Pricing and Hedging Financial Derivatives: A Guide for Practitioners

Preface

The study of derivatives is tough. The institutional and regulatory framework is evolving constantly, new products and structures are being developed daily, existing products are being refined and financial mathematicians regularly introduce new, more complicated techniques for pricing these products. Tough, but neither impossible nor inaccessible to those people who wish to learn. In fact, everybody involved in the derivatives market is caught up in a continual learning experience.

First, a word of warning. Our book is not meant to be a handbook for the derivatives market. It is light on the regulatory changes currently taking place in financial markets since this is not part of our aim. Indeed, any book written on this topic will very soon be out of date. Of course, for many, these changes are the most important developments taking place in the derivatives markets currently. We would not disagree. We just prefer someone else to write books on this.

On the other hand, our book aims to offer a practical introduction to the topic of pricing and hedging of derivatives. It is rigorous in its conclusions, although we may sometimes take a few liberties with academic rigour if it helps us to explain the intuition behind certain ideas. Where we do take poetic licence, however, we make it abundantly clear why we are doing so. Moreover, we would contend that, in recent years, had the majority of market participants had a more practical and intuitive understanding of derivative products, ...