Product Description

This book is the definitive and most comprehensive guide to modeling derivatives in C++ today. Providing readers with not only the theory and math behind the models, as well as the fundamental concepts of financial engineering, but also actual robust object–oriented C++ code, this is a practical introduction to the most important derivative models used in practice today, including equity (standard and exotics including barrier, lookback, and Asian) and fixed income (bonds, caps, swaptions, swaps, credit) derivatives. The book provides complete C++ implementations for many of the most important derivatives and interest rate pricing models used on Wall Street including Hull–White, BDT, CIR, HJM, and LIBOR Market Model. London illustrates the practical and efficient implementations of these models in real–world situations and discusses the mathematical underpinnings and derivation of the models in a detailed yet accessible manner illustrated by many examples with numerical data as well as real market data. A companion CD contains quantitative libraries, tools, applications, and resources that will be of value to those doing quantitative programming and analysis in C++. Filled with practical advice and helpful tools, Modeling Derivatives in C++ will help readers succeed in understanding and implementing C++ when modeling all types of derivatives.

Product Details

• Amazon Sales Rank: #105619 in Books
• Published on: 2005-01-07
• Original language: English
• Number of items: 1
• Binding: Paperback
• 768 pages

About the Author
Justin London is the founder and visionary of GlobalMaxTrading.com (GMT), The World’s Online Financial Supermarket®, a global online trading and financial technology company, as well as GlobalMaxAuctions.com, The World’s Online Trading Exchange ®, a global B2C and B2B auction and trading company. He has analyzed and managed bank corporate loan portfolios using credit derivatives in the Asset Portfolio Management Group of a large bank in Chicago, Illinois. He has developed fixed–income and equity models for trading companies and his own quantitative consulting firm. London has written code and algorithms in C++ to price and hedge various equity and fixed–income derivatives with a focus on building interest rate models. A graduate of the University of Michigan, London has five degrees, including a BA in economics and mathematics, an MA in applied economics, and an MS in financial engineering, computer science, and mathematics, respectively.

Customer Reviews

Don't waste your time - much clearer elsewhere
This book seems to alternate between about 10 pages of dense financial maths, followed by about 5-10 pages of code. But they aren't clearly related - it's not easy to see where the code comes from. In many cases, I found it easier to understand the code by referring to a much more readable reference on derivatives, the classic 'Hull' (Options, Futures and other Derivatives).

Also the rationale for implementing the code in a particular way is not discussed. The attitude seems to be "here's one way, take it or leave it". I found myself with many questions, for example, in the first few pages, they define

class Option, which contains 'double price_, double vol_, double dividend_' etc.

there is then a derived class

class VanillaOption: public Option, which contains 'double underlying_, double volatility_, double dividendYield_', etc.

there is then a class derived from this:

class BlackScholesOption : public VanillaOption, which contains 'double underlying_, double volatility_, double dividendYield_', etc.

At no point is it explained why these variables are duplicated at several levels, nor why they have subtly different names in different places. Is this a consious design decision, or just sloppy coding?

Having said that, this book does show a huge range of common pricing techniques implemented as C++ code. However, for a good introduction of pricing derivatives in C++, I'd instead recommend Mark Joshi's book (which is unfortunately much smaller, with much less coverage).

==Postscript==
After writing the above review, I found the book so heavy going I've never read it since. I would like to downgrade my review to 2 or 1 star, but Amazon won't let me.

A Masterpiece Resource for Derivatives Students and Traders
As both a professor of finance and a practitioner in the field, I've used several books for teaching, but find this book to be one of the most useful and resourceful. This book is also being used in many other universities and trading desks given its depth and coverage.

The author does a phenomenal job in his coverage and discussion of equity and fixed-income models. Details and code for complex interest rate models like the HJM andLibor Market Models is given and the code is well-written and commented. Application of these models is shown for pricing exotic and structured products like synthetic swaps, Bermudan swaptions, index-amortizing swaps, and range notes.

In some sense, this book could be a substitute for Hull's book given that it is covers all the material in Hull's book plus much more, as well as provides all of the code in C++ -- something I've haven't seen in any other book. The author gives many C++ libraries and routines that can easily be adapted by readers into their own code and libraries.

One of the unique aspects of this book is that the author provides various implementations and not just one approach for an any given model. For instance, the model shows how the Hull-White model can be coded three different ways with each implementation more robust than the previous one.

What clearly distinguishes this book from any other in the field is the application of the models to real-world data and the detailed discussions for how to implement derivative models in C++. For instance, the discussion on implied modeling volatility surfaces and GARCH models includes details of the various techniques used by traders and developers to calibrate and estimate parameters using actual marketdata.

This book is important reading for those who want to master concepts and programming in financial engineering.

I strongly recommend this book.

A very useful book
I found this book to be quite useful especially in my work working on the trading desk in London for one of the major tier one investment firms. I have been able to adapt a lot of the code for use in our systems. The author provides many useful libraries and routines that can be modified for pricing, hedging, and trading.

Those who have criticized the book seem to miss point on what it is for based--it does not teach you how to program in C++ or best design practices, rather it gives you the implementations for all the major models in C++ based on the model derivations. It gives readers the foundation for building their own models and adaptations as they see fit.

While not all the implementations are efficient, the author does discuss the inefficiencies and how they can be improved. The book's depth and coverage is perhaps what really makes this book so useful and resoureful as a desk reference.

The critism is without merit and bunch of rubbish.
I work with the top C++ programmers and all use the book as a desk reference given the book's comprehensive nature. A major desk wouldn't be using this book if it were not excellent. Furthermore, you are more likely to get a top notch job if you study and learn from the book.