Preface to the Second Edition

The previous edition of this book was aimed to some " extent at those people wanting to get their first job in quantitative finance and perhaps needed something to refresh their memories just as they were going into an interview. In part it was meant to be orthogonal to those interview-prep books that focus almost exclusively on the math. Math is important, but I think it's the easy bit of this business. It's where the math breaks down that I think is crucial, and so there's a lot of that in both the previous edition and this one.

In one respect I couldn't have been more wrong when I said that the last book was for newbies. Recent events have shown that some of those most in need of a refresher in the fundamentals are not necessarily the newbies, but sometimes also the 'experienced' quants, the 'respected' academics and the 'genius' Nobel laureates. I think this book has an additional purpose now if you are going for a job. Yes, take this book with you, but use it to interrogate the interviewer. If he can't answer your questions then don't accept a job from him, his bank might not be around for much longer!

This second edition is not an 'updating.' Nothing in the previous edition is out of date ... And that's not a statement that many quant finance authors can make! One of the themes in my research and writing is that much of quantitative finance is too theoretical, it's far too mathematical, and somewhere along the way common sense has got left behind. In 2000 I wrote that there needed to be a change in modelling methods if there was not to be a ''mathematician-led market meltdown.'' There wasn't, so there was. In 2006 I narrowed this down to credit instruments and credit models. Sadly, money making got in the way of good modelling, and you no doubt know what ensued. But now more and more people are starting to appreciate the importance of getting the level of mathematics right, and this has to be a good thing for the industry. We ran a survey on, our famous ''Name and Shame in Our New Blame Game!'' in which we asked members

to tell us which are the worst finance models. The results are published towards the end of this book so you'll see that common sense and robustness of modelling are on their way back.

To the thankees in the first edition I would like to add Emanuel Derman for allowing me to republish the ''Financial Modelers' Manifesto'' that we wrote together at the start of 2009.

Some more about the author

Paul Wilmott is still learning the guitar, after 36 years trying. He now knows six chords. His only hobby at which he has been successful is reading, always fiction. But even so, he has been stuck at half way through James Joyce's Ulysses for a decade, and has never got beyond the first 10 pages of anything by Salman Rushdie. Paul divides his time between his home in London and airport lounges around the world, where he can often be found nursing a dry martini.

Preface to the First Edition

This book grew out of a suggestion by Member 'bayes' for a Forum (as in 'internet discussion group') dedicated to gathering together answers to the most common quanty questions. We responded positively, as is our wont, and the Wilmott Quantitative Finance FAQs Project was born. This Forum may be found at (There anyone may read the FAQ answers, but to post a message you must be a member. Fortunately, this is entirely free!) The FAQs project is one of the many collaborations between Members of

As well as being an ongoing online project, the FAQs have inspired the book you are holding. It includes FAQs and their answers and also sections on common models and formulae, many different ways to derive the Black--Scholes model, the history of quantitative finance, a selection of brainteasers and a couple of sections for those who like lists (there are lists of the most popular quant books and search items on Right at the end is an excerpt from Paul and Dominic's Guide to Getting a Quant Job, this will be of interest to those of you seeking their first quant role.

FAQs in QF is not a shortcut to an in-depth knowledge of quantitative finance. There is no such shortcut. However, it will give you tips and tricks of the trade, and insight, to help you to do your job or to get you through initial job interviews. It will serve as an aide memoire to fundamental concepts (including why theory and practice diverge) and some of the basic Black-Scholes formula and greeks. The subject is forever evolving, and although the foundations are fairly robust and static there are always going to be new products and models. So, if there are questions you would like to see answered in future editions please drop me an email at This email address is being protected from spam bots, you need Javascript enabled to view it

I would like to thank all Members of the forum for their participation and in particular the following, more prolific, Members for their contributions to the online FAQs and Brain-teasers: Aaron, adas, Alan, bayes, Cuchulainn, exotiq, HA, kr, mj, mrbadguy, N, Omar, reza, WaaghBakri and zerdna. Thanks also to DCFC for his advice concerning the book.

I am grateful to Caitlin Cornish, Emily Pears, Graham Russel, Jenny McCall, Sarah Stevens, Steve Smith, Tom Clark and Viv Wickham at John Wiley & Sons Ltd for their continued support, and to Dave Thompson for his entertaining cartoons.

I am also especially indebted to James Fahy for making the Forum happen and run smoothly. Mahalo and aloha to my ever-encouraging wife, Andrea.

About the author

Paul Wilmott is an author, researcher, consultant and trainer in quantitative finance. He owns, is the Editor in Chief of the bimonthly quant magazine Wilmott and is the Course Director for the Certificate in Quantitative Finance ( He is the author of the student text Paul Wilmott Introduces Quantitative Finance, which covers classical quant finance from the ground up, and Paul Wilmott on Quantitative Finance, the three-volume research-level epic. Both are also published by John Wiley & Sons, Ltd.

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