An Introduction to Derivative Securities, Financial Markets, by Robert A. Jarrow

By Robert A. Jarrow

The first actual introductory textual content in derivatives.

Written through Robert Jarrow, one of many real titans of finance, and his former pupil Arkadev Chatterjea, Introduction to Derivatives is the 1st textual content constructed from the floor up for college students taking the introductory derivatives path. the maths is gifted on the correct point and is usually influenced by means of what’s occurring within the monetary markets. And, as one of many builders of the Heath-Jarrow-Morton version, Robert Jarrow provides a singular, available strategy to comprehend this crucial subject.

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Extra info for An Introduction to Derivative Securities, Financial Markets, and Risk Management

Sample text

Derivatives have a long and checkered past. In the 1960s, only a handful of individuals studied derivatives. No academic books covered the topic, and no college or university courses were available. Derivatives markets were small, located mostly in the United States and Western Europe. Derivative users included only a limited number of traders in futures markets and on Wall Street. The options market existed as trading between professional traders (called the over-the-counter [OTC] market) with little activity.

Over many transactions, when trading based on fair value—selling above fair value and buying below—your edge will pay off. Investment banking and Wall Street firms have no choice but to use the best models. It’s just too important for their survival. Powerful models also help traders manage risk. 4 Defining, Measuring, and Managing Risk Risk is an elusive concept and hard to define. In finance and business, risk can be defined and measured in many ways, none of them completely universal. Risk often depends on the user’s perspective.

We wanted to create a textbook accessible to MBAs and undergraduates both in terms of the concepts and mathematics. Option pricing is normally thought of as a complex, mathematical, and difficult topic. Our experience is that this topic can be presented simply and intuitively. O Second, it is about financial markets. We wanted to write an economics, not a quantitative, book on derivatives. Since the first textbooks on option pricing,1 1 Jarrow and Rudd (1983) and Cox and Rubinstein (1984). XXIX XXX PREFACE derivatives textbooks have taken a quantitative approach to the topic and are often encyclopedic in presentation.

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