Derivatives Markets

by Robert L. McDonald

Derivatives Markets presents a comprehensive and in-depth treatment of futures, options, and other derivatives in a mathematically accessible and intuitive manner. It is both a clear introduction for the novice and a life-long reference for the practitioner.

Genres: Finance, Economics, Textbooks, Business

912 pages, Hardcover

First published September 6, 2002

Reviews

[Matt · Rating 4 out of 5]

I'll admit from the get-go that this review is only for the first three parts of Robert L. McDonald's Derivative Markets (Chapters 1-14, about half of the book), which is all my Mathematics of Finance class managed to cover. That being said, I will definitely be looking forward to getting around to reading the remaining chapters and giving this the full review it deserves.

Of the chapters my class covered, McDonald's treatment of financial concepts and financial derivatives are still just descriptive at the beginning. For these early chapters the only math required is algebra with perhaps some acquaintancy with basic concepts from probability theory (e.g. expected value, some common distributions), and some prior background with discounted cash flows and arbitrage analysis. These choices by the author make the book incredibly accessible to a wide audience, helping students get a firm grasp of the conceptual machinery before delving into more technical considerations.

Beginning with Part Three, the book begins to change gears from the purely descriptive to the increasingly quantitative, including the put-call parity, risk-neutral probability, the binomial pricing model and the concept of a replicating portfolio, state prices with Arrow securities, Black-Scholes, the "Greeks", and the basics of delta hedging. While my class wasn't able to get much past this, a quick perusal through the subsequent chapters indicate an increasingly mathematical treatment of the subject matter, including an introduction to elements of stochastic calculus like geometric Brownian motion, martingales, and Itô's lemma.

While a particularly expensive book (why I'm giving it only 4/5), I definitely see it as a worthwhile investment for any undergraduate finance, actuarial science, or economics major looking for a handy go-to guide on financial derivatives.

[Thomas]

I read most of the chapters, as it is a required reading for FM and MFE exam. I would say the first few chapters are okay, but the other chapters are terrible, especially the chapters dealing with the mathematics of Back-Scholes Formula. After reading those chapters, I had almost no clue how to manipulate with those differentials, until I read the study guide. I also thought the sections on early exercise had terrible explanations. The author seems to have the tendency of trying to prove some of his claims, but his proof is not even a proof. It makes the reading even more confusing.

[May Ling · Rating 5 out of 5]

Very good descriptions of the strategies. I found it to be concise and easy to understand. Particularly good if you have some experience with the product, but are still a beginner and want to learn it more formally.

[Alexis · Rating 3 out of 5]

I've learned about option pricing using binomial trees and stochastic differential equations. It's a real page turner.

[Bardhh · Rating 4 out of 5]

grrrr!

[Ẩn Trần]

Very good descriptions of the strategies. I found it to be concise and easy to understand.

[邓 云溪]

dsf