Top 7 Best Books on Derivatives

derivatives books

Top Best Derivatives Books – Derivatives are essentially financial instruments whose value depends on underlying assets such as stocks, bonds and other forms of traditional securities. There are various forms of derivative instruments which are widely used for trading, hedging with a view to risk management and speculation which essentially involves betting on the future price of an asset. Forwards, futures, swaps and options are some of the basic types of derivatives traded in the markets. However, derivatives remain a relatively little-understood area due to the complex nature of concepts and the mathematics involved.

We have carefully compiled a list of derivatives books which could help enhance the understanding of fundamentals of derivatives as well as a number of trading and hedging techniques in existence. Students as well as traders and finance professionals would find these work on derivatives books of great utility and some of them might even be a good source of reference on the subject. 

#1 – Introduction to Futures and Options Markets (3rd Edition)


by John Hull  (Author)  

Book Review

  • This best book on dervivatives introduces finance students and the novice to the basic principles underlying derivatives and sets readers on the path to acquire understanding of more complex aspects of this specialized class of financial instruments.
  • Most of the introductory works of this nature require a detailed understanding and mastery of mathematical concepts used for evaluation and analysis of derivatives. However, this work is designed specifically for readers with little mathematical background to make the subject much more accessible.
  • Some of the key areas covered in this work include presentation of swaps, day count conventions discussions, scenario analysis and value-at-risk among others. Entry-level professionals,
  • Entry-level professionals, laymen and students would find this work to be of great value in acquiring a fundamental knowledge of futures and options along with other derivatives.

Best Takeaway from this Best Derivatives book

  • An introductory work on futures and options markets which would help readers acquire a basic understanding of derivatives including their evaluation and analysis.
  • Usually, detailed knowledge of relevant mathematical concepts is necessary for understanding the complex nature of derivative instruments; however, this work skillfully presents the concepts for those with relatively little mathematical understanding.
  • This enhances the value of this work as an introductory guide to derivatives markets.
  • A highly acclaimed work on fundamentals of derivatives for students as well as seasoned professionals.
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#2 – Derivatives The Wild Beast of Finance


A Path to Effective Globalisation? 1st Edition by Alfred Steinherr  (Author)

Book Review

  • This top derivatives book is an attempt at portraying derivatives markets in their true global perspective and to analyze its impact on the future of financial world.
  • First published in 1998, this work carried predictions related to implications of the then prevailing conditions in derivatives markets on global financial markets and his foresight by and large proved to be correct.
  • His fundamental fear was related to the lack of adequate risk assessment and management in the derivatives markets and how it could potentially destabilize the financial markets.
  • It is true that the value of risk has slowly been realized in the global context for past couple of decades, and at great value to the corporations and investors involved.
  • What makes the current edition of special value is that the author has taken special care to enhance the readability of the work and has reassessed current market conditions as well for the interested readers.
  • An eye-opening read for those versed in the concepts and principles that drive the derivatives markets and the element of risk in these and other financial markets.

Best Takeaway from this Top derivatives book

  • A significant work on the future of risk management in derivatives markets and what it means for the rest of the financial world.
  • The author brings his erudition to work while explaining some of the most complex concepts related to derivatives and their functioning while analyzing derivatives market, and without invoking a lot of technical details at that.
  • In the current edition he shares his thoughts on how derivatives markets and the element of risk might shape the future of global economy.
  • A highly recommended read for professionals as well as erudite readers with an interest in financial issues with wide-ranging implications.
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#3 – Merton Miller on Derivatives


by Merton H. Miller  (Author)  

Book Review

  • This best derivatives book is a collection of essays on derivatives by Nobel laureate Merton Miller, which address a number of critical issues related to derivatives.
  • For long, derivatives have been viewed with scepticism by industry at large and often treated as a mystery, but Miller does an excellent job of demystifying derivatives for his readers with a flair.
  • He offers a rare and critical insight into the exciting world of derivatives which have revolutionized financial world and brings out the real value of derivatives in effective financial risk management and price discovery.
  • He offers an objective evaluation of financial disasters including Procter & Gamble, Orange County and Barings Bank, for which derivatives are usually held responsible.
  • He argues against derivatives being perceived as fraught with risks, how they have been of great help in hedging against risk, and if anything, ‘derivatives revolution’ has made managing risk that much easier.
  • In short, an eye-opening treatise on much misunderstood derivatives and how they have proved to be beneficial instrument instead of a malignant one.

Best Takeaway from this Best book on Derivatives

  • A masterful work on derivatives, essentially featuring a collection of essays by Nobel laureate Merton Miller, which dispel a number of common myths and misconceptions about this unique class of financial instruments.
  • Miller has analyzed a number of financial disasters as well thought to have been caused by derivatives and demonstrates how derivatives have instead helped manage financial risk better.
  • He presents a strong case for derivatives revolution having helped improve the financial risk management by helping hedge against financial risk.
  • A highly recommended read on derivatives for professionals, amateurs as well as anyone with an academic interest in derivatives.
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#4 – All About Derivatives (All About Series)


Paperback – November 16, 2010 by Michael Durbin  (Author)  

Book Review

  • This best derivatives book is an excellent introductory work on derivatives which presents the fundamental concepts related to derivatives with a rare degree of clarity using an uncomplicated approach for benefit of the readers.
  • This work covers a lot of groundwork on various derivatives contracts including forwards, futures, swaps and options along with critical concepts such as cost of carry, settlement, valuation and payoff among others.
  • The author also provides useful information related to pricing methods and the mathematics employed for determining fair value. Other topics include several hedging strategies which can be utilized for managing various types of risks.
  • This work makes complex concepts on derivatives highly accessible to the readers and helps them acquire knowledge of basic tools and techniques for trading and hedging with derivatives to manage risks better.

Best Takeaway from this best book on Derivatives

  • A succint introduction to derivatives including information on the types of derivative contracts available and techniques for trading and hedging in this unique class of financial instruments with a high degree of success.
  • One of the best things about this work is the lucidity with which complex concepts have been explained that make this work a useful guide for any beginner.
  • A must-read for students, professionals as well as professional traders.
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#5 – Interest Rate Swaps and Other Derivatives


(Columbia Business School Publishing) Hardcover – August 28, 2012 by Howard Corb  (Author)  

Book Review

  • This top derivatives book focuses on developing an understanding of interest rate swaps and other derivatives and attempts to bring out their real significance as efficient risk management tools.
  • These derivative instruments have also been used to explore trading opportunities which might not be otherwise available in the market.
  • The author presents some of the basic concepts related to interest rate swaps and records how several derivatives trace their evolution to them.
  • It is a commendable effort at presenting some intricate ideas related to derivatives in a conversational style which makes it an ideal textbook for the students. He dwells at length on the financial structuring which helps understand derivatives which can also be of help in deconstructing derivatives and analyzing them effectively.
  • This work covers a number of common applications of derivative trading strategies along with the necessary mathematics and useful variables employed for the purpose. An ideal work for students and laymen to help acquire the basic understanding of derivatives.

Best Takeaway from this best derivatives book

  • A focused guide on interest rate swaps and other derivatives which offers a lot of useful information on these derivatives along with common trading strategies for derivatives and their applications.
  • The author explains how traders can take advantage of unique trading opportunities in derivatives market which might be difficult to locate in conventional markets and how to make the most of them.
  • A highly conversational style adopted by the author makes the readers feel at home with relatively complex concepts.
  • A commendable read, meant to double up as a textbook for students and a reference work for professionals.
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#6 – Derivatives Demystified


A Step-by-Step Guide to Forwards, Futures, Swaps and Options- Kindle Edition by Andrew M. Chisholm (Author)  

Book Review

  • This ingenious volume in the Wiley Finance series presents a step-wise introduction to key derivative products and how they can be utilized for risk management and efficient trading.
  • Without letting readers get entangled with the mathematics usually involved in any discussion on derivatives, the author helps them understand that despite numerous applications of derivatives, there are only a few basic building blocks including forwards, futures, swaps and options.
  • He demonstrates how these building blocks can be applied to different markets with a view to tackle several risk-related issues and trading problems.
  • In the current edition, details of use and misuse of derivatives in the 2008 credit crisis is included as well along with an entire additional chapter dedicated to regulation and control of derivatives, commodity derivatives, credit derivatives and other products.
  • A complete treatise on the inside out of derivatives meant for amateurs, students, professionals as well as academically-oriented readers.

Best Takeaway from this top derivatives book

  • An indispensable guide to understand derivatives without getting stuck in complex mathematical concepts.
  • Basic forms of derivatives and their utility is explained in detail along with their application in different markets to take advantage of unique trading and hedging opportunities.
  • The author also discusses the critical role of derivatives in the 2008 credit crisis before bringing the focus on regulatory framework for derivatives which plays a crucial role in shaping the future of derivatives market.
  • In short, a power-packed guide on derivatives and their applications for students and seasoned professionals. 
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#7 – Derivatives Essentials


An Introduction to Forwards, Futures, Options and Swaps (Wiley Finance) by Aron Gottesman

Book Review

  • Living up to its title, this best book on derivatives focuses on the essentials of derivatives, providing information of great practical utility on trading terms and conventions, methodologies for pricing and valuation of derivative instruments.
  • Practical trading strategies and techniques are provided for different types of derivatives including forwards, futures, swaps and options along with other related products.
  • This work is designed to help readers become acquainted with the fundamentals of derivatives while including bare essentials of mathematics and laying greater stress on practical applications of these concepts instead.
  • It is structured to help develop a greater understanding of the ‘behaviour’ of various derivative instruments which invests an individual with the power to make informed decisions and devise novel trading strategies personalized to their specific need and preferences.
  • Trading strategies and techniques are illustrated with the help of practical examples to help readers develop practical understanding and confidence in their abilities to trade in derivatives.

Best Takeaway from this top book on derivatives

  • A straightforward practical guide covering both theory and practice of derivative trading and hedging while creating a deeper understanding of the products to help readers make more informed decisions.
  • An uncluttered approach is adopted to keep things as simple as possible and explain the fundamentals and their application without getting caught up in the mathematics involved.
  • These are some of the things which make it a highly accessible work for anyone interested in developing a broad-based understanding of the subject.
  • In short, a well-structured guide to trade in derivatives with a more intimate understanding of each type of derivative products which offers a unique advantage to the reader.
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