Computational Finance: An Introductory Course with R

by Argimiro Arratia

The book covers a wide range of topics, yet essential, in Computational Finance (CF), understood as a mix of Finance, Computational Statistics, and Mathematics of Finance. In that regard it is unique in its kind, for it touches upon the basic principles of all three main components of CF, with hands-on examples for programming models in R. Thus, the first chapter gives an introduction to the Principles of Corporate the markets of stock and options, valuation and economic theory, framed within Computation and Information Theory (e.g. the famous Efficient Market Hypothesis is stated in terms of computational complexity, a new perspective). Chapters 2 and 3 give the necessary tools of Statistics for analyzing financial time series, it also goes in depth into the concepts of correlation, causality and clustering. Chapters 4 and 5 review the most important discrete and continuous models for financial time series. Each model is provided with an example program in R. Chapter 6 covers the essentials of Technical Analysis (TA) and Fundamental Analysis. This chapter is suitable for people outside academics and into the world of financial investments, as a primer in the methods of charting and analysis of value for stocks, as it is done in the financial industry. Moreover, a mathematical foundation to the seemly ad-hoc methods of TA is given, and this is new in a presentation of TA. Chapter 7 reviews the most important heuristics for simulated annealing, genetic programming, and ant colonies (swarm intelligence) which is material to feed the computer savvy readers. Chapter 8 gives the basic principles of portfolio management, through the mean-variance model, and optimization under different constraints which is a topic of current research in computation, due to its complexity. One important aspect of this chapter is that it teaches how to use the powerful tools for portfolio analysis from the RMetrics R-package. Chapter 9 is a natural continuation of chapter 8 into the new area of research of online portfolio selection. The basic model of the universal portfolio of Cover and approximate methods to computeare alsodescribed."

Genres: Finance

Paperback

First published July 5, 2014

Reviews

[JDK1962]

This was to be my work book for February, but I abandoned it fairly quickly because of the high number of copy editing errors. I don't fault the author for having a first language other than English, but I do fault his publisher for not copy editing the book. An example from page 16: "The holder of the option assumes the payment of the premium which could be a financial lost [sic] if the option is not exercised. On the other hand, if the option is exercised, the writer incurs a lost [sic] for financing the underlying asset at a price worse than the market price at the time of delivery." At that point, I realized the book had not been copy-edited with anything other than a spell-checker, and abandoned it. Technically, it may be fine, but if no one but the author has read it, I don't want to take the risk of being led down a garden path.