Derivatives Markets

To be financially literate in today's market, business students must have a solid understanding of derivatives concepts and instruments and the uses of those instruments in corporations. The Second Edition has an accessible mathematical presentation, and more importantly, helps students gain intuition by linking theories and concepts together with an engaging narrative that emphasizes the core economic principles underlying the pricing and uses of derivatives.Concrete Applications complement the pricing discussions. Chapters on financial engineering, corporate applications, and real options all address practical problems.An emphasis on core economic principles helps students develop a deeper, more intuitive understanding of derivatives markets and instruments. For example, the idea that options are a form of 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 help students build intuition about pricing models through their applications so they can 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.The Theme of Applied Computation is emphasized. Using the pre-programmed Excel spreadsheets that are packaged with the book, students can become more comfortable and fluent with pricing models and their use in spreadsheets, even before they understand the precise mathematical underpinnings.