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Reading books is essential in learning anything and the same holds when it comes to Financial Engineering. Books are always a safe bet, and in this post I’ll share my pick for the top 10 best Financial Engineering books you can get.
These resources will help you excel at Financial Engineering, and they are suitable for beginners, intermediate learners as well as experts. Many professionals have already benefited from this compilation, hope you do too!
Best Financial Engineering Books You Should Read
- Our #1 Choice: Financial Engineering: The Evolution of a Profession
- Best Value Pick: Practical Methods of Financial Engineering and Risk Management
- Best Budget Pick: Financial Engineering: A Complete Guide to Financial Innovation
1. Financial Engineering: The Evolution of a Profession
Financial Engineering: The Evolution of a Profession aims to provide a comprehensive understanding of this important discipline by examining its fundamentals, the newest financial products, and disseminating cutting-edge research.
A contributed volume of distinguished practitioners and academics, Financial Engineering details the different participants, developments, and products of various markets—from fixed income, equity, and derivatives to foreign exchange. Also included within these pages are comprehensive case studies that reveal the various issues associated with financial engineering.
Through them, you’ll gain instant insights from the stories of Countrywide (mortgages), Société Générale and Barings (derivatives), the Allstate Corporation (fixed income), AIG, and many others.
Financial engineering is an evolving field in constant revision. Success, innovation, and profitability in such a dynamic area require being at the forefront of research as new products and models are introduced and implemented. If you want to enhance your understanding of this discipline, take the time to learn from the experts gathered here.
2. Financial Engineering: A Complete Guide to Financial Innovation
This is one of the best Financial Engineering books which is easy to understand with a practical outlook.
Exploring the growing field of financial engineering, this book examines its explosive growth, its conceptual tools, products, instruments, processes, strategies and future directions.
Working from the basic building blocks of financial engineering to the complex processes of creating new financial instruments to meet specific needs, the book aims to provide both conceptual and practical frameworks for understanding the field.
3. Principles of Financial Engineering (Academic Press Advanced Finance)
Principles of Financial Engineering, describes the “engineering” elements of financial engineering instead of the mathematics underlying it. It shows how to use financial tools to accomplish a goal rather than describing the tools themselves. It lays emphasis on the engineering aspects of derivatives (how to create them) rather than their pricing (how they act) in relation to other instruments, the financial markets, and financial market practices.
This book explains ways to create financial tools and how the tools work together to achieve specific goals. Applications are illustrated using real-world examples.
Chapters on financial engineering in commodity markets, financial engineering applications in hedge fund strategies, correlation swaps, structural models of default, capital structure arbitrage, contingent convertibles and how to incorporate counterparty risk into derivatives pricing, among other topics
Principles of Financial Engineering is ideal for financial engineers, quantitative analysts in banks and investment houses, and other financial industry professionals. It is also highly recommended to graduate students in financial engineering and financial mathematics programs.
4. Practical Methods of Financial Engineering and Risk Management: Tools for Modern Financial Professionals
In Practical Methods of Financial Engineering and Risk Management, Dr. Rupak Chatterjee— former director of the multi-asset quantitative research group at Citi—introduces finance professionals and advanced students to the latest concepts, tools, valuation techniques, and analytic measures being deployed by the more discerning and responsive Wall Street practitioners, on all operational scales from day trading to institutional strategy, to model and analyze more faithfully the real behavior and risk exposure of financial markets in the cold light of the post-2008 realities.
The book assumes a working knowledge of calculus, statistics, and Excel, but it teaches techniques from statistical analysis, probability, and stochastic processes sufficient to enable the reader to calibrate probability distributions and create the simulations that are used on Wall Street to valuate various financial instruments correctly, model the risk dimensions of trading strategies, and perform the numerically intensive analysis of risk measures required by various regulatory agencies.
5. Options, Futures, and Other Derivatives
This book is suitable for graduate courses in business, economics, financial mathematics, and financial engineering; for advanced undergraduate courses with students who have good quantitative skills; and for practitioners involved in derivatives markets
Options, Futures, and Other Derivatives gives readers a modern look at derivatives markets. By incorporating the industry’s hottest topics, such as the securitization and credit crisis, author John C. Hull helps bridge the gap between theory and practice.
It covers all of the latest regulations and trends, including the Black-Scholes-Merton formulas, overnight indexed swaps, and the valuation of commodity derivatives.
6. Statistics and Data Analysis for Financial Engineering: with R examples
This textbook, geared towards graduate or advanced undergraduate students, teaches the statistics necessary for financial engineering. In doing so, it illustrates concepts using financial markets and economic data, R Labs with real-data exercises, and graphical and analytic methods for modeling and diagnosing modeling errors. These methods are critical because financial engineers now have access to enormous quantities of data. To make use of this data, the powerful methods in this book for working with quantitative information, particularly about volatility and risks, are essential.
R code and the advanced topics covered by the author. Individual chapters cover, among other topics, multivariate distributions, copulas, Bayesian computations, risk management, and cointegration.
Suggested prerequisites are basic knowledge of statistics and probability, matrices and linear algebra, and calculus. There is an appendix on probability, statistics and linear algebra. Practicing financial engineers will also find this book of interest.
7. A Primer For The Mathematics Of Financial Engineering
Chapters on solving nonlinear problems; expanded Lagrange multipliers sections; streamlined Taylor series and Taylor expansion sections; Mathematical Appendix at the end of the book.
Financial applications: Put-Call parity, bond mathematics, numerical computation of bond yields, Black-Scholes model, numerical estimation for Greeks, implied volatility, yield curves bootstrapping
Mathematical topics covered in this book: numerical approximation of definite integrals; Taylor approximations and Taylor series expansions; finite difference approximations; Stirling’s formula, polar coordinates; numerical methods for solving one dimensional problems; Newton’s method for higher dimensional problems.
Some other topics you will get to know in this book: Dollar duration, Dollar convexity, DV01; the effect of parallel shifts in the yield curve to changes in bond yields; bond portfolio immunization; arbitraging the Put-Call parity; percentage vs. log returns for individual assets and portfolios; optimum investment portfolios: maximum return portfolios and minimum variance portfolios; the numerical precision of finite difference approximations of the Greeks.
This book builds the solid mathematical foundation required to understand the quantitative models used in financial engineering. It contains 175 exercises, many of these being frequently asked interview questions.
8. Introduction to C++ for Financial Engineers: An Object-Oriented Approach
This book introduces the reader to the C++ programming language and how to use it to write applications in quantitative finance (QF) and related areas. No previous knowledge of C or C++ is required — experience with VBA, Matlab or other programming language is sufficient.
The book adopts an incremental approach; starting from basic principles then moving on to advanced complex techniques and then to real-life applications in financial engineering. There are five major parts in the book:
- C++ fundamentals and object-oriented thinking in QF
- Advanced object-oriented features such as inheritance and polymorphism
- Template programming and the Standard Template Library (STL)
- An introduction to GOF design patterns and their applications in QF Applications
The kinds of applications include binomial and trinomial methods, Monte Carlo simulation, advanced trees, partial differential equations and finite difference methods.
This book includes a companion website with all source code and many useful C++ classes that you can use in your own applications. Examples, test cases and applications are directly relevant to QF.
9. Financial Engineering and Computation: Principles, Mathematics, Algorithms
Nowadays students and professionals intending to work in any area of finance must master not only advanced concepts and mathematical models but also learn how to implement these models computationally.
This comprehensive text combines the theory and mathematics behind financial engineering with an emphasis on computation, in keeping with the way financial engineering is practiced in today’s capital markets. Unlike most books on investments, financial engineering, or derivative securities, the book starts from very basic ideas in finance and gradually builds up the theory.
It offers a thorough grounding in the subject for MBAs in finance, students of engineering and sciences who are pursuing a career in finance, researchers in computational finance, system analysts, and financial engineers.
Along with the theory, the author presents numerous algorithms for pricing, risk management, and portfolio management. The emphasis is on pricing financial and derivative securities: bonds, options, futures, forwards, interest rate derivatives, mortgage-backed securities, bonds with embedded options, and more.
10. Financial Engineering: Selected Works of Alexander Lipton
Edited by Alexander Lipton (Quant of the Year, 2000), this textbook is a collection of Lipton’s important and original papers on financial engineering written over his 20-year career as a preeminent quant working for leading financial institutions in New York, Chicago, and London. The papers cover topics ranging from the volatility smile problem, credit risk, macroeconomics and monetary circuit, and exotic options, summarizing Lipton’s fundamental contributions to these areas.
In addition to papers published in leading academic and practitioner-oriented journals, this volume contains a detailed introduction and two previously unpublished chapters. Some of the seminal papers in this book cover local-stochastic volatility models, passport options, credit value adjustments for credit default swaps, and asymptotics for exponential Lévy processes and their volatility smile.
Alexander Lipton is one of the most respected quants of his generation and the first recipient of the prestigious Quant of the Year award by Risk Magazine.
Suitable for undergraduate and graduate students of quantitative finance and banking, as well as industry professionals.
