The Concepts and Practice of Mathematical Finance 2nd Edition
This is the homepage for my book which
was published 8th December 2003 by Cambridge University Press.
The second edition was released in November 2008.
Here is the cover blurb:
For those starting out as practitioners of mathematical
finance, this is an ideal introduction. It provides the reader with
a clear understanding of the intuition behind derivatives pricing,
how models are implemented, and how they are used and adapted in practice.
Strengths and weaknesses of different models, e.g. Black-Scholes, stochastic
volatility, jump-diffusion and variance gamma, are examined. Both
the theory and the implementation of the industry-standard LIBOR market
model are considered in detail. Uniquely, the book includes extensive
discussion of the ideas behind the models, and is even-handed in examining
various approaches to the subject. Thus each pricing problem is solved
using several methods. Worked examples and exercises, with answers,
are provided in plenty, and computer projects are given for many problems.
The author brings to this book a blend of practical experience and rigorous
mathematical background, and supplies here the working knowledge needed
to become a good quantitative analyst.
The book has 78 line diagrams and 202 exercises. Hints or answers
are included for all exercises. The answers are much more extensive in the second edition; a large fraction of the problems now have complete solutions. In addition, a large number of extra exercises and examples have been added.
Although the price is low, the book is a hardback with
Get up to date price information from bublos.com UK
Buy from amazon.com
I have now created a bulletin
board to make it easy for readers to ask questions and discuss details in
Here are some extra problems fitted to the contents of the book. Solutions for these will not be provided. Last updated Sep 2013.
More mathematical finance was released in September 2011.
Here is a partial errata
-- mainly silly typos but a few not quite correct formulas too. These errors
were corrected in the third printing.
Here is the errata for the third and fourth printings.
These should be corrected in the fifth printing.
Here is the errata for the fifth (and higher) printings.
Here is the errata for the second edition, first printing. Please note that CUP decided to undo many of the typo fixes from earlier printings so many typos from the first edition have reappeared.
Here is the errata for the second edition, second printing. Almost all of these are also wrong in the first printing.
Here is the errata for the second edition as of November 2011. You can assume that these were wrong in any copy from before then.
Reviews for the second edition
"the clarity of the exposition makes the book a pleasure to read, while its orientation towards practical application will be helpful also to those who want to understand financial markets. "
Here are some reviews I've found from around the
web for the first edition:
It is the first book on the list of books recommended
Risk Magazine March 2005
'The book is intended as an introduction for a numerate
person to the discipline of mathematical finance. In this, Mark Joshi succeeds
admirably … an excellent starting point for a numerate person in the field
of mathematical finance.'
Very few books provide a balance between financial theory and practice. This
book is one of the few books that strikes that balance. ... financial mathematics
students will benefit a lot from the way the book is organized. At the end of
each chapter there is a summary of key points discussed followed by a series
of exercises. Hints and answers to exercises are provided in Appendix D. In
Appendix A, the author provides definitions of the more commonly used terms
and jargon in mathematical finance. In Appendix B there are 16 computational
projects intended to equip the reader with some hands-on experience in implementing
financial models. The projects have a wide range in scope from exotic option
pricing using Monte Carlo to implementing pricers for jump-diffusion stochastic
volatility, and variance gamma models. This book is well priced and certainly
a good addition to your collection of financial mathematics book.
allows the reader as often as possible to get an intuition for the models
and concepts. Helpful information is given on how to use and implement these
models and concepts in practical terms. This practice-orientation makes this
book different from others belonging to this category … the text is also well
suited as a textbook for a quantitative-oriented introductory course on finance
at universities or other academic institutions … one can say that this introductory
book in offering a well balanced and up-to-date introduction to the theory
and practice of mathematical finance overshadows
many other books
available on the same subject.
International Statistical Institute
The book has been very nicely produced by Cambridge University Press. I
would certainly recommend that anyone teaching an introductory or intermediate
course on this topic seriously consider this book as a potential course text.'
Alireza Javaheri in Wilmott Magazine
Mark Joshi’s “The Concepts and Practice of Mathematical Finance” is ideal
for those who want to learn or deepen their knowledge about Quantitative
Finance. Not too elementary and childish to the point of being useless, and
not too dense and complicated to the point of being useless. It’s right in
the middle and therefore useful.
The breadth of the book particularly impressed me. It went from theoretical
to practical, while covering implementation-related issues. It makes concepts
such as Martingales, Measures and Numéraires look so natural and easy.
Pricing Quantos or Spread-Options becomes an innate result of these concepts.
He then writes on the practicalities. In fact this word “practical” keeps
coming back. But that is precisely the point. Theory is elegant yes, but
what can it actually do for you? That is what he focuses upon.
Dariusz Gaterek (the
"G" of BGM)
It is maybe the first book covering not only introductory
material but also the current hot research topics: exotic interest rate
derivatives; smile modelling; and stochastic volatility. It's a must
if you want to follow the market.
Riccardo Rebonato on back cover:
Mark Joshi's work is one of the most thoughtful books
in applied finance I know. It is both intuitive and mathematically
correct and it deals with very deep concepts in derivatives pricing while
keeping the treatment simple and readily understandable. It will greatly
enhance the conceptual understanding of the reader, and will also offer
very useful technical guidance.
Player on Wilmott
Just to echo
a couple of points I'd say mj's book is designed for those who want
to see how math finance is applied in reality. Many books go from
one extreme to another with some in heavy theory and others which
convey an idea well but dont have enough theory.
I'd say, mj's is about the best balance you can get at
the moment. Chapter 6 is worth paying a premium by itself
Its a mixture of hull, Taleb and Baxter and Rennie with
some of Bjork thrown in and combined with a strong computing element
Think of mj's book as the mortar putting the bricks
together and you'll see how invaluable a book it is
From Chapter 6
onwards,...the book is absolute masterpiece
Chapter 1-5 set the groundwork
Kenzo on Wilmott
had the opportunity
to read Mark's book. I found it very well written, Mark makes difficult
things look simple without sacrificing mathematical rigour. The book
takes you from mathematical definition of arbitrage, through Ito's
Lemma, martingales, simple vanilla instruments to more advanced topics
such as pricing of exotic derivatives. Whenever the material is not
self-explanatory, Mark provides a more elaborate discussion and gives
examples. I read the book after finishing Paul's PWIQF (having read
Hull and Neftci before) and found it very useful. If you know the basics
and want to develop a better understanding of mathematical finance,
this is the book for you. At the end of each chapter, there are questions
and some of the problems posed are certainly non-trivial (but hints and
answers are provided ). I'm going to buy the "full" version
I am not an expert and I have still a lot to learn
but I have read/studied most of the books that are commonly acknowledged
as the key introductory books in Fin Math (and also some of the more
advanced). I have also had the pleasure of reading Mark's manuscript and
I believe that there are at least two features that make it different
(and in my opinion better) from other introductory texts:
1 - Mark tries to communicate the intuition behind the
maths in each of the topics he deals with, he draws connections and,
in some cases, mentions the practicalities implied by them. Nevertheless
he is rigorous without being cumbersome (... it’ an introductory text
2 - He deals with a quite wide range of topics, probably
much wider that the one other peer books deal with, giving the reader
a quite comprehensive snapshot of what the key issues in mathematical
finance are in terms of pricing methods, products and issues to be faced
when choosing a model.
My highlights in the book are the chapter on jumps and
the one of pricing via replication.
What impressed me most deeply, was the clearness
with which he developed the concepts and results, and the distinction
of results which are always true (unless there are dividends,
you never exercise an American call option) and results which
are true only under certain model assumptions. When it is published,
it will be a ‘strong buy.
Back to www.markjoshi.com