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Options, Futures and Other Derivatives (6th Edition) (Hardcover)
by John C. Hull
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Investment, Finance, Textbooks |
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| MSL Pointer Review:
Very well written, clear, and pretty easy to understand, this text is the Bible of options and futures markets. |
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Author: John C. Hull
Publisher: Prentice Hall
Pub. in: June, 2005
ISBN: 0131499084
Pages: 816
Measurements: 10 x 8.1 x 1.4 inches
Origin of product: USA
Order code: BA00325
Other information: 6 edition
ISBN-13: 978-0131499089
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- Awards & Credential -
A standard text on options. Risk Magazine lists this book as #4 among most widely cited papers/books between 1988 and 2003. |
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- MSL Picks -
No book covers the subject of derivatives and mathematical finance so extensively and so carefully. The difficult math is explained by Hull in a brilliantly intuitive way, without sacrificing the mathematical rigor. He explains succinctly and accurately the heart of the most advanced papers in the subject, in unpretentious terms, and always with the reader in mind (unlike most of the other academics' attempt at writing a book.) Having studied the subject in depth, from a practical and a theoretical point of view, I can say, without reservation, that (up to 1996) this book is all you need to learn about the subject. In fact, I dare say that if you read the book cover to cover you will be an expert in the subject. I read the second version, and some of the most recent topics (like Value at Risk) are not treated in it, but it is my understanding that the third edition includes all of these newer developments. If they are explained as all the other subjects in the 2nd edition, then they should be the best explanations around. Excellent book for novices in the subject, excellent reference book for experts, great mathematical education for finance people, and great financial exposition for mathematicians. (From a mathematical point of view, the only details missing are the mathematical foundations of risk-neutral valuation, i.e. Girsanov's theorem) This book should be read (and more importantly CAN be read) by any financial officer, county treasurer (is Orange County listening?), trader, regulator investor and banker. I also recommend this book to unemployed mathematicians, physicists, and engineers. The starting salary for these quantitative disciplines goes up by $30,000 a year after reading that book.
This book is regarded very highly in the field and is often quoted as a standard text for this subject in both undergraduate and graduate level courses. It strikes a good balance between the mathematical theory of option pricing and the details of the markets, though it does not say much about the practical side of options trading. It is, however, an introductory text. It does not dwell on the theory, and leaves many of the results underived. His section on numerical methods for solving complex option pricing problems is very good, though there are better (such as Wilmott's book).
Besides Introduction to the Mathematics of Financial Derivatives (Hardcover) by Salih N. Neftci, other important references include Credit Derivatives & Synthetic Structures: A Guide to Instruments and Applications, 2nd Edition (Hardcover) by Janet M. Tavakoli and Paul Wilmott Introduces Quantitative Finance (Paperback) by Paul Wilmott, Modeling Derivatives in C++ (Wiley Finance) (Paperback) by Justin London.
(From quoting an American reader)
Target readers:
Securities analysts, portfolio managers, investment consultants or any other investment professional, business school/university lecturers, academics, finance graduates and undergraduates, and MBAs.
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- Better with -
Better with
Fixed Income Securities: Tools for Today's Markets, Second Edition
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From Publisher
One of the exciting developments in finance over the last 20 years has been the growth of derivatives markets. In many situations, both hedgers and speculators find it more attractive to trade a derivative on an asset than to trade the asset itself. Some derivatives are traded on exchanges. Others are traded by financial institutions, fund managers, and corporations in the over-the-counter market, or added to new issues of debt and equity securities. Much of this book is concerned with the valuation of derivatives. The aim is to present a unifying framework within all derivatives-not just options or futures-can be valued.
Designed to bridge the gap between theory and practice, this successful book is regarded as "the bible" in trading rooms throughout the world. The books covers both derivatives markets and risk management, including credit risk and credit derivatives; forward, futures, and swaps; insurance, weather, and energy derivatives; and more. For options traders, options analysts, risk managers, swaps traders, financial engineers, and corporate treasurers.
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Preface
This book is appropriate for graduate and advanced undergraduate elective courses in business, economics, and financial engineering. It is also suitable for practitioners who want to acquire a working knowledge of how derivatives can be analyzed.
One of the key decisions that must be made by an author who is writing in the area of derivatives concerns the use of mathematics. If the level of mathematical sophistication is too high, the material is likely to be inaccessible to many students and practitioners. If it is too low, some important issues will inevitably be treated in a rather superficial way. In this book, great care has been taken in the use of mathematics. Nonessential mathematical material has been either eliminated or included in end-of- chapter appendices. Concepts that are likely to be new to many readers have been explained carefully, and many numerical examples have been included.
This book provides a unifying approach to the valuation of all derivatives - not just futures and options. The book assumes that the reader has taken an introductory course in finance and an introductory course in probability and statistics. No prior knowledge of options, futures contracts, swaps, and so on is assumed. It is not therefore necessary for students to take an elective course in investments prior to taking a course based on this book. Changes in This Edition
This edition contains more material than the third edition. The material in the third edition has been updated and its presentation has been improved in a number of places. The major changes include:
1. A new chapter (chapter 14) has been included on value at risk.
2. A new chapter (chapter 15) has been included on estimating volatilities and correlations. GARCH models are covered in much more detail than in the third edition.
3. Chapter 19 contains much new material and explains the role played by martingales and measures in the valuation of derivatives.
4. Chapter 20 on the standard market models for valuing interest rate derivatives has been revised. It now uses the material in chapter 19 to provide a more complete discussion of the models for valuing bond options, caps, and swap options.
5. There are now two chapters on equilibrium and no-arbitrage models of the term structure (chapters 21 and 22). Chapter 21 covers equilibrium models and one-factor no-arbitrage models of the short rate. Chapter 22 covers two-factor models of the short rate, the HIM model, and the LIBOR market (BGM) model.
6. Chapter 4 on Interest Rates and Duration has been rewritten to make the material clearer and more relevant.
7. Chapter 23 on Credit Risk has been rewritten to reflect developments in this important area.
8. More material has been added on volatility smiles and volatility skews (chapter 17).
9. The sequencing of the material has been changed slightly. Volatility smiles and alternatives to Black-Scholes now appear before the chapter on exotic options, which in turn appears before the material on interest rate derivatives.
10. The notation has been improved and simplified. So and Fo are used to denote the asset price and the forward price today (that is, at time zero) and the cumbersome "T - t" no longer appears in most parts of the book.
11. A glossary of terms has been included.
12. Many new problems and questions have been added. Software
New Excel-based software, DerivaGem, is included with the book. This software is a big improvement over the software included with previous editions. It has been carefully designed to complement the material in the text. Users can calculate options prices, imply volatilities, and calculate Greek letters for European options, American options, exotic options, and interest rate derivatives. Interest rate derivatives can be valued either using Black's model or a no-arbitrage model. The software can be used to display binomial trees (see for example Figure 16.3 and Figure 21.11) and provide many different charts showing the impact of different variables on either option prices or the Greek letters.
The software is described more fully at the end of the book. Updates to the software can be downloaded from my Web site (mgmt.utoronto.ca/-hull). Slides
Several hundred PowerPoint slides can be downloaded from my Web site. The slides now use only standard fonts. Instructors can adapt the slides to meet their own needs.
Answers to Questions
Solutions to the end-of-chapter problems in the first three editions were available only in the Instructor's Manual. Over the years many people have asked me to make the solutions more generally available. I have hesitated to do this because it would prevent instructors from using the problems as assignment questions.
In this edition I have dealt with this issue by dividing the end-of-chapter problems into two groups: "Questions and Problems" and "Assignment Questions". There are over 450 Questions and Problems and solutions to these are in a book Options, Futures, & Other Derivatives: Solutions Manual, which is published by Prentice Hall. There are about 80 Assignment Questions. Solutions to these are available only in the Instructor's Manual.
It is sometimes hard for me to believe that the first edition of this book was only 330 pages and 13 chapters long! There have been many developments in derivatives markets over the last 15 years and the book has grown to keep up with them. The fifth edition has seven new chapters that cover new derivatives instruments and recent research advances.
Like earlier editions, the book serves several markets. It is appropriate for graduate courses in business, economics, and financial engineering. It can be used on advanced undergraduate courses when students have good quantitative skills. Also, many practitioners who want to acquire a working knowledge of how derivatives can be analyzed find the book useful.
One of the key decisions that must be made by an author who is writing in the area of derivatives concerns the use of mathematics. If the level of mathematical sophistication is too high, the material is likely to be inaccessible to many students and practitioners. If it is too low, some important issues will inevitably be treated in a rather superficial way. I have tried to be particularly careful about the way I use both mathematics and notation in the book. Nonessential mathematical material has been either eliminated or included in end-of-chapter appendices. Concepts that are likely to be new to many readers have been explained carefully, and many numerical examples have been included.
The book covers both derivatives markets and risk management. It assumes that the reader has taken an introductory course in finance and an introductory course in probability and statistics. No prior knowledge of options, futures contracts, swaps, and so on is assumed. It is not therefore necessary for students to take an elective course in investments prior to taking a course based on this book. There are many different ways the book can be used in the classroom. Instructors teaching a first course in derivatives may wish to spend most time on the first half of the book. Instructors teaching a more advanced course will find that many different combinations of the chapters in the second half of the book can be used. I find that the material in Chapters 29 and 30 works well at the end of either an introductory or an advanced course.
What's New?
Material has been updated and improved throughout the book. The changes in this edition include:
1. A new chapter on the use of futures for hedging (Chapter 4). Part of this material was previously in Chapters 2 and 3. The change results in the first three chapters being less intense and allows hedging to be covered in more depth.
2. A new chapter on models and numerical procedures (Chapter 20). Much of this material is new, but some has been transferred from the chapter on exotic options in the fourth edition.
3. A new chapter on swaps (Chapter 25). This gives the reader an appreciation of the range of nonstandard swap products that are traded in the over-the-counter market and discusses how they can be valued.
4. There is an extra chapter on credit risk. Chapter 26 discusses the measurement of credit risk and credit value at risk while Chapter 27 covers credit derivatives.
5. There is a new chapter on real options (Chapter 28). There is a new chapter on insurance, weather, and energy derivatives (Chapter 29).
6. There is a new chapter on derivatives mishaps and what we can learn from them (Chapter 30).
7. The chapter on martingales and measures has been improved so that the material flows better (Chapter 21).
8. The chapter on value at risk has been rewritten so that it provides a better balance between the historical simulation approach and the model-building approach (Chapter 16).
9. The chapter on volatility smiles has been improved and appears earlier in the book. (Chapter 15).
10. The coverage of the LIBOR market model has been expanded (Chapter 24).
11. One or two changes have been made to the notation. The most significant is that the strike price is now denoted by K rather than X.
12. Many new end-of-chapter problems have been added.
Software
A new version of DerivaGem (Version 1.50) is released with this book. This consists of two Excel applications: the Options Calculator and the Applications Builder. The Options Calculator consists of the software in the previous release (with minor improvements). The Applications Builder consists of a number of Excel functions from which users can build their own applications. It includes a number of sample applications and enables students to explore the properties of options and numerical procedures more easily. It also allows more interesting assignments to be designed.
The software is described more fully at the end of the book. Updates to the software can be downloaded from my website: www.rotman.utoronto.ca/~hull
Slides
Several hundred PowerPoint slides can be downloaded from my website. Instructors who adopt the text are welcome to adapt the slides to meet their own needs.
Answers to Questions
As in the fourth edition, end-of-chapter problems are divided into two groups: "Questions and Problems" and "Assignment Questions". Solutions to the Questions and Problems are in Options, Futures, and Other Derivatives: Solutions Manual, which is published by Prentice Hall and can be purchased by students. Solutions to Assignment Questions are available only in the Instructors Manual...
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| View all 13 comments |
A reader (MSL quote), USA
<2006-12-29 00:00>
There is a reason that this text has been in print for so many years - in my view it is the Samuelson of the financial world because there is no other work that presents such a cogent as well as comprehensive introduction to the mechanics of derivatives securities. As a person involved in dealing with these monsters on a daily basis, Hull lives on my desk and has been a constant source of reference. It is also widely used by others in the industry. If Wiener Processes and Ito's Lemma are part of your life, this book is the one to get! PS... the solutions manual is a very useful companion if you want to get full value out of the book, but I have always thought it unfair of textbook publishers to print separate solutions texts when the main work is so expensive in the first place. Is it so hard or costly to tack on 50 extra pages, or it the old story of the monopolist extracting his due? |
A reader (MSL quote), USA
<2006-12-29 00:00>
Hull's text is the definitive text on futures and options. The book provides the basis for understanding the underlying principles for valuing derivatives instruments. Since the text is academic and theoretical in nature, the book is geared towards graduate business school students and Wall Street professionals (and maybe only those working on trading/research desks). For the day-trading crowd, you will not find any specific discussions about trading strategies that make money. Instead, you will be enriched with a fundamental understanding of derivatives pricing - from there you can try to earn your riches. |
A reader (MSL quote), USA
<2006-12-29 00:00>
John Hull manages to give a useful overview of all of the major derivatives products. He gives methods of valuation that are easy to understand. The first step to understanding is to get the correct terminology and breadth. Critics might say he doesn't give the most technical valuation techniques. That's not the point of a work like this. This is a reference which promotes illumination and allows one to integrate knowledge in the entire field. Detailed pricing models for each of these products and sophisticated yield curve building methods require additional study and separate debate. No one said it wasn't work, but this gives the dedicated professional the best cognitive guide book in the field. The coverage of credit derivatives is light, however. In addition to this book, I also highly recommend Tavakoli's Credit Derivatives & Synthetic Structures. |
A reader (MSL quote), USA
<2006-12-29 00:00>
I have read most of the books on derivatives and mathematical finance. I have also read the most important papers on the subject, and no book covers the subject so extensively and so carefully. The difficult math is explained by Hull in a brilliantly intuitive way, without sacrificing the mathematical rigor. He explains succinctly and accurately the heart of the most advanced papers in the subject, in unpretentious terms, and always with the reader in mind (unlike most of the other academics' attempt at writing a book.) Having studied the subject in depth, from a practical and a theoretical point of view, I can say, without reservation, that (up to 1996) this book is all you need to learn about the subject. In fact, I dare say that if you read the book cover to cover you will be an expert in the subject. I read the second version, and some of the most recent topics (like Value at Risk) are not treated in it, but it is my understanding that the third edition includes all of these newer developments. If they are explained as all the other subjects in the 2nd edition, then they should be the best explanations around. Excellent book for novices in the subject, excellent reference book for experts, great mathematical education for finance people, and great financial exposition for mathematicians. (From a mathematical point of view, the only details missing are the mathematical foundations of risk-neutral valuation, i.e. Girsanov's theorem) This book should be read (and more importantly CAN be read) by any financial officer, county treasurer (is Orange County listening?), trader, regulator investor and banker. I also recommend this book to unemployed mathematicians, physicists, and engineers. The starting salary for these quantitative disciplines goes up by $30,000 a year after reading that book.
John Hull's options book is regarded very highly in the field and is often quoted as a standard text for this subject in both undergraduate and graduate level courses. It strikes a good balance between the mathematical theory of option pricing and the details of the markets, though it does not say much about the practical side of options trading. It is, however, an introductory text. It does not dwell on the theory, and leaves many of the results underived. His section on numerical methods for solving complex option pricing problems is very good, though there are better (such as Wilmott's book).
Besides Introduction to the Mathematics of Financial Derivatives (Hardcover) by Salih N. Neftci, other important references include Credit Derivatives & Synthetic Structures: A Guide to Instruments and Applications, 2nd Edition (Hardcover) by Janet M. Tavakoli and Paul Wilmott Introduces Quantitative Finance (Paperback) by Paul Wilmott, Modeling Derivatives in C++ (Wiley Finance) (Paperback) by Justin London.
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