Customer Reviews
A triumph of clarity - By: Bachelier, 07 Sep 2004 
In a word: Salih N. Neftci's 'Principles of Financial Engineering' is a triumph. Neftci's 'Principles' joins Mason & Merton's "Cases in Financial Engineering" as the field's premier fundamental texts, most especiallly for students, but of practical use for practitioners as well. Neftci's chief strength in this work is the same that has made his "An Introduction to the Mathematics of Financial Derivatives" deservedly famous: clarity. Where other authors get bogged down in dark obscurantism, such as Beaumont's unsatisfying & inadequate "Financial Engineering Principles," or Galitz's risk management book, inappropriately titled "Financial Engineering: Tools & Techniques to Manage Financial Risk," Neftci sheds clear sunlight on the field of constructing structured products with the building blocks of financial instruments. He is the most gifted writer in practical financial mathematics, & his legions of fans are not wrong: there is no one better than Neftci at breaking down complex concepts in clear, digestible bites & then reassembling the whole. Neftci's 'Principles' improves upon, & indeed replaces, Cuthbertson & Nitzsche's "Financial Engineering: Derivatives & Risk Management" for applicability, & lucidity, & replaces Mashalll's "Financial Engineering: A Complete Guide to Financial Innovation" in scope. But Neftci does not sacrifice addressing difficult or complex structures through useless over simplicity, as sadly is the case with Eales's "Financial Engineering," rather he builds his explanations smoothly & logicallly, shedding light on the topics at hand by continuallly clearly demonstrating a replicating portfolio that mimics the instrument using other asset classes. For example, he begins by addressing the construction of cash flows with forward contracts, & then moves on to interest rate derivatives, swaps, repos, & then puts them alll together for dynamic replication methods & the construction of synthetics. Each chapter builds & sheds light on the next instrument & technique. By the time Neftci addresses options & applications to bond convexity strategies & credit derivatives, we are in a position of strength. Most notable is Chapter 14, which clearly reviews volatility trading & discusses both the strengths & pitfallls, before turning to the nearly endless problem & opportunities of volatility smiles. He does not turn away from the problem of pricing in the presence of smiles, & uses the example of trading in the FX markets to shed light on strategies. For those working on synthetic & structured products desks, this will be the premier text. For those working on credit derivatives & other derivatives desks, this work assists in clarifying basic financial engineering concepts that then are more appropriately addressed in specialized texts, Schönbucher's "Credit Derivatives Pricing Models," for example. For those seeking a more rigorous mathematical foundation to financial engineering, Capinski & Zastawniak's "Mathematics for Finance: An Introduction to Financial Engineering" or the works of Steven Shreve & Ioannis Karatzas are the volumes to turn to. But for a solid work for a student who wishes to be a practitioner, Neftci is always the first choice. For the instructor, this book, coupled with the above-mentioned 'Cases' will provide the exact balance between techne & arte that provides students with the best education for engineering structured products. There is a single caveat to my otherwise wholehearted praise for this book: those already deeply familiar with these topics will find little new here: this is not a groundbreaking work announcing new techniques or research. Rather, the strength of Neftci's 'Principles' again is clarity clarity clarity. This is a most welcome volume, the one I wish I had had as a graduate student, which leaves this reviewer envious of those who will benefit & have stronger careers due to its current availability. We owe Neftci our thanks.
A must read book for all finance students and practitioners - By: MR Y EL KAREH, 25 May 2004 I had the luxury of studying financial engineering with professor Neftci at the ISMA Centre, university of Reading where I first came into contact with his new book. It has been an amazing experience & it was a pleasure to see the book finallly in print. I could write loads but it is enough to say that the insight & the approach are truly unique & unprecedented, two characteristics I believe that go with professor Neftci, be it when he writes a book or when he delivers a lecture. It is a must read for any financial engineering student & finance practitioners as well.
