Customer Reviews

Options, Futures, and Other Derivatives

5 star:		(11)
4 star:		(7)
3 star:		(2)
2 star:		(1)
1 star:		(2)

 

 

The author has written a nice, lively elementary text on mathematical finance. This book can serve as a excellent launching point into the topic. For the next step in the reader's development, I recommend the very good intermediate level treatment by Bjork in Arbitrage Theory in Continuous Time. As a capstone for advanced study, I recommend the advanced treatment of Musiela and Rutkowski's Martingale Methods in Financial Modelling.

Hull starts out with several chapters on the basics of the derivative contracts in his study. The contracts introduced are forward and futures contracts, interest rate swaps, and equity options. The basic definitions of each contingency contract is given, as well as characteristics of the markets where these contracts trade. Some basic trading strategies are also studied.

The study of the option pricing model problem begins in earnest in Chapter 10. The section on one-step binomial tree model leads to a very intuitive description of risk-neutral valuation.

Chapter 11 introduces continuous time stochastic processes in a very intuitive setting. To avoid the hard-core Ito calculus, the author motivates the stochastic differential by considering difference equations. This is a nice technique and makes the material accessible to the beginner. The next highlight is a statement of Ito's lemma. This is not given in full generality, but only stated precisely as needed for Black-Scholes calculations. The appendix gives an intuitive motivation for Ito's lemma based on the multi-dimensional Taylor's formula.
This is a nice illustration as Taylor's formula is indeed a component of the formal semi-martingale based proof of Ito's rule. See for example Oksendal Stochastic Differential Equations: An Introduction with Applications Chapter 4, Karatzas & Shreve Brownian Motion and Stochastic Calculus Chapter 3, or Rogers and Williams Diffusions, Markov Processes and Martingales: Volume 2, Itô Calculus.

Chapter 12 is devoted to the Black-Scholes-Merton theory of option pricing. The famous Black-Scholes PDE is derived via Ito's rule and application of a delta hedge. The author doesn't directly solve this PDE (via the standard application of the Feyman-Kac formula). Instead a nice proof of the option pricing formula is established in the appendix based on a simple log-normal distribution argument.

Chapter 13 discusses option pricing in for other contingency contracts. In Chapter 14, we return to equity options by studying the Greek letters. The reader discovers the Greek letters can be thought of as coefficients of the Black-Scholes PDE and learns some elementary hedging techniques.

Chapter 15 discusses implied volatility and volatility smiles. It is here that the astute reader gets his first indication that the Black-Scholes theory for option pricing may not be as robust or "true to market" as the reader may have been lead to believe. (The folks at Long-Term Capital Management learned this hard lesson rather publicly.)

A survey of topics of interest follows in the next handful of chapters. The material on value at risk, the GARCH volatility model and exotic options is somewhat superficial. The careless reader will come away feeling he knows quite a bit more than he really does.

Martingale theory is touched on in 21 and the Girsanov Theorem is alluded to, but these topics are really too complex and require too many prerequisites for proper treatment in the context. A general multi-variate version of Ito's Rule is stated in the appendix of this chapter.

The next section of the book deals with term-structure models and their applications. One-factor models are discussed along with the various limitations of each of these models. This gives a nice historical treatment. The Heath-Jarrow-Morton and Libor Market Model k-factor term-structure frameworks are introduced. Without the supporting martingale theory, the analysis of these models presented here is very limited.

The last several chapters of the text are very survey-like and breezily touch on topics such as credit risk, credit derivatives and energy derivatives. There isn't a lot of theory in these chapters at all, but at least the reader is made aware of the existence of these kinds of contingencies.

The book wraps up with a cautionary chapter in the form of lessons learned. The unwary reader might see all of the derivative-related train wrecks and say to himself "well, that won't be me". The problem is that it really might be you if you truly (and foolishly) still believe the equity prices always follow geometric Brownian motion. See Lo & MacKinlay A Non-Random Walk Down Wall Street for an excellent exposition into the limitations of the basic assumptions underpinning the Black-Scholes-Merton theory.

If nothing else, Hull's last chapter should convince you that maybe this isn't the only book you'll ever want to read in your study of mathematical finance.

This book is a solid introduction to pricing derivatives and explains in lucid detail all the techniques you need to get up and running with numerical valuation. It is aimed, I would say, at advanced MBA students and practitioners on the job already. That is to say, Hull doesn't spend too much time on theory (for instance, his explanation of HJM summarizes several of their papers and a number of preludes into a few paragraphs).

I would also say that the more theory-oriented reader would benefit from reading Hull. It provides a fresh picture, distinct from the essential theoretical foundations of Merton, Duffie, Campbell, and Cochrane. Thus, to learn CAPM, state prices, or portfolio choice, look elsewhere; to learn how to price derivatives in practice, this is your best bet.

This is a great manual for market practitioners. It does not use detailed math, does not go into issues of corporate finance. But it is very easy to follow and it is "complete". More than that, the book is to the point and very clear. Market professionals will find the examples spread around the book very useful for their daily work. The surprising new book by Nefci which I just got, but did not have time to study in detail, seem to provide all the missing links.

I had used an earlier edition of Hull, and it appears that John Hull adds all the relevant material needed for market finance with each new edition. In fact I have purchased several books on Mathematical Finance and Derivatives but few of them remain on my desk for future consultation.

Hull is the standard introductory text on derivatives pricing. However, its popularity is more due to its age and inertia rather than merit. The style is turgid and the mathematics is woolly.
It makes an interesting topic boring by solemnly saying a little about everything rather than moving to underlying concepts.

If you want to understand derivatives pricing try Joshi, Baxter and Rennie, or Wilmott's Derivatives, and leave this book on the shelf.

Despite a wide coverage of topics, the book is way over priced. It is written at purely academic level and of limited use to practioners, quants, and traders who want to use and develop derivatives models. The books focuses on theory and the material is too simplistic. Important details on how to use or implement the models in practice is completely lacking. For instance, the book does not discuss the details for how to actually calibrate the parameters of the models to actual market data.

If you want to learn the material in detail and how derivatives securities are actually modeled and implemented in practice using real-world data, I would strongly recommend a book like Modeling Derivatives in C++ or Principles of Financial Engineering.

Although John Hull's book "Options, futures, and other derivatives" is considered by many to be the bible for understanding derivatives , I think this book took the same shortcut that many books on this topic have taken. That is, they've focused on options where the underlying asset are stocks, exclusively. I suppose Hull's reason was to simplify an already complex topic. Yet, as a recent graduate with a degree in economics, I was hoping to find more information on options with commodities future contracts as the underlying asset. The book is fairly easy to follow. the dialogue is interesting without being boring. However, if your interested in a beginning book about derivatives, look somewhere else. If your interested in a book about derivatives that offers strategies, some useful math, and bases most of the discussion around stocks, this book might just be for you.

I am a huge fan of this book. The fourth edition was the single most influential text in my study for my MBA. It opened new kinds of thinking for me and helped me understand the intuitions and they methods for valuing the various kinds of derivatives. While the language is not simple, it is not arcane. Some complain that the mathematics are not rigorous. So what? There are such books on the market and are suitable for those that want them. This is the standard book for thousands of MBAs who need a solid foundation, but do not need to be able to higher math to understand how a binomial tree works or to even create one my hand. Certainly, it is helpful to understand the math as deeply as you can. However, the reality is that most of the time practitioners use pre-made tools to run their Monte Carlo simulations rather than programming from scratch.

There are several new chapters on very helpful and interesting topics (using futures for hedging, numerical procedures, swaps, credit risk, real options, insurance, derivative crises, and more). Some of this is new and some adapted from previous editions. Other material has been rewritten and clarified.

DerivaGem 1.5 is included with the book, but a URL is provided to get the latest version from Prof. Hull's website.

This is a terrific book and I consider it one of the most valuable on my shelf of business texts. It is one I would never want to be without and one of the few I am willing to keep up with the new editions. While no book is perfect for every use in every situation, this is one of the great foundation texts.

The book has its merits- it is comprehensive, has all the right materials, and also the derivations of all the complicated formulae. However, the manner in which the material is presented can only be described as unimaginative. There is a constant stream of cross-references throughout the book, which will leave the reader feeling frustrated. The book goes forward in fits and starts and there is a distinct lack of cohesion in the treatise. Also, the book assumes that the reader is not mathematically sophisticated, but uses shortcuts and jumps computational steps regularly, which adds to the students' woes. The description of the different types of options are pleasant to read, and so also is the chapter on value at risk, but the rest of the book leaves the students confused. To read this book, the reader should be adept in using standard mathematical tools like arithmetic and algebra and also be somewhat proficient in probability. However, this book is great for practitioners. I have simulated all sorts of options scenarios, from simple Black-Scholes model, to the AMM approach, barrier options and multinomial models. For each of these models I found direct or indirect help from the Hull book. For beginners, I would recommend the book by Jarrow and Turnbull and advise them to keep this book as a reference for the future.

Prof. Hull writes a comprehesive and complete work on the subject matter. However, it is intended for and heavily emphasizes the mathematics rather than practical use. For instance, included is a very elegant presentation of the Black-Scholes formula's proof. How often do you need those kinds of things in real life? Probably slightly more than you need the complete explanation of "generalized autoregressive conditional hetroskedasticity" to better grasp volatility mean reversion.

As a Canadian professor, he conveys much broader attention and respect to non-US trading venues and instruments. His writing does tend to become classroom like and is not filled with many trading examples or wit.

In sum, I enjoyed his book and will likely use it as reference material in the future. However, its not a truly "applied" reading.

John Hull wrote the best work on options and other derivatives. This is the book which will explain to the reader the fascinating world of derivatives and is a great introductory stuff. By no means you should think that this book is just an introduction to the subject. While it starts with assuming that the reader does not have any background on the subject, it goes on deeper into all the instruments.

By now Hull is a classic and most of the teachers of derivatives know the book. But in case you are a student looking for a good book on derivatives you should buy this one. It starts with forwards, futures and goes deep into the futures markets, giving tables, newspaper quotes etc which really help in understanding the topic. then, we go on to options. various types of options, exotic options are all covered. the pricing of options is taken up next and the black-sholes equation explation of hull is excellent. in case you are not very comfortable with numbers and calculus,you can easily skip that stuff by just reading about the pricing model. binomian trees are also well covered. swaps and types of swaps are well covered.

One area that Hull might want to improve upon is the addition of new derivatives like Credit Derivatives, WEather Derivatives in the book. Maybe a bit more info on VaR modelling etc could be given. All in all, this is a great book on options and other derivative securities.