Editorial Review

Editorial Review

It's unlikely that you'll spot many dog-eared copies of A Random Walk floating amongst the Wall Street set (although bookshelves at home may prove otherwise). After all, a "random walk"--in market terms--suggests that a "blindfolded monkey" would have as much luck selecting a portfolio as a pro. But Burton Malkiel's classic investment book is anything but random. Since stock prices cannot be predicted in the short term, argues Malkiel, individual investors are better off buying and holding onto index funds than meddling with securities or actively managing mutual funds. Not only will a broad range of index funds outperform a professionally managed portfolio in the long run, but investors can avoid expense charges and trading costs, which decrease returns.

Reviews (35)

The Bible of Options Trading
As a floor clerk for a professional options trading group, I beleive this book gives an excellent non-techincal overview of options trading.
Before you buy this book you should know;
The book is geared toward professionals and floor traders, but that doesn't mean that a non-professional wouldn't learn a ton about option trading (things that one could apply to trading from off the floor).
The book is not very technical.If you are looking for a technical book, buy "Options, Futures, and Other Derivatives" by John C. Hull.

Excellent book!!!!!!!
I read this book after reading other more basic stuff an I really have to say that it took me to the next level. After reading this book I was able to do alot of the advanced strategies without a problem. Of course I read more advanced books then this to help me apply this stuff.
Dont listen to these idiots reviews who say there is software out there that can do all the work for you. You need to know why the software does what it does and this book will explain it. The best software in the world cannot help the losing trader.

Reviews (40)

Waste of Time
Any book by Damodaran is far better for business managers and portfolio managers.

For portfolio managers, estimating the cash-flows is a small part of the valuation process, the easiest. As the financial field and practice is becoming more and more quantitative, the cutting edge of asset pricing is to estimate time-varying risk premiums. Actually, almost 90% of variation in stock prices come from risk shifts, not from news on company cash-flows.

If you are interested in asset pricing i would suggest a mix of damodaran (20%) and "Asset Pricing" by John Cochrane (80%).

Good but bad Excel support
I liked this book. In Russia it is one of the most popular books on valuatuion. But when I can get the perfect excel support for Investment Valuation by Aswath Damodaran or good web support for Valuation Methods and Shareholder Value Creation by Pablo Fernandez, I ask the authors, why don't they put supporting material in disk? I think that the price of their sowtware ($94.50) is too high compairing with the book ($56 with discount), because there is no supporting materials - only 1 spreadsheet (from my point of view does not conform to McKinsey, as the leader of consulting business). I hope, for the 4-th edition we will have a good excel support.

Adequate, but not Original
I hoped that McKinsey would have something new to say on this subject.There are two corporate finance texts and various finance books that cover the ground better or at least as well, so it is hard to see why this book was written.

Reviews (20)

This is a ?partial? practioners giude
Be warned!This is a "partial" work.
Mr. Copeland's work is great and insightful (once you download 26 pages of errata and keep it close by).He starts off with NPV and builds up to "rainbow" options.The detail is comprehensive and the chapter end questions are challenging. And this is my beef.You have to pay The Monitor Group an additional $US 30.00 for the solutions to the problems.This is not what I would call "a parishioners guide" but another example of an American corporate rip-off!.

Due to the fact that the errata was the longest I have come across, that the editing was generally so poor, and the solutions are an additional charge, I feel that Texere owes me a complete parishioners guide toreal options. By using Real option analysis or NPV, the additional costs in time and money can not justify an investment in this book. A real sunk cost for me.

Mr. Copeland,do not let your name go on such a poorly finished product again.

Errors
Is there a list available with all the errors in the book? Does anyone know where to get it?

Delivers on content, but fails badly on presentation
Content : A
The book enables the reader to understand the world of real options without having to take a course on stochastic calculus, which is good because otherwise Real Options would be too hard to sell to management. The book is rich on examples and presents the building blocks of almost every combination imaginable.More case studies though would have been a big plus.

Reviews (3)

Very disappointing
This text offers absolutely nothing. It is either far too simplistic or misses chunks of valuable detail.

There are far better introductions to the energy markets (e.g. Stephen Errera's Trading Energy Futures & Options or Peter Fusaro's Energy Risk Management) - buy one of these instead!

This book helped me get a job!
"Managing Energy Risk" gave me the information I needed to answer technical questions about energy risk in an actual job interview.My answers must have been good because I was offered and happily accepted an energy risk management position!This is a great introduction and summary of energy risk management, which I believe was intended for managers and others like myself who just want a thorough overview.Several technical concepts are discussed in this book, but the author leaves the gory details for other sources.Among other things this book covers: 1) the current status of the electric power industry and a brief historical perspective, 2) risk management policies and procedures, 3) the different players involved in energy risk management, and 4) the foundations, basics, and some of the peculiarities of energy risk management.I recommend this book to anyone looking for a solid foundation in energy risk management.

Isbn: 1899332545
Sales Rank: 948066
Subjects:  1. Energy    2. Science    3. Science/Mathematics   

Reviews (16)

A good general introduction but needs more case studies
It is now a tautology to say that energy derivatives are very important financial instruments. Energizing a market of billions of dollars, they are useful to many different organizations and find their place in myriads of both business and personal portfolios. This book is written for those readers who are just entering the field of energy derivatives, but yet who still have a background in other areas of financial engineering. It emphasizes risk minimization, and also gives some of the author's unique perspective on the subject. Only the first six chapters were read by this reviewer and so only these will be reviewed here.

The first chapter of the book discusses the general properties of energy derivatives and the concept of risk management. The author distinguishes between `quantitative' analysis, which emphasizes the construction of models that replicate market behavior, and `fundamental' analysis, which is an attempt to understand and describe market behavior in terms of the economics of supply and demand. The author emphasizes fundamental analysis in the book. She also outlines what makes energy derivatives unique in their analysis, i.e. what makes them different from interest rate and equity markets in terms of these different analysis categories. Energy markets exhibit stronger mean reversion, she argues, and supply constraints can "shock" the system. These differences motivate the introduction of the topics of `convenience yield' and seasonality that do not have to be used in other types of markets.

Chapter 2 gets into the actual construction of financial models, with the author emphasizing the need for effective benchmarking of these models. She constructs some elementary stochastic price models and introduces some of the basic modeling terminology to be used in the book. One of these concepts is the `convenience yield' that represents the benefit that a holder of a commodity receives by holding the commodity, and is a measure of the balance between the available supply and the existing demand. Defining the convenience yield is difficult, but dominates the mathematical modeling of the energy markets. The author spends a fair amount of time discussing the mean-reversion process with more to come in later chapters. She also discusses the difference between yield and forward rate curves, a forward curve geared toward short-term interest rates, while a yield curve is a discount rate curve representing average rates from the present to points along the time axis.

In chapter 3 the author discusses some of the mathematical/statistical tools involved in energy derivatives, with the analysis of time series and distribution analysis being the two dominant tools that are examined. Time series are used to monitor day-to-day changes in prices, while distribution analysis deals with price levels over extended intervals of time. The material in the chapter is standard, and should be helpful to readers who need a review of it.

Chapter 4 is an introduction to the modeling of spot prices, with the assumption that supply and demand effects converge in the spot market prices. Derivative contracts are bought and sold with the belief that this convergence holds. After a quick look at actual time series of spot prices, the author constructs a lognormal price model and two mean-reverting models. Lognormal price models are of course standard constructions in financial engineering, and are popular for their simplicity and for enforcing positive-definiteness. Negative autocorrelation between spot prices are characteristic of energy markets, and is satisfied in mean-reverting models. The author also introduces one of her models, a two-factor model, with the first factor being the spot price, and the second factor a long-term equilibrium price, which when the latter is zero gives a single-factor model for the energy commodity spot price. Time series analysis is used to obtain the model parameters and distribution analysis is used to test the models over extended time periods. The distribution analysis involves Monte Carlo simulation, and the results showing the differences between actual and sample model simulated distributions.

Recognizing the importance of forward prices in derivatives pricing and risk management, the author gives a detailed treatment of them in chapter 5. The author points out, interestingly, that there is no correlation between energy futures prices to interest rates in the energy commodity markets. The futures and forward prices are valued in an identical manner in energy markets, and energy future price and forward price can be used interchangeably. She also uses the no-arbitrage market condition to show that spot and forward prices are different, and derives partial differential equations for the forward price, both with and without dividends.

Chapter 6 is extremely important, especially for the development of practical trading strategies, for it concerns measures of volatility for price processes. The volatility of the spot price gives information about the degree of randomness in the returns of the spot price over short intervals of time. Traders are of course very interested in volatilities, since the width of the price distribution is related to the probability of the option expiring in-the-money. This is well-known in financial modeling of derivatives, but there are some peculiarities in energy markets, such as "volatility term structure", that make the modeling process more difficult. The author discusses how to calculate historical, market-implied, and model-implied volatilities, and introduces the (two-dimensional) `discrete volatility matrix', the latter of which is due to the author. Several justifications are given for using a two-dimensional matrix of volatilities rather than a single-volatility term structure. The author does not however give any practical reasons for using this matrix or case studies that would illustrate its advantages. Reference is given to a commercial product that uses it, but it would have been helpful to the reader if the author had given more details on its use in practical everyday trading.

Not for newcomers
I work in the energy products/generation industry and thought this will help explain what the whole energy-risk field is about. I'm still as confused now as I was before I bought the book .. probably because I dont have a strong background in computational finance. This is defintely not for newcomers and is really geared to the quants.

Isbn: 0273644149
Sales Rank: 207895
Subjects:  1. Business & Economics    2. Business/Economics    3. Management - General   

Isbn: 0894134582
Sales Rank: 1317777
Subjects:  1. Business/Economics    2. Risk management   

Reviews (5)

Insightful, thought-provoking and entertaining
This book both addresses risk management from
a professional perspective, and from a personal
level. The examples are abundant, instructive
and highly entertaining!

You can't go wrong with this book.

Worth the risk of the purchase price
This book, without a doubt, offers a very clear explanation of the basic principles of risk management.The book concentrates on financial applications and even has a chapter in which he creates a CEO scenario for the reader where the ideas of risk are put into practice. Borge also shows how the same principles may be applied to personal life from the decison to marry to what type of home insurance tp purchase.Borge comes across as very affable and this helps to make the subject matter 'friendly' also.However, I doubt this book was ever intended for finance professionals - though it might be useful in introductory courses on risk management. I also think those looking for more philosophical approaches to the subject (for instance Peter L. Bernstein or Nassim N Taleb) of risk may be somewhat disappointed.At anay rate this book offers sensible advice that avoids easy solutions.In an ideal world this book would be outselling Who Moved My Cheese?

Not for finance professionals
According to the Preface, Mr. Borge writes to pique [the reader's] interest in Risk Management. The reader to whom the author is writing is a reader without experience in finance. Indeed, in his effort to avoid the depth or rigor of a risk management textbook, Mr. Borge eliminates much of what a finance professional might find interesting in a book about risk management. Business professionals with a background in finance may find themselves hungry for more substance than the book has to offer.

Reviews (6)

Highly Recommended!
Christopher Culp definitively combines a thorough reference work on company-wide risk management with a sweeping discussion of the best hedging practices. Since this is also a textbook, you'll find the kind of math that would make even Einstein sweat. But, as the author notes, he's written this book for senior managers, so you have a note from the teacher that you can skip the math and statistics if you have a staff for that. Instead, apply your executive thinking skills to absorbing Culp's excellent lessons in risk management theory and practice. We recommend this book to senior managers and directors - in other words, any executives who create, implement or supervise risk management strategies.

Uneven, Academic, and Often Inaccurate
This seems to be a digestion of some articles on risk management without the practical experience to make it useful for practicing risk managers.

Forget that much of the theory is dated, the notion of how risk managment works is incorrect.This isn't a good resource.Try the GARP website for better resources.

Reviews (5)

Dated Material
This book reviews concepts that have been around for more than 10 years and well published in articles.Perhaps it pulls it all together in book form, but even so, it is dated.It is light on credit derivatives and the exploding market in synthetic securitizations driven by credit derivatives.These products introduce structured credit risk (and hedges) to banks and investors.

The reader will need to buy "Credit Derivatives and Synthetic Structures" by Tavakoli to get insight into these products.

Don't waste your time
Working in the banking industry I was turned on to this book by a colleague and what a colossal waste of time reading this was.The vast majority of this book's models are outdated and if Mr. Saunders was trying to write a historical piece he has accomplished that in spades.Nothing in this book is relevant and it is obvious the esteemed Mr. Saunders lent his name to a very poor book that he probably should have glanced through if not read.Linda Allen should probably get some real world experience because she is wasting people's time with her research.

Reviews (6)

Best intro to VAR
Cannot think of any other book that gives you the basics and beyond ofVAR. As an MBA student I liked most the practical examples. Mathematicalstuff is kept to a minimum, even though it can be sometimes quitedemanding. Jorion is one of the laeding academics on VAR. He"defends" the properties of VAR very well after some criticism onVAR (see Nassim Taleb's web page).

A Great Introduction to VaR
Dr. Jorion's book formally introduced the concept of VaR to me several years ago.It's written so that a novice in risk management can understand the concepts with ease.

A great book.

Reviews (45)

A good first step into the world of Quantitative Finance
The author has written a nice, lively elementary text on mathematical finance. This book can serve as a excellent launching point into the topic. For the next step in the reader's development, I recommend the very good intermediate level treatment by Bjork in "Arbitrage Theory in Continuous Time" 2nd edition. As a capstone for advanced study, I recommend the advanced treatment of Musiela and Rutkowski's "Martingale Methods in Financial Modeling.

Hull starts out his 5th edition with several chapters on the basics of the derivative contracts in his study. The contracts introduced are forward and futures contracts, interest rate swaps, and equity options. The basic definitions of each contingency contract is given, as well as characteristics of the markets where these contracts trade. Some basic trading strategies are also studied.

The study of the option pricing model problem begins in earnest in Chapter 10. The section on one-step binomial tree model leads to a very intuitive description of risk-neutral valuation.

Chapter 11 introduces continuous time stochastic processes in a very intuitive setting. To avoid the hard-core Ito calculus, the author motivates the stochastic differential by considering difference equations. This is a nice technique and makes the material accessible to the beginner. The next highlight is a statement of Ito's lemma. This is not given in full generality, but only stated precisely as needed for Black-Scholes calculations. The appendix gives an intuitive motivation for Ito's lemma based on the multi-dimensional Taylor's formula.
This is a nice illustration as Taylor's formula is indeed a component of the formal semi-martingale based proof of Ito's rule. See for example Oksendal, "Stochastic Differential Equations" Chapter 4, or Karatzas & Shreve "Brownian Motion and Stochastic Calculus, Chapter 3.

Chapter 12 is devoted to the Black-Scholes-Merton theory of option pricing. The famous Black-Scholes PDE is derived via Ito's rule and application of a delta hedge. The author doesn't directly solve this PDE (via the standard application of the Feyman-Kac formula). Instead a nice proof of the option pricing formula is established in the appendix based on a simple log-normal distribution argument.

Chapter 13 discusses option pricing in for other contingency contracts. In Chapter 14, we return to equity options by studying the Greek letters. The reader discovers the Greek letters can be thought of as coefficients of the Black-Scholes PDE and learns some elementary hedging techniques.

Chapter 15 discusses implied volatility and volatility smiles. It is here that the astute reader gets his first indication that the Black-Scholes theory for option pricing may not be as robust or "true to market" as the reader may have been lead to believe. (The folks at Long-Term Capital Management learned this hard lesson rather publicly.)

A survey of topics of interest follows in the next handful of chapters. The material on value at risk, the GARCH volatility model and exotic options is somewhat superficial. The careless reader will come away feeling he knows quite a bit more than he really does.

Martingale theory is touched on in 21 and the Girsanov Theorem is alluded to, but these topics are really too complex and require too many prerequisites for proper treatment in the context. A general multi-variate version of Ito's Rule is stated in the appendix of this chapter.

The next section of the book deals with term-structure models and their applications. One-factor models are discussed along with the various limitations of each of these models. This gives a nice historical treatment. The Heath-Jarrow-Morton and Libor Market Model k-factor term-structure frameworks are introduced. Without the supporting martingale theory, the analysis of these models presented here is very limited.

The last several chapters of the text are very survey-like and breezily touch on topics such as credit risk, credit derivatives and energy derivatives. There isn't a lot of theory in these chapters at all, but at least the reader is made aware of the existence of these kinds of contingencies.

The book wraps up with a cautionary chapter in the form of lessons learned. The unwary reader might see all of the derivative-related train wrecks and say to himself "well, that won't be me". The problem is that it really might be you if you truly (and foolishly) still believe the equity prices always follow geometric Brownian motion. See Lo & MacKinlay "A Non-Random Walk Down Wall Street" for an excellent exposition into the limitations of the basic assumptions underpinning the Black-Scholes-Merton theory.

If nothing else, Hull's last chapter should convince you that maybe this isn't the only book you'll ever want to read in your study of mathematical finance.

The bible of derivatives
As the title of this review indicates, this is _the_ book out of many for financial derivatives. It is by no means the only thing you'll need, but it is a great book for a solid foundation in the subject. In short, this book should adorn every finance dork's library.

N.

Editorial Review

Features

• Color
• Closed-captioned
• NTSC

Reviews (36)

Great potrayal of the infamous rogue trader
This movie captures well the story of the rogue trader.
Ewen MacGregor does a superb job, and manages to create some real tension. You can almost feel the tension in your living room when you watch this one!
When he first made the money back, you almost wish he would have stopped there, but somehow, like an addicted gambler, continues on, inventing ingenious ways to cover up, and get more money to trade.
All the cast does a good job, the locations are also excellent.
An underrated excellent movie, and well worth a look, if you have even the slightest interest in finance or banks.

How one man broke Bearings Bank
This film tells the true story of Nick Leeson, the floor trader on Simex exchange,Singapore, who singly handedly broke Barings Bank, in the mid '90's. Of how one mans ambition was overcome by pressures, and in turn, reckless gambling.

An incredible aspect of this case washow Leeson covered up for so long, and fooledso many, who it seemed, were so wrapped up in their own company rhetoric they simply wanted to believe in Leeson. The regional manager in Singapore had never even heard of the name of the brokerage house Leeson used to "invent" a trade to cover the missing and ever increasing deficit being incured in the "88888" account, a supposed customer account, but in reality, an back office error account.

The pace of the story is very well done here. My only gripe is, for a film with excellent supporting cast, why did they take so little care over the choice of the leading players? Ewan McGreggor is convincing as Leeson only when the sickly scenes with his wife are not on screen, the hoplessly miscast Lisa.

Some may find the numerous and fast financial terms not easy to follow. But a fascinating story, with great use of background music.

Reviews (33)

Real bookfor traders
really great to figure out the intricacies of options. if you need something more conventional just get hull; this book is bysomeone who does it for a living and has different intuitions than what you get in the ivory tower.
some of the points are great but may need more updating

Not Worth the Read
This book is surely not worth reading.The formulas and analyses are more often incorrect than they are correct.As much as he likes fluffing people with PhDs (which I have - in mathematics), I can't help but feel he himself lacks the requisite skills for proper option analysis.This is not a book any serious trader, quant, risk manager, or academic should bother adding to their library.

Derivatives Theory meets Practice
This book provides a healthy dose of practical wisdom for options traders so that they don't blindly follow their mathematical models into oblivion. The author (Taleb) has a PhD in finance, but also has traded in the pits, he knows both theory and practice and where they diverge.

Taleb focuses on hedging, which is a trader's main task when running a large portfolio of options.Instead of using a flood of equations, Taleb relies on charts, graphs, and tables to make his points. Most of the equations & heavy mathematics are relegated to the appendix, presumably because quants (or software) will price the instruments.He covers the behavior of the Greeks (delta, gamma, vega, theta, etc.) for vanilla options as well as behavior of exotic options, and delves into the practicalities of volatility, hedging at discontinuities, and various other topics.

The book is very popular on trading desks, and although I found it pretty good, I didn't find it to be outstanding.Also, notably, the book does NOT cover credit & interest rate derivatives at all; hopefully this will be corrected in the next edition.

Reviews (3)

A useful book with lots of examples.
Overall, I found this book interesting. There is nothing really new or unknown to quants or researchers working in this field but much of the material has actually not been written down in any other book, which makesthis book useful.

There are some important points about hedging andpricing derivatives in a non Black Scholes world which are important butare nowhere to be seen in any textbook on options and/or mathematicalfinance. The author correctly stresses the distinction between real-worldand implied statistical quantities.

Also, he gives a lot of common sensecomments on questions like hedging with smiles, which are very helpful.Topics like changes of numeraire which are exposed in notoriously obscureways in many mathematical finance textbooks are explained in simple termswith EXAMPLES. Examples illustrate eveyr point and this is perhaps what islacking in other textbooks. I appreciated this a lot. Mathematical rigoris not the strong point of this book but I think it is an advantage ratherthan a drawback: it allows the reader to focus on important points whichare not the mathematical ones in fact. However, there are some mistakes inthe text from time to time.

However, there is something I feel veryunconfortable with: the author does not mention/cite other peoples work inthis field andseems to attribute to himself most of the results explainedin the book. Anybody who has been working in the field in the last decadecan easilyassociate lots of names with each of the points raised in thebook but these names are nowhere to be seen.Does the author have a verylimited view of the literature or is he deliberately not mentioning otherpeoples work? Perhaps a mixture of both.

Fine, but nothing particularly new or conclusive.
This book brings together many of the recent publications concerning the volatility surface.The work is interesting and points out many of the well known problems with pricing options in a non Black Scholes world. Asis often the case with financial literature, it is more interesting from anacademic perspective than from a practical one.

a must read for anyone involved in derivative pricing
The Black-Scholes model for pricing FX and equity options has become ubiquitous. However, it is always used with a pinch of salt. In particular, traders typically use different volatilities when pricing options withdifferent strikes, a practice which makes no sense in the context of themodel, but is a very effective way of compensating for its deficiencies.This is known as the smile effect from the shape of the volatility graph.

Rebonato's new book sets out to examine these deficiencies and presentsvarious alternative models. For each model, he examines the validity of itsassumptions and predictions, convincingly demonstrating that fear of jumpsis a major cause of smiles.

The other major theme of the book is thatvolatility and correlation are quite different objects for interest ratederivatives than for FX and equity options.In the context of BGM models,he shows that the shape of the volatility function of forward rates is themajor cause of decorrelation, rather than actualinstantaneouslyuncorrelated movements.