Derivative-security

The book is aimed at university students with many worked examples, graphs and end of chapter questions. Redhead's previous works follow this structure. This is useful when you are entering fresh into the area and do not want to be overwhelmed with models or more cutting edge "state of the market" diatribes.

I find the book to be logical, well laid out and progressive. Not the most sophisticated work out there but for the non-trader, non-CFO, it works its charms.

This is a great handbook for a non specialized audience who want to go further with derivatives instruments. Enter the magic world of swaps, options and even swaptions !

This volume is yet another textbook on mathematical finance (a branch of mathematics, as opposed to quantitative finance/ financial engineering) and does not contain much original material except a good exposition of LIBOR and swap market models in the second part.

The book is divided into two parts, Theory and Pratice.
The theory part is a course on stochastic processes and stochastic integration: martingales, local martingales, semimartingales, Ito integrals and Ito formulas are developed with a high level of mathematical rigor. This part is definitely not accessible to a non mathematician. On the other hand it does not contain anything new and most proofs are not given...

The second part is about applications to finance, but it is focused on interest rate models, which seems to be the expertise of the authors. LIBOR and swap market models and interest rate derivatives are explained in detail but only at a theoretical level; the subtitles on "calibration" do not contain any useful material not is there a single numerical or empirical example of market data/ model calibration. Monte Carlo simulation, finite difference methods and tree methods are not even discussed...

The relation between the two parts is not clear: it seems that one author wrote the first part while the author wrote the second part...for example, the first part takes great care to distinguish predictable and optional processes and to define integrals of predictable processes while the second part only uses continuous models for which this distinction is useless.
Also, the first part develops the Kunita Watanabe decomposition and studies sets of martingale measure and their extremal elements, a prelude to the study of incomplete markets.
These tools are not put to use in the second part.

It could be a good reading for graduate students in probability curious to know about mathematical finance but not to professionals in this field.

The book "Financial Derivatives in Theory and Practice" by P.J. Hunt and J.E. Kennedy is yet another textbook on modern mathematics of finance. Although the market seems to be saturated by countless texts on the subject, this book appears to be an original and valuable contribution to the current literature.

The book is divided into two parts: Theory (212 pages) and Practice (159 pages). The first part surveys the mathematics of no-arbitrage pricing theory. It starts by a succinct and rigorous account on stochastic calculus (including basic properties on Wiener process, theory of martingales, and a complete development of stochastic integration w.r.t. continuous semimartingales), written in the spirit of the monograph by Revuz and Yor. The section on SDEs is particularly detailed and covers many topics (e.g. strong and weak solutions, description of the Yamada-Watanabe construction) that are not typically found in texts on finance. All technicalities are treated with due care, and some parts of the text are accompanied with exercises. The first part concludes with two sections on pricing by no-arbitrage and term structure models. Overall this part of the book is masterfully written and it is certain to please a mathematically-inclined reader (I'm not sure about the others).

The second part deals with application of the theory in pricing, with emphasis on interest-rate derivatives. After starting off with an interesting discussion about the real-world modelling issues (risk-free vs. "real-world" probability measure, calibration and dimension reduction), the authors introduce basic fixed income instruments (FRAs, caps, floors, swaps, etc) and proceed by developing no-arbitrage pricing using the standard Black's formula. The next four sections containing material on pricing exotic European derivatives largely follow authors' previously published papers. The book concludes with several sections on pricing exotics and path-dependent derivatives that start with a nice accounts on short-rate (Vasicek-Hull-White) model and market models. The treatment of the latter also gives a systematic development of the drift correction factors for various choices of numeraires. The last section on Markov functional modelling follows one of the authors' papers. One detail that is obviously missing from this part is the treatment of hedging of interest-rate derivatives. Also additional comparisons between existing and the Markov functional model seem to be in order.

This book draws on the PhD course that Prof. Chacko teaches at Harvard Business School and the substantial real-world experience with derivatives of both authors to offer a solid package that is useful for both theory and practice. There are other books with clear and rigorous mathematics (e.g. Wilmott), variety of methodologies for pricing (e.g. Neftci) and guides to practical hedging (e.g. Taleb), but this one presents all three components and is therefore a must-have for any serious derivatives shop. Highly recommended.

This is a quick and easy guide to understanding derivatives. Excellent as a brief reference quide. Would recommend to professionals working with these products.

Just entering the business from a EE background so I am reading this book to get down terminology and concepts before reading John C. Hull. At first "selling short" sounded like something shady.

This book is written in a friendly, interesting style.

Requires some math background (high school algebra) and basic knowledge of statistics (Gaussian distribution).
I have been verifying all calculations. For the asking, I have written some programs to automate interest rate calculations and Black-Scholes (...).

Next I'll write a program to do the work of 100000 stockbrokers in finding and executing arbitrage/reverse arbitrage opportunities.

An easy to understand text that establishes the fundamentals of financial derivatives such as futures, options, and swaps with an emphasis on risk management. Great for business students.

I'm not so sure that Baxter and Rennie's is an ideal first introduction to financial mathematics. But for those with a basic working knowledge of Black Scholes option pricing theory, or even an acquaintance with the basic concepts of replication and hedging, I believe that it could serve as an excellent way to get the reader as smoothly but as fast as possible to the more advanced aspects of derivatives theory, such interest rate theory. Even HJM and BGM are there, near the end.

I must say, though, that the book starts with "the parable of the bookmaker" that always put me off, because I found the point that the authors wish to make quite unclear. Now that I understand it, I'm not even so sure that it's really a good analogy of the use of the martingale measure vs the "objective" measure. Also, expressions such as "shortening the odds" are obscure to those of us who don't bet on horses, and it was never clear to me whether "shortening the odds" was analogous to anything in financial mathematics and thereby part of the discussion and the point that the authors wish to make -- I guess it's not. All in all, that was a far lessr than ideal way to start the book. However, once you get over that hurdle, the book is indeed very well written, though very concise.

As a new person on the Wall Street, I picked this book after reading all reviews instead of Hull as my first book.

Reviews said undergraduates can handle this book. Wrong. Despite solid engineering background (IIT), I found this to be rather dry book. Certaily not the first book.

I have started Hull. And found that much more accessible and practically useful. Gets you into solving problems and getting answers.

Having been a student of this subject for a short 18 months now, and having looked at many books on the same subject, this is by far THE BEST. What this book does is simple. It lays the groundwork for pricing derivative securities using stochastic calculus. It helps build the intuition behind the stochastics. Then, from this intuition and foundation, you are equipped to read more advanced treatments of the subject.

This is not a book on solving partial differential equations, nor is it supposed to be. If you are looking for a book on solving and creating financial PDE's, then buy Wilmott's books. Rather, this book uses discounted expectations under the risk neutral measure to price securities. What does that mean? Well, all I can say is "READ THE BOOK".

The first three chapters of this book are so fundamental and necessary to building a firm and solid intuition that I have read them over three or four times now. The reason I have read it so many times is because it is so well written and new things pop out at you every time. It really is a delight to read.

Moreover, the section on fixed income models is extremely well written as well.

I can't stress enough how great this text is.

You should buy it even if you already know the material.

Ok let me get this straight. Here is a guy that believes in the efficient market theory but was a salesman/trader. There are tons of conflicts in the book. Partnoy is obviously a professor now. He is practically begging for more regulation in investment banking and feels that financial reporters and professors are not only smarter but deserve more money compared to the investment bankers. He starts out at First Boston and is doing well financially. Then moves to Morgan Stanley and does complicated derivative deals and makes a ton of money. Now a professor and investment banking is pure evil (now that he made a ton of money). Another conflict is Partnoy said he quit Morgan Stanley but on page 277 he writes "...I am not referring what Morgan Stanley did to me." This is where he is talking about another Morgan Stanley employee being fired. I rate this book 2 stars because it was somewhat entertaining but think about this before you buy it. Do you really want to read a book by an author who believes in the efficient market theory but also worked as a salesman/trader? I only bought this book for $3.29 used on amazon.com. I definitely wouldn't recommend paying full price for it.

The book has the merit of going through the most complex derivatives and structured products explaining to a fair extent business motivations behind the deal, an information that is not only confidential, but that constitutes the bread and butter of investment banks.

I loved the book until I got to the last chapter. I would have rated this book ... if it wasn't for this last chapter that the author has added in more recent editions.

I would like to make two comments:
The book tends to explain the concept of present value in simple words, but still wants to go through the most complex derivatives. As a result, certain parts are boring to someone without the financial background, but I would doubt that anyone without the financial background would make it to the second chapter or even be attracted to the book.
My second criticism is regarding the last chapter, "Epilogue". This chapter ruins the book. The author develops an anti-derivatives theory that turns to be amusing. As everyone knows, a tool is neither good nor bad by itself. It is what one achieves with the tool that is good or bad. This principle is also valid for derivatives. It is useless, not to say irritating to go through a list of lawsuits and settlements. This is not proving any further that derivatives are bad or that investment banks are evil.

A very good introduction to derivatives (and even some general finance for novices) and one of the better looks at how degenerate Wall Street culture can be. Though comparisons are frequently made to Liar's Poker, I found FIASCO to be a more useful read, even though it's not quite as funny as Liar's Poker was at its best. The usual tales of arrested development among Wall Street's community are here, but there's a much more gripping and sobering tale of how rapacious greed knows no bounds, and how a large number of actors, including large multinationals and even governments, ultimately pay the price.

Partnoy doesn't tell his story as smoothly as he could, and his narrative sometimes feels larded with anecdotes that don't add much color or relief. He also struggles at times to weigh his role in the big picture. Overall though, he describes his experiences and general Wall Street culture with enough insight that you can feel his disgust, and applaud when he eventually steps away from it all.

A great business book, flaws and all, and a perfect antidote to all the puffery surrounding coverage of financial markets and Wall Street these days. Now when will we see a book of investment banker/derivatives trader jokes, to add to all the great lawyer joke books?