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Tools for Succeeding in Finance and Economics – Editor Recommendations

By: , Posted on: May 12, 2015

Scott and Ken
Scott Bentley with Nobel Laureate Kenneth Arrow.

Economies around the world are taking on new shapes and identities.  How can we prepare ourselves to make financial and economic sense of recent financial crises, terrorism, ultra-low interest rates that are decades-long, “debt-prone” countries, and countries with large trade surpluses?

Our first step in preparing for the future is to know the mathematics of finance.  For beginner we recommend Risk-Neutral Pricing and Financial Mathematics:  A Primer by Peter M. Knopf and John L. Teall.  It provides a foundation to financial mathematics for those whose undergraduate quantitative preparation does not extend beyond calculus, statistics, and linear math. It covers a broad range of foundation topics related to financial modeling, including probability, discrete and continuous time and space valuation, stochastic processes, equivalent martingales, option pricing, and term structure models, along with related valuation and hedging technique.

Also for beginners is Stephen Garrett’s Introduction to Actuarial and Financial Mathematical Methods.  It is a self-contained module for independent study, covering subjects most often needed by non-mathematics graduates such as fundamental calculus, linear algebra, probability, and basic numerical methods. Its easily-understandable text features examples, motivations, and lots of practice from a large number of end-of-chapter questions.

More advanced students can profit from Intermediate Financial Theory, 3rd edition by Jean-Pierre Danthine and John B. Donaldson.  Depth, rigor, and practicality are the greatest assets of this book for beginning Masters’ students.  New subjects and pedagogical materials introduce readers to the large set of issues and concepts familiar to all advanced practitioners; the new edition contains 65% new and revised material.

More sophisticated still is the 3rd edition of Principles of Financial Engineering by the late Salih Neftci.  Revised and expanded by Robert Kosowski, it teaches the practicalities of the financial markets, not their theories; it is fundamentally practical.  This new edition contains more pedagogical elements, such as solutions, case studies, spreadsheets, sample exams, and slides. Don’t forget Salih Neftci’s classic Introduction to the Mathematics of Financial Derivatives, 3rd edition by Ali Hirsa.  Popular with readers because it emphasizes intuition and common sense, it is the only “introductory” text that can appeal to people outside the mathematics and physics communities as it explains the hows and whys of practical finance problems.

Changing financial conditions require access to background information.  The Handbook of Asian Finance, edited by David Lee and Greg N. Gregoriou, includes two volumes that chart Asia’s miraculous recovery from the 1997.  The first volume, Real Estate and Wealth, describes the unexpected transformations that marked Asia’s economies and financial sectors.  Volume 2, Financial Markets and Wealth Management, investigates the reasons many Asian countries are growing above 6%, with double-digit growth for a year or two in-between.  Complementing this extensive research collection is The Economics of Sustainable Development:  Risk, Resources, and Governance, edited by Arsenio Balisacan, Ujjayant Chakravorty, and Majah-Leah Ravago.

These 27 articles lay down the foundations of sustainable development in a way that facilitates effective policy design. The editors mix broad thematic papers with focused micro papers, balancing theories with policy designs. This rich source of information should appeal to any institution involved in development work and to development practitioners grappling with an array of on-the-ground developmental challenges.

Two other reference works illuminate recent changes in electronic marketplaces.  The Handbook of Digital Currency, edited by David Lee, presents a comprehensive view of this newly developing subject and includes history, technicality, IT, finance, economics, legal, tax, and regulatory environments.  For those who come from different backgrounds with different questions in mind, The Handbook of Digital Currency is an essential starting point.  The Handbook of High Frequency Trading, edited by Greg N. Gregoriou, looks beyond mathematical models, which are the subject of most HFT books, to the mechanics of the marketplace. In 25 chapters, researchers probe the intricate nature of high frequency market dynamics, market structure, back-office processes, and regulation. It appeals to students and professionals who want more than discussions on the econometrics of the modelling process.

Two new textbooks cover rapidly evolving fields.  Kenneth Rogoff says of Cristina Terra’s Principles of International Finance and Open Economy Macroeconomics:  Theories, Applications, and Policies, “this superb intermediate international macroeconomics textbook fills an important void by providing analysis that is more mathematically rigorous than standard mass market texts, yet remains quite accessible to both advanced undergraduates and first year graduate students.”   Her macroeconomic framework provides a basis for understanding and analyzing the global economy from the perspectives of emerging economies and developing countries.

Public Finance:  A Normative Theory, Third Edition by Richard W. Tresch remains the premier textbook on the normative theory of government policy, with the Third Edition propelling into the 21st century its examination of what government ought to be doing instead of what it is doing.  With four new chapters and other significant revisions, it presents detailed and comprehensive coverage of theoretical literature, empirical work, environmental issues, social insurance, behavioral economics, and international tax issues.  “This is the ideal graduate treatment of public economic theory,” says Stephen Ross. “Tresch introduces a general equilibrium model and uses it to solve the classic problems.”

Finally, two titles provide answers to thorny business problems.  In a small number of pages, Navigating the Business Loan:  Guides for Lenders, Small Business Owners, and Entrepreneurs by Morton Glantz teaches readers how to apply modern, quantitative, analytical methods to problems of credit risk.  Its “how-to,” practical and systematical guide to credit analysis draws upon case studies and online tools, such as videos, Excel spreadsheets, and PowerPoint slides in providing a concise introduction.  Jason Scharfman’s Hedge Fund Governance:  Evaluating Oversight, Independence, and Conflicts, describes the tools needed for developing a flexible, comprehensive hedge fund governance analysis framework. Case studies and interviews with professional fund directors shine a bright light of pragmatism on this framework. Scharfman’s global analysis of more than 5,000 hedge fund governance structures enables him to draw realistic conclusions about best practices.

The tools for succeeding in the future are already in our hands.  With the help of these books, financial well-being is within grasp.

About the Editor:

scott bentleyScott Bentley Ph.D. is Senior Acquisition Editor at Elsevier, based in San Diego.  He began acquiring textbooks, monographs, handbooks, and encyclopedias for Academic Press/Harcourt Brace in 1994, signing the first finance books, including Neftci’s “An Introduction to the Mathematics of Financial Derivatives” and DePamphilis’ “Mergers, Acquisitions, and Other Restructuring Activities.”  He initiated and signed encyclopedias on subjects as diverse as applied ethics, biodiversity, nationalism, archaeology, and social measurement.  He also managed economics and finance journals.  Since Elsevier acquired AP/BH in 2000, he has focused his work on building the economics and finance book programs, especially the Handbooks in Economics, edited by Nobel laureate Kenneth Arrow and Michael Woodford.  The finance textbooks, monographs, and handbooks include best-sellers such as Principles of Project Finance, Intermediate Financial Theory, and Principles of Financial Engineering.

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Economics & Finance

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