Which book and course is better to study Finance?

[timlee]

I have little background in finance and economics, but am interested in. This semester there are two courses I am interested in: one is offered by Economics department (http://www.econ.jhu.edu/courses/367/), and the other by Applied mathematics department (http://www.ams.jhu.edu/~daudley/444/).

1. 
   The one by Economics department has the following topics:
   
   
   Investment securities and their markets, especially the stock market. The relation between expected return and risk. The determination of security prices. Financial portfolio selection. The assessment of performance of managed portfolios.
   The fundamental concepts of asset returns, risk, and risk-aversion, and how investors should optimally choose their portfolios given the observed patterns of risk and return.
   What is the expected return that various types of assets must earn to compensate investors for bearing their risk. This is studied in the context of two theories of returns: the capital asset pricing model and arbitrage pricing theory.
   The empirical evidence for and against the equilibrium theories of asset returns, with an emphasis on the evidence in support and against the efficient markets hypothesis.
   Study three classes of assets in more detail. The topics that are covered include models of equity valuation, bond valuation and hedging, and option valuation and hedging.​
   It uses the book "Investments" by Bodie, Kane and Marcus. It has prerequisites of Statistics and Microeconomic Theory. I have background in statistics but not in Mircoeconomics.
2. 
   The one by Applied mathematics department has the following topics:
   
   
   The basic cash, hybrid, and derivative instruments, including equities, bonds, options, forwards, futures, and swaps, as well as their dealer, over-the-counter, and exchange environment.
   Models of the term structure of interest rates, spot rates and the forward rate curve, derived from cash instruments (e.g., bonds and interest rates like LIBOR) as well as from derivatives (e.g. Eurodollar futures and swaps).
   Static, discrete, continuous and dynamic probabilistic models for derivative analysis (including the Weiner process, Ito.s Lemma and an introduction to risk-neutral valuation), the binomial tree approach to option valuation, the Black-Scholes-Merton differential equation, and the Black-Scholes formulas for option pricing.​
   It uses the book "Options, Futures, and Other Derivatives" by John Hull.

Since I have little idea, I would like to hear about your opinions on the differences of the two courses based on their topics and on the differences between the two textbooks.
Thanks and regards!

 

[tenaciousj]

applied math

 

[timlee]

Thanks. Can you explain why?

applied math

 

[tenaciousj]

well it really depends on what you want to do. the finance class seems broad and could help you get almost any investing job. the math course seems more specific and could get you a lot of specific jobs. since you're on this webiste i assume you want to do something more quantitative

 

[timlee]

Thanks! Is Bodie's book also less quantitative and specific than Hull's? I would like to hear more about your and other's opinions on the two books.

well it really depends on what you want to do. the finance class seems broad and could help you get almost any investing job. the math course seems more specific and could get you a lot of specific jobs. since you're on this webiste i assume you want to do something more quantitative

 

[tenaciousj]

I'm not sure about the books so your guess is as good as mine

 

[tenaciousj]

I'd guess maybe a little less quantitative for Bodie's book. That book seems for a person like a portfolio manager while Hull's book is more for someone like a derivatives trader

 

[timlee]

Thanks! How different are the jobs of a portfolio manager and of a derivatives trade?

I'd guess maybe a little less quantitative for Bodie's book. That book seems for a person like a portfolio manager while Hull's book is more for someone like a derivatives trader

 

[Kenny L]

I read both Bodie and Hull before, and Bodie is definitely less quantitative than Hull. On the other hand, Bodie covers stuff about fundamental analysis and Hull barely touches on this topic.

 

[Tsotne]

Nor Hull's book is mathematically overloaded as you compare it with Bodie's ones. Bodie's books are pretty good. I have learned "Investment 8th ed" by Bode, Kane, Marcus and want to say that you are free to expand the theories by your mathematical knowledge if you are inspired to follow investment theories by deep math. Try to reconstruct MPT2 explained in Bodie's book to suit in options hedging strategies, use copulas to estimate better dependences and co-movements between asset prices than miserable Pearson correlation coefficient, try to analyze active portfolio management strategy with short term stochastic forecasts, etc. There is nothing gained from dropping the book just because it doesn't cover all the materials 7 billion people can come up with. it gives you the basic knowledge and you can expand on your own. As for Hull's book, although I have completed it quite long ago and has never been my favorite one (I like McDonald), it is a good foundation as well. But sure you can find books with much more mathematical flare if you like. Anyway, I'd suggest McDonald.

 

[timlee]

Thanks!

Nor Hull's book is mathematically overloaded as you compare it with Bodie's ones.

By "Nor", do you mean Hull's is not mathematically overloaded as Bodie's?

 

[bob]

It's difficult for two courses about "finance" to take more different approaches to the subject, really. Both are views of the world that somebody who wants to be educated in the technical side of the discipline should know.

The first course is what I think of as the CAPM, Markowitz Portfolio Theory, "Everything is Normal, Everything is Linear" approach. Even though it doesn't actually work in practice, it's important to know at the very least that there are people out there in finance (read: equities) who actually think this way, and a lot of the base-level approaches to the problem of asset allocation established here are used in more sophisticated treatments of the subject. It's one of the classic econometric ways of thinking about financial markets and is worth at least knowing about. My personal feeling is that this is the sort of thing someone with the right math background can pick up the essentials of on their own, but then again I don't work in this space so no doubt there are subtleties and areas of interest I'm simply not aware of.

Correspondingly, I tend to be biased in favor of the second course because it's a lighter version of the course I teach. It's built around the idea of arbitrage-free pricing and hedging and is the foundation of a lot of contemporary finance (for better or worse, depending who you ask). I personally have a lot of interest in the astonishing variation of financial products out there, the risks they are constructed to hedge / gain exposure to, and their little corner of the financial universe where even very simple results (say, delta-hedging a short call under Black-Scholes assumptions to reduce risk) actually work to a pretty astonishing degree. It also, however, is a bit more esoteric than the first course, which could conceivably be useful or interesting to an investing hobbyist; many of the instruments and ideas discussed in a pricing class are ones that an individual investor will never see or can't practically ever trade.

 

[Tsotne]

Thanks!
By "Nor", do you mean Hull's is not mathematically overloaded as Bodie's?

No, I mean that Hull's book doesn't contain as much mathematics as its many counterparts.

 

[timlee]

I read both Bodie and Hull before, and Bodie is definitely less quantitative than Hull. On the other hand, Bodie covers stuff about fundamental analysis and Hull barely touches on this topic.

Is "fundamental analysis" covered by Bodie and not by Hull important to learn?

 

[timlee]

No, I mean that Hull's book doesn't contain as much mathematics as its many counterparts.

I am confused. Is Bodie's book among the "many counterparts" of Hull's book you are comparing here?

 

[Tsotne]

I am confused. Is Bodie's book among the "many counterparts" of Hull's book you are comparing here?

In counterparts I mean derivative books. McDonald I mentioned above, Wilmott as well. Bodie's book explains concepts in a good informative way and the theories presented there doesn't require deep complex mathematics.

As for Hull, I was comparing it with other derivatives books. Hull is mathematically less attractive than McDonald. However McDonald lacks Hull's deep down explanations of topics but is more sound from computational point of view pushing you to search in more advanced "stochastic books" if you want to really understand the mathematics presented there. For example Ito's Lemma, BS equation is a bit hard to understand in the first place by only reading the topics in one chapter. Seems like a just-for-purpose deployed mathematics.