Book Review – “Handbook of Finance, Volume III – Valuation, Financial Modeling and Quantitative Tools” by Frank J. Fabozzi (editor)

This week I managed to get over another monster book in finance – the third volume of a well respected series of handbooks put together by the Yale Professor in the Practice of Finance, Frank. J. Fabozzi. It is hard not to be impressed when you first look at such a book – it is a massive tome of 835 thin pages, premium quality paper and full of articles by various authors. So at first I was very curious – what is inside?

I was quite surprised – the book is quite comprehensive. I would say that it is maybe a bit too comprehensive for the finance practitioner who wants a quick reference for an expert issue in the field. Just for your broad idea, here’s the book’s summary listed shortly:

Volume III. Valuation, Financial Modeling, And Quantitative Tools.
III.1 Risk Management.
III.1.1 General Principles.
III.1.2 Risk Models.
III.1.3 Fixed Income Risk Management.
III.2 Interest Rate Modeling.
III.3 Credit Risk Modeling and Analysis.
III.4 Valuation.
III.4.1 Equity Valuation.
III.4.2 Valuing Fixed Income Securities.
III.4.3 Derivatives Valuation.
III.4.4 Valuing Commodity, Foreign Exchange and Real Estate Products.
III.5 Mathematical Tools and Techniques for Financial Modeling and Analysis.
III.5.1 Basic Tools and Analysis.
III.5.2 Statistical Tools.
III.5.3 Optimization and Simulation Tools.
The topic list is quite long – 68 articles covering in depth various topics, from a nice and interesting one on “Monte Carlo Simulations In Finance” to “Credit Default Swaps Valuation”. The articles are brief yet comprehensive, written in a concise and semi-academic manner, which I enjoyed a lot. Especially after reading through McGaw Hill’s comprehensive handbook of “Derivatives”, which contains less topics but treated in great depth, “Handbook of Finance, Volume III – Valuation, Financial Modeling and Quantitative Tools” came as a nice surprise. I did not have to spent ages to extract the main idea of a topic and further references are quite useful for additional research on the topic.

According to the official description, volume III Valuation, Financial Modeling, and Quantitative Tools contains the most comprehensive coverage of the analytical tools, risk measurement methods, and valuation techniques currently used in the field of finance. It details a variety of concepts, such as credit risk modeling, Black-Scholes option pricing, and Monte Carlo simulation, and offers practical insights on effectively applying them to real-world situations.

“Handbook of Finance, Volume III – Valuation, Financial Modeling and Quantitative Tools” is not shallow though. It is not conceived as the ultimate reference book on the topics, but rather as an encyclopedia of various topics. The quick abstracts at the beginning of each chapter are very useful, especially as a quick reminder of old forgotten topics. There are hints on the advanced issues of each topic, but for a really specialization on a topic one must go to the academic magazines through Econlit or some other database to get a glimpse on the depth.

Another useful (and often missing) item is the index at the end of the book – which is very nice to have when you are in a hurry.

In other words, “Handbook of Finance, Volume III – Valuation, Financial Modeling and Quantitative Tools” is a real handbook which tries to be as comprehensive as possible, without sacrificing briefness for quality. Enjoy this Wiley & Sons book!

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