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Derivatives Markets
ISBN-10: 0201729601
ISBN-13: 9780201729603
Publisher: Prentice Hall
Copyright: 2003
Format: Cloth Package; 832 pp
Published: 09/06/2002
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Description
This text for the derivatives course is suitable for advanced undergraduate courses and both introductory and advanced derivatives courses at the MBA level. The author takes a more intuitive approach than in many derivatives books: a narrative ties the topics together, and the economics of markets and pricing are emphasized, making this book more accessible to a broad range of students.
Features
- Concrete Applications complement the pricing discussions. Chapters on financial engineering, corporate applications, and real options all address practical problems.
- An Emphasis on the Economics of Markets and Products— The idea that options are insurance is presented at the outset.
- Integrated treatment of forward contracts and options— The initial chapters cover both forwards and options, illustrating how they are used and incorporating an extended example of hedging by gold-mining and gold-buying firms. This approach helps to unify option pricing; in particular, it makes it clear that the formula for pricing stock options is the same as the formula for pricing currency options.
- Formulas are motivated, placed in context, and explained intuitively. The goal is to give the students intuition about pricing models, to know when a price does not make sense and why. The author provides the student with a framework for thinking about commonality among various derivative instruments.
- Theme of Applied Computation—Using pre-programmed Excel spreadsheets that are packaged with the book, the students can play with option pricing functions and interpret the results. The goal is to make the students comfortable and fluent with pricing models and their use in spreadsheets, even if they do not understand the precise mathematical underpinnings.
Table of Contents
1. Introduction to Derivatives.
I. INSURANCE, HEDGING, AND SIMPLE STRATEGIES.
II. FORWARDS, FUTURES, AND SWAPS.
III. OPTIONS.
IV. FINANCIAL ENGINEERING AND APPLICATIONS.
V. ADVANCED PRICING THEORY.
APPENDIXES.
Backcover Copy
Derivatives Markets ROBERT L. MCDONALD
Northwestern University
Derivatives tools and concepts permeate modern finance. An authoritative treatment from a recognized expert, Derivatives Markets presents the sometimes challenging world of futures, options, and other derivatives in an accessible, cohesive, and intuitive manner. Some features of the book include:
- Insights into pricing models. Formulas are motivated and explained intuitively. Links between the various derivative instruments are highlighted. Students learn how derivatives markets work, with an emphasis on the role of competitive market-makers in determining prices.
- A tiered approach to mathematics. Most of the book assumes only basic mathematics, such as solving two equations in two unknowns. The last quarter of the book uses calculus, and provides an introduction to the concepts and pricing techniques that are widely used in derivatives today.
- An applied emphasis. Chapters on corporate applications, financial engineering, and real options illustrate the broad applicability of the tools and models developed in the book. A rich array of examples bolsters the theory.
- A computation-friendly approach. The option pricing functions used in the text are available in accompanying Excel spreadsheets. Visual Basic code for the pricing functions is included, and can be modified for your own use.
“Derivatives Markets provides a comprehensive yet in-depth treatment of the theory, institutions, and applications of derivatives. McDonald is a master teacher and researcher in the field and makes the reading effortless and exciting with his intuitive writing style and the liberal use of numerical examples and cases sprinkled throughout...(It) is a terrific book, and I highly recommend it.”
—Geroge Constantinides University of Chicago“...the most appealing part of the writing is how replete the text is with intuition and how effortless it is woven throughout.”
—Ken Kavajecz University of Pennsylvania“...a wonderful blend of the economics and mathematics of derivatives pricing. After reading the book, the student will have not only an understanding of derivatives pricing models but also of derivatives markets...The technical development...brings the student/reader remarkably close to state of the art with carefully chosen and developed mathematical machinery.”
—Mark Cassano University of Calgary
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