Book for Quant Finance

[vickymaj]

Hi guys, which Book should I go for next?

I have gone through,

1. An Introduction to the Mathematics of Financial Derivatives
2. Stochastic Calculus for Finance I and II

Which should ideally be the next book in the series which will help me take my learning to the next level?

 

[IntoDarkness]

martingale methods in financial modeling

 

[vickymaj]

martingale methods in financial modeling

Had a look at the index. Looks like many of the topics has already been covered in Shreve. Would you suggest any other books may be more specific to Derivatives Pricing of a particular asset class or on Volatility Modelling?

 

[KillingField]

Andersen Piterbarg.

 

[Daniel Duffy]

No one has mentioned John Hull.
And Haug 2007

These are hands-on books.

 

[Daniel Duffy]

Hi guys, which Book should I go for next?

I have gone through,

1. An Introduction to the Mathematics of Financial Derivatives
2. Stochastic Calculus for Finance I and II

Which should ideally be the next book in the series which will help me take my learning to the next level?

Just out of curiosity, how's your measure theory?

 

[vickymaj]

Andersen Piterbarg.

Do you mean this?

Interest Rate Modeling. Volume 1: Foundations and Vanilla Models

 

[vickymaj]

No one has mentioned John Hull.
And Haug 2007

These are hands-on books.

I have read Hull before.

 

[vickymaj]

Just out of curiosity, how's your measure theory?

I have not taken any specific course in Measure theory. My knowledge is limited to what is taught in Shreve's Book.

 

[yetanotherquant]

>take my learning to the next level?
Learning of what? A theory?
Well, there are many books, I would spontaneously say, read Carmona's one

But if you want to engage you knowledge in practice, then I would recommend you to read my LIBOR Model tutorial (it organically extends what you have learnt by Shreve) and then practice, practice, practice (find an internship!)

 

[Daniel Duffy]

I have not taken any specific course in Measure theory. My knowledge is limited to what is taught in Shreve's Book.

This is not enough I reckon.

 

[KillingField]

Do you mean this?

Interest Rate Modeling. Volume 1: Foundations and Vanilla Models

Yes, all three volumes, it's the last one that's actually interesting. They're a bit expensive but the current standard in interest rates. You could also use Brigo-Mercurio: It's a single fat book of 1000+ pages at the cost of a single volume of Andersen Piterbarg. Separately you may be interested in Piterbarg's papers on collateral, as well as Hagan's on... well everything (though the latter is now part of standard books, like the ones I mentioned above).

And no, you don't need measure theory beyond Shreve. For employability you'll want to know C++ at the level of Meyers' Effective C++ (not Effective Modern C++, that's intermediate level and not needed in interviews).

 

[vickymaj]

>take my learning to the next level?
Learning of what? A theory?
Well, there are many books, I would spontaneously say, read Carmona's one

But if you want to engage you knowledge in practice, then I would recommend you to read my LIBOR Model tutorial (it organically extends what you have learnt by Shreve) and then practice, practice, practice (find an internship!)

Thanks. I work as a Risk Model Validation Quant for an Investment Bank, so internship is no more in scope. I want to learn theoretically as much as possible and practically whatever I can do as my job has limited scope as of now

 

[vickymaj]

This is not enough I reckon.

Please suggest. Something which has applications in Quant Finance as well.

 

[vickymaj]

Yes, all three volumes, it's the last one that's actually interesting. They're a bit expensive but the current standard in interest rates. You could also use Brigo-Mercurio: It's a single fat book of 1000+ pages at the cost of a single volume of Andersen Piterbarg. Separately you may be interested in Piterbarg's papers on collateral, as well as Hagan's on... well everything (though the latter is now part of standard books, like the ones I mentioned above).

And no, you don't need measure theory beyond Shreve. For employability you'll want to know C++ at the level of Meyers' Effective C++ (not Effective Modern C++, that's intermediate level and not needed in interviews).

Thanks a lot for your suggestions. Will definitely look into these

 

[yetanotherquant]

Thanks. I work as a Risk Model Validation Quant for an Investment Bank, so internship is no more in scope. I want to learn theoretically as much as possible and practically whatever I can do as my job has limited scope as of now

You are welcome.
BTW, If you validate a model, you should primarily search not for theoretical inconsistencies but look whether the model captures market stylized fact good (and if it does, whether there is a kind of overfitting or non-robustness to parameter estimation errors).

 

[vickymaj]

You are welcome.
BTW, If you validate a model, you should primarily search not for theoretical inconsistencies but look whether the model captures market stylized fact good (and if it does, whether there is a kind of overfitting or non-robustness to parameter estimation errors).

Yes agreed and we obviously check and test all of the above. But as I mentioned I am in Risk Model Validation. I want to improve my knowledge in the Pricing side as much as possible. Pricing fascinates me a lot.

 

[bigbadwolf]

Please suggest. Something which has applications in Quant Finance as well.

Shreve gives enough measure theory. He doesn't construct a non-Borel set but does mention they can be created. He covers enough for measure-theoretic probability to be developed. That's all you need.

 

[vickymaj]

Yes, all three volumes, it's the last one that's actually interesting. They're a bit expensive but the current standard in interest rates. You could also use Brigo-Mercurio: It's a single fat book of 1000+ pages at the cost of a single volume of Andersen Piterbarg. Separately you may be interested in Piterbarg's papers on collateral, as well as Hagan's on... well everything (though the latter is now part of standard books, like the ones I mentioned above).

And no, you don't need measure theory beyond Shreve. For employability you'll want to know C++ at the level of Meyers' Effective C++ (not Effective Modern C++, that's intermediate level and not needed in interviews).

By the way which one would you say is more easier to comprehend? Brigo-Mercurio or Andersen Piterbarg?

 

[KillingField]

By the way which one would you say is more easier to comprehend? Brigo-Mercurio or Andersen Piterbarg?

The writing styles are different, but in terms of contents they are similar so it's difficult to say. It depends on your background etc. For example, even though Shreve is very comprehensive and well written, I much prefer Baxter&Rennie for an introductory book (Shreve is a bit more mathematically detailed, but that I feels bogs down the presentation).

So with that preface, personally I would say I prefer the style of Andersen&Piterbarg, but it can be a bit encyclopedic. Also, the book is to my mind clearly written for practicing desk quants (or those aspiring to that role), rather than as an academic exposition. Indeed there are sections there that only practitioners and model implementors would care about, such as numerical methods for PDEs and Monte Carlo (in Vol 1). As I remember it, Brigo&Mercurio doesn't have chapters on those (but it does have that appendix on "talking to traders"). B&M has a lighter writing style with jokes about DC Comics and so on.