts are further illustrated with a detailed chapter on the pricing of Asian options.</p> <p align="left" class="body">Seydel is at a level of sophistication comparable to Wilmott et al. (<a href="../titles/wilmott_et_al_(1997).htm">2000</a>). Indeed, it makes a lot of sense to read both books side-by-side. While Wilmott et al. focuses exclusively on "differential equation methods" of financial engineering, Seidel takes a more balanced approach. He offers equal treatment of both "stochastic calculus" and "differential equations" approaches. This means there is nice overlap between the two books, but each also covers topics the other book does not. The two books complement each other well.</p> <p align="left" class="body">A nice aspect of Seidel is the fact that chapters largely stand alone. The book is very much a toolkit, with each chapter focusing on a specific technique of financial engineering. You don't need to master one chapter in order to understand the next. The book assumes no knowledge of measure theory. Instead, it uses a wealth of examples and exercises to help readers master techniques of stochastic calculus without a lot of mathematical formalism.</p> </td> <td width="50%" valign="top" class="body" rowspan="2"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table8"> <tr> <td width="100%" bgcolor="#333366"> <p class="header_yellow" align="center">Contents</td> </tr> <tr> <td width="100%" class="explanatory_text"> <table border="1" cellpadding="0" cellspacing="5" style="border-collapse: collapse" bordercolor="#CCCCFF" bgcolor="#CCCCFF" width="100%" id="table9"> <tr> <td class="contents_expanded"> <p class="contents"><b>1. Modelling Tools for Financial Options </b> </p> <p class="contents">Options</p> <p class="contents">Model of the financial markets</p> <p class="contents">The binomial method</p> <p class="contents">Stochastic processes</p> <p class="contents">Stochastic differential equations</p> <p class="contents">Ito lemma and implications</p> <p class="contents"><b>2. Generating Random Numbers with Specified Distributions </b></p> <p class="contents">Pseudo-random numbers</p> <p class="contents">Transformed random variables</p> <p class="contents">Normally distributed random variables</p> <p class="contents">Sequences of numbers with low discrepancy</p> <p class="contents"><b>3. Numerical Integration of Stochastic Differential Equations </b></p> <p class="contents">Approximation error</p> <p class="contents">Stochastic Taylor expansion</p> <p class="contents">Examples of numerical methods</p> <p class="contents">Intermediate values</p> <p class="contents">Monte Carlo simulation</p> <p class="contents"><b>4. Finite Difference and Standard Options </b> </p> <p class="contents">Preparations</p> <p class="contents">Foundations of finite-difference methods</p> <p class="contents">Crank-Nicolson</p> <p class="contents">Boundary conditions</p> <p class="contents">American options as free boundary-value problems</p> <p class="contents">Computation of American options</p> <p class="contents">On the accuracy</p> <p class="contents"><b>5. Finite-Element Methods </b></p> <p class="contents">Weighted residuals</p> <p class="contents">Galerkin approach with hat functions</p> <p class="contents">Application to standard options</p> <p class="contents">Error estimates</p> <p class="contents"><b>6. Pricing of Exotic Options </b></p> <p class="contents">Exotic options</p> <p class="contents">Asian options</p> <p class="contents">Numerical aspects</p> <p class="contents">Upwind schemes and other methods</p> <p class="contents">High resolution methods</td> </tr> </table> </td> </tr> </table> <p align="left" class="body"> This is the kind of book you can read quickly, gaining a broad understanding of practical techniques of financial engineering. On the other hand, you can go through it slowly, working through all the examples and exercises in order to gain in-depth practical knowledge you can use on the job. Throughout the book, you will find citations for further reading. I highly recommend this book. <b>[This review is based on the first edition.]</b></p> <p align="center" class="body"> </p> </td> </tr> <tr> <td width="50%" valign="bottom"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table10"> <tr> <td width="100%"> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td></tr> </table> </td> </tr> </table> <div align="left"> <table border="0" cellpadding="6" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" bgcolor="#FFFFCC" id="table11"> <tr> <td width="100%" align="center"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" bgcolor="#FFFFCC" id="table12"> <tr> <td> <p class="body" style="margin-bottom: 6"><b><font color="#333366" size="3">For related books, see sections:</font></b></p> <p class="bullet"><img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/markets_industries_derivatives.htm">Markets - Derivatives</a></p> <p class="bullet"><img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/financial_engineering_basic.htm">Financial Engineering - Basic Theory</a></p> <p class="bullet"><img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/financial_engineering_numerical_methods.htm">Financial Engineering - Numerical Methods</a><p class="bullet"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/math_financial_math.htm">Math - Financial Math</a></p> <p class="bullet"><img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/math_software.htm">Math - Analytic Software</a><p class="bullet"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/other_functions_trading.htm">Other Functions - Trading</a></td> </tr> </table> </td> </tr> </table> </div> </td> <td>  </td> </tr> </table> </div>  <table border="0" style="border-collapse: collapse" width="100%" cellpadding="0" id="table1" bgcolor="#FFFFFF"> <tr> <td colspan="2" height="12"> <p style="margin-top: 0"> </td> </tr> <tr> <td align="right"> <p align="left" style="margin-bottom: 2px"> <a target="_top" href="http://www.riskexpertise.com/link/advertising.htm"> <font size="1" color="#000000" face="Arial">Ads by Contingency Analysis.</font></a></td> <td align="left"> <p align="right" style="margin-bottom: 2px"> <a target="_top" href="http://www.riskexpertise.com/link/advertising.htm"> <font size="1" color="#000000" face="Arial">Advertise on this site.</font></a></td> </tr> <tr> <td align="center" colspan="2">  <iframe src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=iframe" allowtransparency="true" background-color="transparent" style="margin: 0px; padding: 0px; border-width: 0px" width="300" height="250" frameborder="0" marginwidth="0" marginheight="0" scrolling="no"> <![if lt IE 4]> <script src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=js" type="text/javascript"> </script> <noscript> <a href="http://servedbyadbutler.com/go2/;ID=147917;size=300x250;setID=93136"> <img src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=img" border="0" height="250" width="300" alt=""></a> </noscript><![endif]> </iframe>   </td> </tr> </table> <p align="center" style="margin-top: 20"> <map name="FPMap0_I1"> <area href="http://www.riskbook.com" shape="rect" coords="0, 0, 184, 29" target="_top"></map> <img border="0" src="../images/open_book_riskbook.gif" usemap="#FPMap0_I1" width="185" height="30"></p> <p class="a" align="center"><font face="Arial" size="2"><a href="../main/disclaimer.htm">disclaimer</a></font></p> <p class="a" align="center"><span class="verdana10">website:</span> <a target="_top" href="http://www.contingencyanalysis.com"> <font size="2" face="Arial">http://www.contingencyanalysis.com</font></a><br> <span class="verdana10">books direct link:</span> <a target="_top" href="http://www.riskbook.com"><font size="2" face="Arial">http://www.riskbook.com</font></a><br> copyright <font face="Times New Roman">©</font> Contingency Analysis, 1996 - current</p> <p class="a" align="center"><map name="FPMap1_I1"> <area target="_top" href="http://www.contingencyanalysis.com" shape="rect" coords="0, 0, 240, 88"> </map><img border="0" src="../images/logo_book_white.gif" usemap="#FPMap1_I1" width="241" height="89"></p>  </body>