Rating: 
Summary: Good, but be careful with those algebraic mistakes
Review: Everything is good in this book. But I do want to warn those readers who want to actually implement the models using recipes in the numerical section of the book. That section is useful, but also contains many algebraic errors, so be careful.
Rating: 
Summary: A fine introduction from the standpoint of PDEs
Review: Financial engineering as a profession has exploded in the last 15 years, and has enlisted the minds of mathematicians, physicists, economists, engineers, as well as course everyday brokers and traders. This book is geared towards a mathematical audience, as one will need a background in the numerical solution of nonlinear partial differential equations and an understanding of stochastic processes (at the level of the Ito calculus). The author does devote a chapter to partial differential equations for readers who need it. Those readers with such a background will find the book very straightforward to read, especially those readers who are mathematicians or physicists, and are desiring to enter into the exciting field of financial engineering. The book is out of print, and an updated collection of books has been written by the author, but this one could still serve as an excellent introduction to the subject. In addition, this book has exercises, while the updated ones do not. Most of the results in the book can be used to develop practical trading strategies, and so the book qualifies more than being a mere academic exercise. The author's approach is not always rigorous from a mathematical standpoint, but this is fine since the emphasis is on developing insight into the principles behind the subject, such as the principle of arbitrage, the idea of hedging, etc. Early on, the author shows what is involved in removing oneself from the Black-Scholes world, with clear explanations of jump conditions, time-dependent volatility, and path dependency. The discussion on the valuation of American style options using partial is illuminating considering this is typically done with Monte Carlo simulations. Another interesting part of the book is the derivation of the partial differential equation for the market price of volatility risk. In addition, the author gives an overview of how to speculate with options, a topic that is truly removed from the Black-Scholes world, but of course is taken up with enthusiasm by many traders the world over. This discussion is very interesting, in that it sheds light on just how subjective preferences enter into options trading; but it also shows that such preferences can be treated quantitatively. Assuming the asset price follows a random walk, the author derives an equation for the present value of the expected payoff, an equation that differs from the Black-Scholes equation in having the drift rate rather than the interest rate in the delta term. This risk-neutral valuation is dealt with in more detail in the author's discussion on portfolio management. The author uses spreadsheets and Visual Basic to perform some of the numerical calculations, with many included on the accompanying CD. This is done no doubt to maintain the connection with practical trading. All of the mathematics and numerical studies could be done more efficiently though with a high-level programming language, such as Mathematica or Maple. The graphical capabilities of these languages will allow the reader to view the results of the calculations on-the-fly. Some omissions in the book include discussions on energy and weather derivatives, but these are covered, although in not too much detail, in the author's more recent books. Also omitted is any discussion on bandwidth markets or derivatives trading in network capacity. This is also a new area, but one that is growing rapidly. Discussion of it will no doubt be included in future books on derivatives.
Rating:
Summary: Refreshingly simple
Review: Having searched the market for a book that would appeal to me, I am pleased to be able to report that "Derivatives..." makes few attempts to over-complicate and confuse. Unlike many other books that dazzle the reader with closely argued attempts to build up a picture from first principles, Wilmott presents the world as it really is, with all its confusions and inadequacies. Having tried and failed to understand the mathematical underpinnings of the formulae I have to use on a a regular basis, it was refreshing to discover that there really was little coherence to the derivatives market (49 chapters!). I would recommend this without reservation to practitioners everywhere who need reminding what a beautiful chaos lies under the surface of their chosen field. Superb!
Rating:
Summary: Refreshingly simple
Review: Having searched the market for a book that would appeal to me, I am pleased to be able to report that "Derivatives..." makes few attempts to over-complicate and confuse. Unlike many other books that dazzle the reader with closely argued attempts to build up a picture from first principles, Wilmott presents the world as it really is, with all its confusions and inadequacies. Having tried and failed to understand the mathematical underpinnings of the formulae I have to use on a a regular basis, it was refreshing to discover that there really was little coherence to the derivatives market (49 chapters!). I would recommend this without reservation to practitioners everywhere who need reminding what a beautiful chaos lies under the surface of their chosen field. Superb!
Rating:
Summary: Not to be passed by any derivative readers
Review: I myself find a hard time writing a review about this book, and thus not to be misleaded by the stars I gave. Perhaps what's preventing it from 5 stars is the nature of the task rather than the author's capability. The book is so comprehensive such that it's going to be very difficult if not impossible to find the book with greater coverage on the subject. The level of discussion should be on the intermediate level or first-year graduate students. A good background on basic derivatives or mathematics ( algebra, differential calculus, and statistics) will proof sufficient in most of the cases to follow the mathematical detivations in the book. Working out the exercises at the end of each section will be a great pleasure to all the derivative students. Unlike many other text books which provided many difficult but interesting exercises but never the solutions elsewhere as if it's the author's intention to keep the secret with themselves forever, the Book's Instructor Manual with the solutions to all the exercises is separately available through the Publisher. However, I feel that the unexperienced readers should spend some time with a more directly accessible derivatives book such as Hull's classic ( Options, Futures, and Derivatives Securities ) before approaching this book. Once this is done, you'll realize that the Author knows the subjects very well and has his interesting ways to take you to a very heart of the concepts. I think there are 2 limitations of this book that should be put forward. Some mathemetical concept on modern derivative pricing theory such as martingale or measure theory are only scantly touched throughout the book. Yet I have a good perception that it;s the Author's intention to follow his preferred PDE approach on derivatives pricing and to make a book more directly accessible to a practitioners i.e., derivative traders or researchers, rather than the full academic researchers. Also the treatments on interest rate through sufficiently comprehensive, is far from completion. However, the literature on interest rate derivatives is very farflung such that it should be treated in a place of it's own. I myself don't really look at this as a handicap on this book. All in all, I can't find any good reason why this book shouldn't be on derivatives section shelf.
Rating: 
Summary: Wide but lopsided coverage
Review: Paul Wilmott's passion for derivatives / quantitative finance is fantastic. It's a great pleasure to read his book. Not only does he cover a vast range of topics (50 chapters), but he also presents it with loads of examples. Paul's addition of Excel Visual Basic formulas plus the wide range of references make it the book on financial engineering. It's very rare to find people who can explain such a technical topic in such a individualistic style (reminds me of Richard Feynmann who explained quantum theory without maths). It's still very technical though, be reminded that Paul is a mathematician, so readers who are looking for a non math book on derivatives are well advised to look for another book (e.g. Kolb).
Rating: 
Summary: This book needs to go more in depth
Review: The book is thorough in topics, but it lacks the depth of a true textbook. It can give a good introduction to the subjects , but it just lacks the explanations, and the examples to really give a reader a concrete understanding of the subject.
Rating:
Summary: Great book on PDE approach to derivatives.
Review: This is actually a wonderful introduction to the theory of derivatives and personally I find it to be a little humorous on occasion as well. There is definitely some ego here but it does not interfere with the author's sincere attempt to present the material in such a way that it can be understood easily by anyone with the required math background. That of course is the problem for some: this book requires a fairly extensive math background to be really understood. Fakers may try, but the successful will have a pretty good background in mathematics. That said, the discussion of stochastic calculus is better than many have led the casual onlooker to believe. It is not rigorous but is perfectly sufficient for the subject matter at hand. A good understanding of the material in this book will make the reader truly dangerous in the realms of the PDE theory of derivatives.
Rating:
Summary: Great book on PDE approach to derivatives.
Review: This is actually a wonderful introduction to the theory of derivatives and personally I find it to be a little humorous on occasion as well. There is definitely some ego here but it does not interfere with the author's sincere attempt to present the material in such a way that it can be understood easily by anyone with the required math background. That of course is the problem for some: this book requires a fairly extensive math background to be really understood. Fakers may try, but the successful will have a pretty good background in mathematics. That said, the discussion of stochastic calculus is better than many have led the casual onlooker to believe. It is not rigorous but is perfectly sufficient for the subject matter at hand. A good understanding of the material in this book will make the reader truly dangerous in the realms of the PDE theory of derivatives.
Rating:
Summary: A good first book on the PDE approach to derivative pricing.
Review: Truly superb, I used it combined with Campbell, Lo & MacKinlay's "The Econometrics of Financial Markets", and Kenneth Judd's "Numerical Methods in Economics", a "trilogy" complemented with Numerical Recipes in C & a lot of working papers, in oreder to design a valuation and VaR proprietary models of fixed-income securities for a bank here in Venezuela. We are including a stress-testing model based in Wilmott's crash model & Epstein-Wilmott's interest rate model.
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