Derivatives: Principles and Practice 2nd Edition, ISBN-13: 978-0078034732

 

• Publisher: McGraw-Hill Education; 2nd edition (January 19, 2015)
• Format: PDF
• Language: English
• 960 pages
• ISBN-10: 0078034736
• ISBN-13: 978-0078034732

 

Derivatives makes a special effort throughout the text to explain what lies behind the formal mathematics of pricing and hedging. Questions ranging from ‘how are forward prices determined?’ to ‘why does the Black-Scholes formula have the form it does?’ are answered throughout the text. The authors use verbal and pictorial expositions, and sometimes simple mathematical models, to explain underlying principles before proceeding to formal analysis. Extensive uses of numerical examples for illustrative purposes are used throughout to supplement the intuitive and formal presentations.

The world derivatives market is an immense one. The Bank for International Settlements

(BIS) estimated that in June 2012, the total notional outstanding amount worldwide was a

staggering $639 trillion with a combined market value of over $25 trillion (Table 1.1)—

and this figure includes only over-the-counter (OTC) derivatives, those derivatives traded

directly between two parties. It does not count the trillions of dollars in derivatives that are

traded daily on the world’s many exchanges. By way of comparison, world GDP in 2011

was estimated at just under $70 trillion.For much of the last two decades, growth has been furious. Total notional outstanding

in OTC derivatives markets worldwide increased almost tenfold in the decade from 1998

to 2008 (Table 1.2). Derivatives turnover on the world’s exchanges quadrupled between

2001 and 2007, reaching a volume of over $2.25 quadrillion in the last year of that span

(Table 1.3). Markets fell with the onset of the financial crisis, but by 2011–12, a substantial

portion of that decline had been reversed.

The growth has been truly widespread. There are now thriving derivatives exchanges not

only in the traditional developed economies of North America, Europe, and Japan, but also

in Brazil, China, India, Israel, Korea, Mexico, and Singapore, among many other countries.

A survey by the International Swaps and Derivatives Association (ISDA) in 2003 found

that 92% of the world’s 500 largest companies use derivatives to manage risk of various

forms, especially interest-rate risk (92%) and currency risk (85%), but, to a lesser extent,

also commodity risk (25%) and equity risk (12%). Firms in over 90% of the countries

represented in the sample used derivatives.

Rangarajan K. Sundaram is Professor of Finance at New York University’s

Stern School of Business. He was previously a member of the economics faculty

at the University of Rochester. Raghu has an undergraduate degree in economics from

Loyola College, University of Madras; an MBA from the Indian Institute of Management,

Ahmedabad; and a Master’s and Ph.D. in economics from Cornell University. He was coeditor

of the Journal of Derivatives from 2002–2008 and is or has been a member of several

other editorial boards. His research in finance covers a range of areas including agency

problems, executive compensation, derivatives pricing, credit risk and credit derivatives,

and corporate finance. He has also published extensively in mathematical economics, decision

theory, and game theory. His research has appeared in all leading academic journals in

finance and economic theory. The recipient of the Jensen Award and a finalist for the Brattle

Prize for his research in finance, Raghu has also won several teaching awards including, in

2007, the inaugural Distinguished Teaching Award from the Stern School of Business. This

is Raghu’s second book; his first, a Ph.D.-level text titled A First Course in Optimization

Theory, was published by Cambridge University Press.

Sanjiv Das is the William and Janice Terry Professor of Finance at Santa Clara University’s

Leavey School of Business. He previously held faculty appointments as associate professor

at Harvard Business School and UC Berkeley. He holds post-graduate degrees in finance

(M.Phil and Ph.D. from New York University), computer science (M.S. from UC Berkeley),

an MBA from the Indian Institute of Management, Ahmedabad, B.Com in accounting and

economics (University of Bombay, Sydenham College), and is also a qualified cost and

works accountant. He is a senior editor of The Journal of Investment Management, coeditor

of The Journal of Derivatives and the Journal of Financial Services Research, and

associate editor of other academic journals. He worked in the derivatives business in the

Asia-Pacific region as a vice-president at Citibank. His current research interests include

the modeling of default risk, machine learning, social networks, derivatives pricing models,

portfolio theory, and venture capital. He has published over eighty articles in academic

journals, and has won numerous awards for research and teaching. He currently also serves

as a senior fellow at the FDIC Center for Financial Research.

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