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Edition: 2ND 06

Copyright: 2006

Publisher: Addison-Wesley Longman, Inc.

Published: 2006

International: No

Copyright: 2006

Publisher: Addison-Wesley Longman, Inc.

Published: 2006

International: No

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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.

**Features**

- 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.

Chapter 1 Introduction to Derivatives

**Part I. Insurance, Hedging, and Simple Strategies**

Chapter 2 An Introduction to Forwards and Options

Chapter 3 Insurance, Collars, and Other Strategies

Chapter 4 Introduction to Risk Management

**Part II. Forwards, Futures, and Swaps**

Chapter 5 Financial Forwards and Futures

Chapter 6 Commodity Forwards and Futures

Chapter 7 Interest Rates Forwards and Futures

Chapter 8 Swaps

**Part III. Options**

Chapter 9 Parity and Other Option Relationships

Chapter 10 Binomial Option Pricing: I

Chapter 11 Binomial Option Pricing: II

Chapter 12 The Black-Scholes Formula

Chapter 13 Market-Making and Delta-Hedging

Chapter 14 Exotic Options: I

**Part IV. Financial Engineering and Applications**

Chapter 15 Financial Engineering and Security Design

Chapter 16 Corporate Applications

Chapter 17 Real Options

**Part V. Advanced Pricing Theory**

Chapter 18 The Lognormal Distribution

Chapter 19 Monte Carlo Valuation

Chapter 20 Brownian Motion and Ito's Lemma

Chapter 21 The Black-Scholes Equation

Chapter 22 Exotic Options: II

Chapter 23 Interest Rate Models

Chapter 24 Risk Assessment

Chapter 25 Credit Risk

Chapter 26 Volatility

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Summary

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.

**Features**

- 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.

Table of Contents

Chapter 1 Introduction to Derivatives

**Part I. Insurance, Hedging, and Simple Strategies**

Chapter 2 An Introduction to Forwards and Options

Chapter 3 Insurance, Collars, and Other Strategies

Chapter 4 Introduction to Risk Management

**Part II. Forwards, Futures, and Swaps**

Chapter 5 Financial Forwards and Futures

Chapter 6 Commodity Forwards and Futures

Chapter 7 Interest Rates Forwards and Futures

Chapter 8 Swaps

**Part III. Options**

Chapter 9 Parity and Other Option Relationships

Chapter 10 Binomial Option Pricing: I

Chapter 11 Binomial Option Pricing: II

Chapter 12 The Black-Scholes Formula

Chapter 13 Market-Making and Delta-Hedging

Chapter 14 Exotic Options: I

**Part IV. Financial Engineering and Applications**

Chapter 15 Financial Engineering and Security Design

Chapter 16 Corporate Applications

Chapter 17 Real Options

**Part V. Advanced Pricing Theory**

Chapter 18 The Lognormal Distribution

Chapter 19 Monte Carlo Valuation

Chapter 20 Brownian Motion and Ito's Lemma

Chapter 21 The Black-Scholes Equation

Chapter 22 Exotic Options: II

Chapter 23 Interest Rate Models

Chapter 24 Risk Assessment

Chapter 25 Credit Risk

Chapter 26 Volatility

Publisher Info

Publisher: Addison-Wesley Longman, Inc.

Published: 2006

International: No

Published: 2006

International: No

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.

**Features**

- 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.

Chapter 1 Introduction to Derivatives

**Part I. Insurance, Hedging, and Simple Strategies**

Chapter 2 An Introduction to Forwards and Options

Chapter 3 Insurance, Collars, and Other Strategies

Chapter 4 Introduction to Risk Management

**Part II. Forwards, Futures, and Swaps**

Chapter 5 Financial Forwards and Futures

Chapter 6 Commodity Forwards and Futures

Chapter 7 Interest Rates Forwards and Futures

Chapter 8 Swaps

**Part III. Options**

Chapter 9 Parity and Other Option Relationships

Chapter 10 Binomial Option Pricing: I

Chapter 11 Binomial Option Pricing: II

Chapter 12 The Black-Scholes Formula

Chapter 13 Market-Making and Delta-Hedging

Chapter 14 Exotic Options: I

**Part IV. Financial Engineering and Applications**

Chapter 15 Financial Engineering and Security Design

Chapter 16 Corporate Applications

Chapter 17 Real Options

**Part V. Advanced Pricing Theory**

Chapter 18 The Lognormal Distribution

Chapter 19 Monte Carlo Valuation

Chapter 20 Brownian Motion and Ito's Lemma

Chapter 21 The Black-Scholes Equation

Chapter 22 Exotic Options: II

Chapter 23 Interest Rate Models

Chapter 24 Risk Assessment

Chapter 25 Credit Risk

Chapter 26 Volatility