Derivatives Markets (2nd Edition) (Addison-Wesley Series in Finance) 
by Robert L. McDonald (Author)

Hardcover: 912 pages
Publisher: Addison Wesley; 2 edition (2006)
Language: English
Review:

advanced, comprehensive treatment

As financial instruments become ever more complex, McDonald's book gives a systematic treatment of the most common forms of derivatives. Providing a unified etymology that can help you understand how they work.

He groups options (puts and calls) with forward contracts like zero coupon bonds. Through numerous simple payoff graphs, as well as explanatory accompanying text, the ideas are easily grasped. The book starts with these ideas in its early chapters. Then it builds on them, to illustrate associated and often more elaborate constructs, as in insurance strategies for hedging.

Nor is the discussion confined to minimising one's risk. There is an alternative method, of deliberately speculating on volatility, for example.

The modelling of futures and options pricing is dealt with in detail. Including the seminal Black-Scholes formula and related analysis. The assumptions behind Black-Scholes are examined in detail, given the crucial influence of this on many types of pricing. The treatment gets rather advanced, invoking ideas like Monte Carlo simulations of stock prices.

The text is well suited for a graduate program in finance.

 

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