List of Top 10 Best Derivatives Books
Derivatives are essentially financial instruments whose value depends on underlying assets such as stocks, bonds, and other forms of traditional securities. Below is the list of top books on derivatives –
- John Hull’s – Fundamentals of Futures and Options Market ( Get this book )
- Derivatives The Wild Beast of Finance ( Get this book )
- Merton Miller on Derivatives
- Trading and Pricing Financial Derivatives ( Get this book )
- Introduction To Derivative Securities, Financial Markets, And Risk Management ( Get this book )
- Option Volatility & Pricing ( Get this book )
- All About Derivatives (All About Series) ( Get this book )
- Interest Rate Swaps and Other Derivatives ( Get this book )
- Derivatives Demystified ( Get this book )
- Derivatives Essentials ( Get this book )
Let us discuss each of the Derivatives books in detail along with its key takeaways and reviews.
#1 – Fundamentals of Futures and Options Market
by John Hull (Author)
- This best book on derivatives introduces finance students and the novice to the basic principles underlying derivatives and sets readers on the path to acquire an 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 a 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 conventionsDay Count ConventionsDay count convention is a system used in the finance field wherein number of days are used as a basis to determine the interest component in investments such as bonds, mortgages, swaps and forward rate agreements. 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
- 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 the fundamentals of derivatives for students as well as seasoned professionals.
#2 – Derivatives The Wild Beast of Finance
A Path to Effective Globalisation? 1st Edition by Alfred Steinherr (Author)
- 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 the 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 the past couple of decades, and at a 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
- 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 the 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 the global economy.
- A highly recommended read for professionals as well as erudite readers with interest in financial issues with wide-ranging implications.
#3 – Merton Miller on Derivatives
by Merton H. Miller (Author)
- 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 skepticism 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 has revolutionized the financial world and brings out the real value of derivatives ineffective 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 a managing risk that much easier.
- In short, an eye-opening treatise on much-misunderstood derivatives and how they have proved to be a 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 riskFinancial RiskFinancial risk refers to the risk of losing funds and assets with the possibility of not being able to pay off the debt taken from creditors, banks and financial institutions. A firm may face this due to incompetent business decisions and practices, eventually leading to bankruptcy. better.
- He presents a strong case for the derivatives revolution, having helped improve 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.
#4 – Trading and Pricing Financial Derivatives
A Guide to Futures, Options, and Swaps
by Patrick Boyle, Jesse McDougall
The book will introduce you to the world of derivatives, such as futures, options, and swaps. It is a handy book on derivatives trading that can be used as a textbook for undergraduate and graduate courses.
Although this book was published to be used as a textbook at the University of London, England, it is equally suitable for both beginners and those with intermediate knowledge. The best part about this book is that it doesn’t require any advanced mathematical knowledge as attempts to explain each concept as clearly as possible. The authors have used their years of experience in the financial marketsFinancial MarketsThe term "financial market" refers to the marketplace where activities such as the creation and trading of various financial assets such as bonds, stocks, commodities, currencies, and derivatives take place. It provides a platform for sellers and buyers to interact and trade at a price determined by market forces., as investment bankers and hedge fund managers, to make the book very informative and yet quite easy to understand. This book should be recommended to everyone who is interested in derivativesDerivativesDerivatives in finance are financial instruments that derive their value from the value of the underlying asset. The underlying asset can be bonds, stocks, currency, commodities, etc. The four types of derivatives are - Option contracts, Future derivatives contracts, Swaps, Forward derivative contracts. .
Best takeaway from this book
- It is suitable for both beginners and people with intermediate knowledge of derivatives.
- It can serve as a good starting point for candidates who want to pursue the career of a quantitative analyst.
- It is a straightforward and well-structured book that explains all financial derivative concepts with the help of great examples.
#5 – Introduction To Derivative Securities, Financial Markets, And Risk Management
by Robert A. Jarrow, Arkadev Chatterjea
As the name clearly suggests, this book introduces you to various concepts pertaining to derivatives, financial markets and risk management.
This book is quite different (in a pleasant way) from the others available in the market owing to the simplicity of the explanations provided. You will find that there is a great mix of theory and the practical aspects of derivatives trading, which is backed by meticulous examples referencing relevant case studies. In fact, it is highly inspired by what actually happens in the financial markets. If you are an instructor or tutor, the book can be of great help to you as it comes with worked-out solutions to problem sets along with illustrative slides, which will reduce your prep time significantly without compromising students’ learning experience.
Best takeaway from this book
- The level of mathematics used is suitable for lower-division college students.
- The supplementary materials provided can be a great help to the tutors who use them as a course textbook.
- The illustrations used in the book are closely related to the real markets.
#6 – Option Volatility & Pricing
Advanced Trading Strategies and Techniques
by Sheldon Natenberg
The book discusses the basics of option theory and explains how it can be used for identifying trading opportunities. It also covers a wide variety of advanced option trading strategiesOption Trading StrategiesOptions Trading refers to a situation where the trader can purchase or sell a security at a particular rate within a specific period. Its strategies include Long Call Options, Short Call Options, Long Put Options, Short Put Options, Long Straddle Options, & Short Straddle Options etc. .
This book is one of the most extensively read books on options trading around the world. The reason is that it captures the most recent developments, maintains focus on volatility, and discusses the market appropriate option trading strategies. The book is written in a clear and easy-to-understand language as it focuses on the key concepts of options trading. It is highly theoretical and is full of graphs and charts, which can be very useful for graduate students. In short, it demonstrates how you should approach the market and the options trading strategies from the perspective of a professional trader.
Best takeaway from this book
- It is one of the most informative books that cover all aspects of options trading in a concise manner.
- It is extremely well-written and appropriately explains how volatility affects options pricing and trading.
- It is not suitable for rookie options traders but is a must-read for intermediate level options traders.
#7 – All About Derivatives (All about series)
Paperback – November 16, 2010 by Michael Durbin (Author)
- 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 carrying, 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 that 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 succinct 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.
#8 – Interest Rate Swaps and Other Derivatives
(Columbia Business School Publishing) Hardcover – August 28, 2012, by Howard Corb (Author)
- This top derivatives book focuses on developing an understanding of interest rate swapsInterest Rate SwapsAn interest rate swap is a deal between two parties on interest payments. The most common interest rate swap arrangement is when Party A agrees to make payments to Party B on a fixed interest rate, and Party B pays Party A on a floating interest rate. 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 structuringFinancial StructuringThe financial structure refers to the sources of capital and the proportion of financing that comes from short term liabilities, short term debt, long term debt, and equity to fund the company's long term and short term working capital requirements., 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 the 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.
#9 – Derivatives Demystified
A Step-by-Step Guide to Forwards, Futures, Swaps, and Options- Kindle Edition by Andrew M. Chisholm (Author)
- 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 tackling several risk-related issues and trading problems.
- In the current edition, details of the use and misuse of derivatives in the 2008 credit crisis are included as well, along with an entire additional chapter dedicated to regulation and control of derivatives, commodity derivativesCommodity DerivativesCommodity derivatives refer to those financial instruments that use the price or price volatility of the underlying commodities as the base for change in their price to amplify, hedge, or invert, in a way that the investors can track these underlying assets' performance. It includes commodity futures and commodity swaps., 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 understanding 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 the regulatory framework for derivatives, which plays a crucial role in shaping the future of the derivatives market.
- In short, a power-packed guide on derivatives and their applications for students and seasoned professionals.
#10 – Derivatives Essentials
An Introduction to Forwards, Futures, Options and Swaps (Wiley Finance) by Aron Gottesman
- 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 derivativesTypes Of DerivativesA derivative is a financial instrument whose structure of payoff is derived from the value of the underlying assets. The three types of derivatives are forward contract, futures contract, and options., 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 the 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 ‘behavior’ of various derivative instruments, which invests an individual with the power to make informed decisions and devise novel trading strategies personalized to their specific needs 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 derivatives trading and hedgingHedgingHedging is a type of investment that works like insurance and protects you from any financial losses. Hedging is achieved by taking the opposing position in the market. 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 product which offers a unique advantage to the reader.
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