Derivatives Markets Derivatives Markets
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About the Book

To be financially literate, today's business student must understand the basics of derivatives. Derivatives tools and concepts permeate modern finance practice: corporations routinely hedge and insure using derivatives, finance their activities with structured products, and use derivatives models in capital budgeting. Robert L. McDonald has written this new text, Derivatives Markets, to reflect this evolution and to make the study of derivatives as interesting, intuitive, and true to life as possible.

Many students taking a derivatives course are challenged by analytical material that stretches their mathematical, statistical, and spreadsheet abilities. Derivatives Markets makes derivatives more comprehensible for these students, and is a suitable text for advanced undergraduate courses as well as both introductory and advanced derivatives courses at the MBA level.

Features of  Derivatives Markets
Reviewer Praise for  Derivatives Markets

Features of  Derivatives Markets:
  • A tiered approach to mathematical difficulty. The first two-thirds of the book assumes only that students have had a basic finance course, can do present and future value calculations, and can solve two equations in two unknowns. No calculus is required until the last third of the book.
  • An economic approach to pricing. Derivatives is made accessible in this text through the development of the economics and intuition underlying the pricing formulas and markets.
  • 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 to help unify option pricing.
  • Comprehensive treatment of formulas. Formulas are motivated, placed in context, and explained intuitively. Students gain intuition about pricing models and an understanding of when the price does not make sense and why. The author provides the student with a framework for thinking about commonality among various derivative instruments.
  • Applications. Chapters on corporate applications, financial engineering, and real options help emphasize the broad applicability of the tools and models developed throughout the text.
  • A computation-friendly approach. The option pricing functions used in the book are available in accompanying Excel spreadsheets, in which they are implemented as user-defined functions. Students can easily incorporate these option pricing calculations in their own spreadsheets in order to develop a comfort and fluency with pricing models and their use in spreadsheets. The Visual Basic code for the functions is visible and can be copied and modified. There is also an appendix in the book explaining how to write such functions using Visual Basic for Applications.
  • Advanced MBA-level theory. The last third of the book, dealing with subjects such as Monte Carlo and advanced exotic options, can be used for advanced MBA-level courses. If you do not have such a course, it still provides a reference for selected topics that may be useful in introductory derivatives courses.

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Reviewer Praise for  Derivatives Markets:

"With the publication of Robert McDonald's Derivatives Markets, we finally have a derivatives text that is a wonderful blend of the economics and mathematics of derivatives pricing and is easily accessible to MBA students and advanced undergraduates."
-Eduardo S. Schwartz, Anderson Graduate School of Management, University of California, Los Angeles

"Bob McDonald is a master teacher and makes the reading effortless and exciting. A terrific book... I highly recommend it"
-George Constantinides, The University of Chicago

"...A quantitative treatment of derivatives that seeks to build intuition and is written for easy accessibility. [The author] seems to want the student to learn the material and invites him/her in a friendly manner into the field of derivatives."
-David Shimko, Risk Capital Management Partners, LLC and Harvard University

"..A refreshing change...While it provides a sufficiently rigorous discussion of the valuation of derivative also offers clear discussion of practical issues and institutional detail needed for someone to understand how these instruments are used."
-David Haushalter, University of Oregon

"I believe the most appealing part of the writing is how replete the text is with intuition and how effortlessly it is woven throughout."
-Ken Kavajecz, The Wharton School

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