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Options, Futures, and Other Derivatives (5th Edition) 5th Edition

4.1 out of 5 stars 41 customer reviews
ISBN-13: 978-0130090560
ISBN-10: 0130090565
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Editorial Reviews

From the Back Cover

JOHN C. HULL'S Options, Futures, and Other Derivatives is unique in that it is both a best-selling college textbook and the "bible" in trading rooms throughout the world.

The Fifth Edition continues to offer the most current topics in the field with the addition of seven NEW chapters:

  • CHAPTER 4—"Hedging Strategies Using Futures," a new chapter on the use of futures for hedging.
  • CHAPTER 20—"More on Models and Numerical Procedures."
  • CHAPTER 25—"Swaps Revisited," gives the reader insight into the range of nonstandard swap products.
  • CHAPTER 27—"Credit Derivatives," explains how these products work and how they should be valued.
  • CHAPTER 28—"Real Options," provides realistic examples showing how the real options approach can be used in capital investment appraisal.
  • CHAPTER 29—"Insurance, heather, and Energy Derivatives," explains non-traditional derivatives and their role in risk management.
  • CHAPTER 30—"Derivatives, Mishaps, and What We Can Learn From Them."

A new version of DerivaGem Software (Version 1.50) comes with every copy of the text. It includes a new Applications Builder module. Updates to the software can be downloaded from www.prenhall.com/hull.

Excerpt. © Reprinted by permission. All rights reserved.

It is sometimes hard for me to believe that the first edition of this book was only 330 pages and 13 chapters long! There have been many developments in derivatives markets over the last 15 years and the book has grown to keep up with them. The fifth edition has seven new chapters that cover new derivatives instruments and recent research advances.

Like earlier editions, the book serves several markets. It is appropriate for graduate courses in business, economics, and financial engineering. It can be used on advanced undergraduate courses when students have good quantitative skills. Also, many practitioners who want to acquire a working knowledge of how derivatives can be analyzed find the book useful.

One of the key decisions that must be made by an author who is writing in the area of derivatives concerns the use of mathematics. If the level of mathematical sophistication is too high, the material is likely to be inaccessible to many students and practitioners. If it is too low, some important issues will inevitably be treated in a rather superficial way. I have tried to be particularly careful about the way I use both mathematics and notation in the book. Nonessential mathematical material has been either eliminated or included in end-of-chapter appendices. Concepts that are likely to be new to many readers have been explained carefully, and many numerical examples have been included.

The book covers both derivatives markets and risk management. It assumes that the reader has taken an introductory course in finance and an introductory course in probability and statistics. No prior knowledge of options, futures contracts, swaps, and so on is assumed. It is not therefore necessary for students to take an elective course in investments prior to taking a course based on this book. There are many different ways the book can be used in the classroom. Instructors teaching a first course in derivatives may wish to spend most time on the first half of the book. Instructors teaching a more advanced course will find that many different combinations of the chapters in the second half of the book can be used. I find that the material in Chapters 29 and 30 works well at the end of either an introductory or an advanced course. What's New?

Material has been updated and improved throughout the book. The changes in this edition include:
* A new chapter on the use of futures for hedging (Chapter 4). Part of this material was previously in Chapters 2 and 3. The change results in the first three chapters being less intense and allows hedging to be covered in more depth.
* A new chapter on models and numerical procedures (Chapter 20). Much of this material is new, but some has been transferred from the chapter on exotic options in the fourth edition.
* A new chapter on swaps (Chapter 25). This gives the reader an appreciation of the range of nonstandard swap products that are traded in the over-the-counter market and discusses how they can be valued.
* There is an extra chapter on credit risk. Chapter 26 discusses the measurement of credit risk and credit value at risk while Chapter 27 covers credit derivatives.
* There is a new chapter on real options (Chapter 28). There is a new chapter on insurance, weather, and energy derivatives (Chapter 29).
* There is a new chapter on derivatives mishaps and what we can learn from them (Chapter 30).
* The chapter on martingales and measures has been improved so that the material flows better (Chapter 21).
* The chapter on value at risk has been rewritten so that it provides a better balance between the historical simulation approach and the model-building approach (Chapter 16).
* The chapter on volatility smiles has been improved and appears earlier in the book. (Chapter 15).
* The coverage of the LIBOR market model has been expanded (Chapter 24).
* One or two changes have been made to the notation. The most significant is that the strike price is now denoted by K rather than X.
* Many new end-of-chapter problems have been added. Software

A new version of DerivaGem (Version 1.50) is released with this book. This consists of two Excel applications: the Options Calculator and the Applications Builder. The Options Calculator consists of the software in the previous release (with minor improvements). The Applications Builder consists of a number of Excel functions from which users can build their own applications. It includes a number of sample applications and enables students to explore the properties of options and numerical procedures more easily. It also allows more interesting assignments to be designed.

The software is described more fully at the end of the book. Updates to the software can be downloaded from my website: rotman.utoronto.ca/~hull Slides

Several hundred PowerPoint slides can be downloaded from my website. Instructors who adopt the text are welcome to adapt the slides to meet their own needs. Answers to Questions

As in the fourth edition, end-of-chapter problems are divided into two groups: "Questions and Problems" and "Assignment Questions". Solutions to the Questions and Problems are in Options, Futures, and Other Derivatives: Solutions Manual, which is published by Prentice Hall and can be purchased by students. Solutions to Assignment Questions are available only in the Instructors Manual.

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Product Details

  • Series: Prentice Hall Finance Series
  • Hardcover: 744 pages
  • Publisher: Prentice Hall; 5 edition (July 3, 2002)
  • Language: English
  • ISBN-10: 0130090565
  • ISBN-13: 978-0130090560
  • Product Dimensions: 8 x 1.3 x 10 inches
  • Shipping Weight: 3 pounds
  • Average Customer Review: 4.1 out of 5 stars  See all reviews (41 customer reviews)
  • Amazon Best Sellers Rank: #388,648 in Books (See Top 100 in Books)

Customer Reviews

Top Customer Reviews

By Paul Thurston on May 6, 2005
Format: Hardcover Verified Purchase
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.
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Great textbook and has always been such. This is a second year I teach an advanced quantitative risk management course (grad and undergrad combined) based on this text (statistics department at Rice). I compare it to the textbooks of Neftci, Stefanica, Steele, among some others. What I like most is that the author skillfully manages to avoid the high level details (and complex notation), while making the content interpretable for most reasonably prepared students. One concern is that the popularity of this book drives it and its solutions to the internet rather quickly. I overcome this drawback by making students develop all solutions in R or equivalent language with a non-steep learning curve.
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This is a fabulous book for learning derivatives--at least at the MBA level. It gives great examples and the explanations, for the most part, are clear. Before buying this book, I purchased "Fundamentals of Futures and Options Markets"--also by Hull. That book was a waste of money. I'm a fan, though, of this book.
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Among the better finance textbooks I've seen. The material is very dry and super dense, but I was able to learn from it. My problem with the book is how "cheap" it feels for the price. The paper is super thin, it's entirely B&W, and there's very little supplemental online material. The publishers obviously either want to produce a product that won't stand up to heavy resale, or want to reduce manufacturing costs to near zero because of the digital piracy problems. Maybe both. Anyway, for the price, I would really like to have seen a book that made use of color graphs.
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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.
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By A Customer on September 21, 2002
Format: Hardcover
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.
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I bought this ' textbook ' given that it is being used at the nearby University of Arizona. However,
I find that this book seems to be nothing but one conceptual leap to another as if the author
is just another applied mathematician trying to cash in before Quant Mania ends.
Did he simply copy and paste the formulas from Nefci or some other practicianer?
Perhaps he simply is addressing other academics as most college instructors seem to provide in
their required texts. He seems to have a lock on the market for quantitative finance education, however.
Oh well, I finished this book. Does anyone out there have any " Real World " suggested readings for understanding
Options, Futures, and other Derivatives?
I notice that he has written as many as 9 editions of this tome. But I must ask dear reader,
Can you tell me where a " Risk-Neutral World " or a " Risk-Neutral Valuation " applies
and if so is such a marketplace domiciled in our Solar system, taking due respect
to Brownian Motion of course.
Another academic trying to use heuristic hindsight as a guide for " Real- World " Financial Markets.
I guess the study of as much thins out the ' certified ' applicants to Goldman Sachs and Morgan Stanley.
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