Financial-future

This book provides a comprehensive discussion of the popular term structure models and their applications to derivatives pricing. The mathematics is quite heavy, but is well explained, and throughout the author describes the practical issues of implemention, as well as empirical studies of the various models performance. Overall, a well balanced book spanning both theory and practice. Unfortunately, as other reviewers have pointed out, the book is full of typos (it seems almost one a page) so that the reader has to spend time figuring out what the author really means. For example, in the section describing the pricing of discount bonds using the forward measure, there naturally arise three time parameters (current time, maturity, forward time). These parameters are arbitrarily interchanged in the text, making reading almost impossible. A worse mistake is in the authors description of the Cox-Ingersoll-Ross model where the author simultaneously assumes a zero market price of risk in the SDE but then introduces a non-zero market price of risk in the PDE. This leads to a strange bond price formula which is not preference free. All in all, a good book, but severely handicapped by typos.

The book places more emphasis on an intuitive grasp of the complex mathematics involved, though this must mean giving up rigour to an extent.

By restricting attention to interest-rate option models only, the author manages to give a thorough introduction to the subject, that goes way beyond the short chapters in standard textbooks such as Hull's or Wilmott's (I am not familiar with Miron and Swannell).

The first edition (the one that I'm familiar with) does indeed contain a number of irritating typos, many terms are first used then defined later, and the figures in particular can be greatly improved upon (I think they were produced by `Excel', which is not the best tool to produce high-quality figures for a serious technical book), however such glitches are typical of almost all books of such size and technical level.

The mathematics is not entirely trivial, but not too sophisticated either (a typical university science/engineering graduate should be able to handle it easily), and the author makes a valiant attempt to explain all relevant concepts from linear algebra to probability theory (I have to add that I didn't appreciate certain fast tricks like dropping the measure `dt' from the end of certain equations `to lighten the notation'. By doing that, one ends up with the wrong equation!)

As the author clearly indicates at the beginning, though reasonably self-contained, the book is by no means intended for a first course on option theory. However, for readers familiar with the basic facts of options and futures (at the level of Hull's book), this is a great book to read. I personally learnt an enormous lot from a first reading. I highly recommend it.

This book on interst rates is a pleasurable read. As a trader of interest rate swaps, I find every book on the topic adds something to my knowledge base, and this was better than most for ease of access. Anyone keen to understand all of the related markets, will also want to know more about credit derivatives.

I highly recommend "Credit Derivatives" (2nd Edition) by Tavakoli. The products and their uses are clearly explained, and ties in relative value to the interest rate market. I concede that the models for this product may be trickier because of documentation risk and data issues, but Tavakoli brings clarity to this topic so any interest rate professional can grasp the products and why investors - even hedge funds - are so keen to use them.