0.3 How To Read This Book
Recognize that this is a book. In printed form, it would be about 500 pages. If you read it from start to finish, and do all the 100 or so exercises, you will come away with expertise in a substantial body of quantitative finance. To facilitate reading, the book is implemented as a responsive website that displays beautifully on a cellphone, tablet or desktop.
But you may just want to use the book as a reference. If that is your plan, I recommend you first familiarize yourself with the book’s notation, terminology and bottom-up approach to explaining value-at-risk. All three are carefully thought-out and worth learning in their own right. Read the next section, Section 0.4, for a quick introduction to notation. Then proceed to Chapter 1. It starts with basic concepts but rapidly becomes sophisticated. It blends in some light fare about risk management and the history of value-at-risk, but its focus is introducing terminology and the bottom-up approach to explaining value-at-risk. Once you have mastered Chapter 1, you can understand any other part of the book. Proceed to the table of contents or search feature to find topics that interest you. If you come across mathematics you are unfamiliar with, look to the chapters of Part II for explanations. They cover essential math.
To read the book in its entirety, here is a roadmap. The book is broken into four parts:
- Part I – Overview (Chapters 0 – 1)
- Part II – Essential Mathematics (Chapters 2 – 5)
- Part III – Value-at-Risk (Chapters 6 – 11)
- Part IV – Implementation and Validation (Chapters 12 – 14)
You are now reading Section 0.3 of the Preface, which is Chapter 0 in Part I. Read the next section, Section 0.4, which introduces notation, and then proceed to Chapter 1. Depending upon your math skills, some of its quantitative examples may be a bit intimidating. Skim them and move on. You can return later.
Part II covers essential mathematics that is anticipated in Part I and used extensively in Parts III and IV. If you need to review basic calculus, linear algebra or probability, there are references at the ends of Chapters 2 and 3.
To avoid seeming “cookbookish”, I have treated the math of Part II as a stand-alone topic and resisted the temptation to immediately illustrate concepts with value-at-risk applications. This should serve you well, since much of the math can be used in value-at-risk measures in different ways. Most of it is invaluable for financial applications unrelated to value-at-risk, so it is worth learning in its own right. However, Part II is focused. Only topics that will be relevant later in the book are covered. It is not essential that you master all of Part II before proceeding to Part III. Some readers may want to skim the math and refer back to it as needed.
Part III is a bottom-up explanation of how to design value-at-risk measures. Don’t attempt it until you have mastered Chapter 1. If you have difficulty with the mathematics of Chapter 1, learn that mathematics in Part II and then reread Chapter 1 before proceeding to Part III. Part III has a lot of technical depth. You may want to read it twice. Go quickly through the material the first time to get an overview of how it all fits together. Read it more carefully the second time to gain deeper understanding.
Part IV can be read at any time after you have read Chapter 1. Refer back to Part II for discussions of relevant mathematics as necessary.
Exercises are an essential part of the text. I encourage you to work through as many as time permits. Doing so will accelerate learning and provide insights that are difficult to achieve through reading alone. Most exercises can be performed with pencil and paper or a spreadsheet. For a few, more sophisticated analytical software will be useful. Such exercises are indicated with a symbol . Solutions are provided for all exercises. Just click on the “Solution” button at the end of each exercise.
Permission is granted for use of this book, its exercises and solutions in any public or private classroom setting. However, none of the content may be sold, repackaged or hosted on an independent platform. The preparation of derivative works based on any of the content is prohibited.