Author: Justin London

Publisher: Pearson Education, Inc. (Upper Saddle River, NJ)

ISBN: 0-13-196259-0

Modeling Derivatives Applications is a 565 page, hardbound book, with a suggested retail price of less than $170 (US).  The book consists of 9 chapters, two appendices (e.g., interest rate tree modeling in Matlab), a references section and an index.  Supplemental, proprietary code files, used in the book, may be downloaded from the internet.  As the author suggests in the preface, “(t)he best way to learn is to follow the examples and run the code” (p. xv).  The author seeks to emphasize how to implement and code complex models for pricing, trading, and hedging, and “some” tips on building “efficient” models, though it is up to the reader to generate desirable code patterns and coding practices.

The author’s credentials include degrees in economics, mathematics, financial engineering and computer science.  At a minimum, the reader/user will require math background through advanced calculus and/or a graduate level education in finance or economics to benefit from this book.  For example, someone with a Ph.D. in finance or applied economics is likely to be included in this target market or audience.  The presumption is that those with such background have some programming experience.  It is also presumed that this programming experience will be sufficient and include some understanding of coding design efficiencies.

Chapter coverage includes examples of Matlab, C++, and Excel code for (1) swaps and fixed income securities, (2) copulas and copula methods, (3) mortgage-backed securities, (4) collateralized-debt obligations, (5) credit derivatives, (6) weather derivatives, and (7) energy and power derivatives.  Chapter 8 contains Matlab-based proprietary information, expanding on the energy derivatives.  Chapter 9 also contains proprietary work, but for commercial real-estate backed securities.

This is a reference book and practical guide for those involved in the development of complex econometric models.  The book is well-written, well-organized, and is complete with useful figures, tables and exhibits to assist the reader in “tooling up” and applying the basic modeling techniques for a broad variety of derivatives.  From this foundation, the reader might design and apply or incorporate their own, proprietary subroutines and/or applications.

The above review was contributed by: Anthony (A.J.) Cataldo II.    Dr. Cataldo holds a PhD from Virginia Polytechnic Institute and State University , MAc ( University of Arizona)  unofficial minor in Marketing , BSBA  (University of Arizona). He is a Certified Management Accountant and a Certified Public Accountant:  Click Here to view Anthony's Reviews