Preface

development. However, it is not always easy to straddle the divide between academic research and the practice of risk management and investment analysis. A common language, a common terminology and, above all, a common approach are necessary. It is hoped that this book will help to enhance the communication between these two schools.

Carol Alexander

July 2001

Acknowledgements

I liken the process of building a financial market model to that of building a musical instrument. In more than ten years of software design and development for financial institutions I have been the architect but not usually the implementer of the model. It would not have been possible to build many of the models presented in this book without the expertise provided by many mathematicians and financial engineers and the guidance of senior colleagues.

These include: Dr. Ian Giblin, Head of Research for Pennoyer Capital Management, New York; Professor Brian Scott-Quinn, Director of the 1SMA Centre at Reading University; Dr. Ron Dembo, CE and President of Algorithmics, Toronto; Wayne Weddington III, CE and President of Pennoyer Capital Management, New York; Dr. Peter Williams, Reader in Cognitive Science at Sussex University; Christopher Leigh, Consultant at Abbey National Treasury Services, London; and Rajiv Thillainathan of Credit Suisse First Boston Bank, London. Their contributions are acknowledged in various parts of this text, but here I would like to say a special thanks, to all of them, for their support.

For the preparation of the CD I am greatly indebted to two outstanding students from the Financial Engineering and Quantitative Analysis (FEQA) MSc course at the ISMA Centre, University of Reading: Steffen Hennig and Sujit Narayanan. Steffen and Sujit have written excellent VBA code with graphical user interfaces for the spreadsheets that accompany each chapter. More details about Steffen and Sujit may be found on the CD.

The optimization based principal component analysis spreadsheets were kindly provided by my esteemed colleague at the ISMA Centre, Ubbo Wiersema. Many thanks also to Dr. Jurgen Doornik of Nuffield College, Oxford who has made a fully functional version of the OxMetrics software (PcGive, PcGets and STAMP) available on the CD with some of the data from the book; likewise to Dr. Mamdouh Barakat of MB Risk Management, for tailoring Universal Excel Add-ins to some of the data used in the book and for allowing readers a limited free license for this software.

Only two people apart from myself have read the entire manuscript: Richard Leigh and Jacques Pezier. Richard is a fantastic copy editor: his knowledge

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Acknowledgements

encompasses a surprising combination of languages and mathematics and his capacity to organize and communicate has made the copy editing process both efficient and enjoyable.

My husband, Jacques Pezier, has been a sounding board for my ideas and this has influenced my writing considerably. He made numerous contributions through constructive criticism and insightful feedback on most parts of the book. Any remaining oversights are my responsibility, but I shall probably blame him nevertheless, for not catching them(!). Finally I would like to say an enormous thank you to my young children, Boris and Helen, for sharing their mother with the book.

Carol Alexander

July 2001