All About Derivatives

All About Derivatives presents the complex subject of financial derivatives with a clarity and coherence you won’t find in other books. Using real-world examples and simple language, it lucidly illustrates what derivatives are and why they are so powerful.

Introduction:

Is this book for you? Do you want to learn the basics in a hurry without suffering too much math? Then it’s for you. Of course there is math, but we’ve done our best to tuck it away so that you needn’t bother with it if you don’t want to. Students will certainly want to know all this stuff, math and all. But our book can be handy too if you don’t really work with derivatives but occasionally need to understand them. We’re thinking about accountants, lawyers, nonfinancial managers, human resource professionals, software developers, government workers, bus drivers (you never know), and folks like that. And if you do work with derivatives but come across some tidbit in your work you don’t recognize, and would prefer not to reveal your ignorance by asking, then just flip to one of these pages, and nobody will know.

Is this book for the individual investor? Sure it is. Just don’t make any investment based on what you read in this book. Ever. Want to get some idea of how derivatives fit into the larger world of investments? Then read and learn. Want ideas for where to invest your money? Go somewhere else, dear reader, anywhere but here. While the principles in here apply to your world in concept, they don’t always apply in practice. Bottom line, what’s between the covers of this modest book is not investment advice, so please do us all a favor and don’t get any ideas.

Back to the math: Is a lot of it required in learning about derivatives? Only if you need to delve into the details of how they are valued. You can understand more than you might think about derivatives with no more math than what you learned in high school. We’ll barely talk about math until the second half of the book, and then we’ll explain all the math before we use it or direct you to an appendix. To absorb the content herein, all you really need is a healthy curiosity and modicum of patience.

It’s easier than you might think to get what derivatives are all about. And once you do, you’ll be well equipped to venture further into this vast and beastly world—or to decide not to.

Contents:

• Derivatives in a Nutshell
• The Forward Contract
• The Futures Contract
• The Swap Contract
• The Option Contract
• Credit Derivatives
• Using Derivatives to Manage Risk
• Pricing Forwards and Futures
• Pricing Swaps
• Pricing Options
• Hedging a Derivatives Position
• Derivatives and the 2008 Financial Meltdown