From the Amazon reviews, this looks like a great book, but it is 11 years old. I wonder if anybody has an opinion about whether the approaches described therein are still up to date, and whether there is a newer, but as good, book that is written around using numerical methods in finance using MATLAB? Thanks, Jim
Buy the book (wherever you may, for as cheaply as you can). The stuff you are looking for was developed 70+ years ago for WWII (Britain and Ivy Leaguers) , devolved to business schools for operations research, trundled off to Japan (Thank You, Mr. Deming) for the grand re-building, and then borrowed back by U.S. business schools (back to the Ivy League, in fact), repurposed by Treynor, Sharpe, rebuilt by Merton, Black & Scholes..... You get the idea: what's new is, in fact, pretty damn old. Talk to an engineer. (Better: Look for an applied engineering book -- same information, without the engineer' attitude.)
Thanks very much Tom, I'll buy the book, but in the meantime bought Financial Modelling: Theory, Implementation and Practice with MATLAB Source (The Wiley Finance Series). I plan to buy Principles of Financial Engineering, Third Edition (Academic Press Advanced Finance), a continuation of the late Neftci's 2nd edition of the book. I keep searching Amazon; these also seem to be good. The book I first asked about, Numerical Methods in Finance and Economics: A MATLAB-Based Introduction and the first above seem like good intros to financial programming in MATLAB, which I already spend a lot of time in. I am currently reading Quantitative Equity Portfolio Management by Chincarini and Kim. I'm quite taken with your one paragraph summary of the history of this stuff. You must have some long experience and perspective to be able to see that. May I ask what your background or education is in? I take it you've been at this for a while. I am in a completely different field and just starting to be interested in trading, and especially automated algorithmic trading. Thanks Jim
I ended up with a lot of time in political science, econ, "business econ" ???, finance, and math. (Slow learner, and no mathematician!) So I have taught in each of those areas. It helps when your struggles to learn the material are fresh fresh fresh. Yowwwww. I also have an eclectic bent -- I cited papers in 1984 from the Journal Of Mathematical Psychology -- the land of Nobel Laureates To Be Tversky, Kahneman, and Smith. But doing so 20 years early was a bit ballsy. The overriding thing for me has always been a ferocious need to know stuff backwards-and-forwards, including the history/evolution of it. This fits is pretty well to being an intrinsic academic nerd. At any rate, methinks you're in the same boat -- you're out shopping!!! Nothing like a bit of dissatisfaction with what's in front of you, to key that trip to the bookstore, eh?
Well actually I'm pretty happy with what I do (neuroscience professor), but got my first academic job at 48 - kind of my second career. I am just tired of not having money to do much, so thought I'd try trading. It's quite interesting and it will be slow at first I know but from reading ET it seems like people who can stick with it a few years can at least augment their income. This would be good in retirement; starting so late my retirement won't be huge. Thanks for your wise words. Would you say that quantitative trading, financial engineering, and stochastic processes in finance are all roughly the same thing?
With your background and expertise, have you considered trading options rather than day trade or trading the underlying? Options are complex instruments and probability based so quite complicated for non technical type but for you they should be easier to learn and master. Good luck.
Thanks ironchef, I don't have any specific target yet. I honestly don't know what options are. But I will try different things. Mainly, I put lots of time on my job, so can't spend a lot of time day trading. The objective it automated trading (it also might stop me from some dumb choices). I don't know if it will ever work, but it's fun trying. I'll have fun playing with data sets and back testing ideas. I have a long way to go. What do you mean by "underlying?" Thanks...
By underlying I meant the stock itself. The options would be the derivatives - contracts derive from the underlying stock.
Not really. More like "it's complicated". Stochastic processes are a mathematical tool for modeling derivatives markets, especially non-linear ones. Most of the mathematics is pretty complex, but the general concept is fairly simple. When pricing a derivative security, it allows you to ignore the possible direction of the underlying and concern yourself only with the underlying distribution. Most of the time someone says he's a "quantitative trader" that means that he is exploiting statistical inefficiencies in the markets to make money. Financial engineering usually refers to various structured solutions for financial problems, so you essentially transforming risk to meet clients needs. Sent you a PM
Trading is the hardest thing I have ever done in my life and I had done some incredibly difficult assignments during my working career. Those trained in the natural, physical and engineering sciences had the misconception they could apply their skills to finance, the stock market and made a killing. I can tell you from experience that most failed. But, it can be done if you have the basic math and statistics background and my experience is you need to spend lots of time learning, probably more effort and harder than getting a PhD in neuroscience. Good luck and best wishes.