Essays in Derivatives:  Risk-Transfer Tools and Topics Made Easy, 2nd. edition

Don M. Chance

Like a Cecil B. DeMille movie or an FASB accounting rule, this one is ten years in the making.  Yes, the first edition came out in 1998 and I have now been coaxed and cajoled into updating this book.

Here's what we said about the first edition: 

"There is no shortage of highly technical books on derivatives.  Contrary to popular belief, however, there is a great deal that one can learn about derivatives without much math knowledge.  This must be true because the vast majority of people who work in derivatives are not mathematicians.  This book caters to beginners and those who would like to learn about derivatives without relying on math.  It is a collection of 70 short, non-technical essays on a variety of topics (see below) in derivatives.  The average length of an essay is 1,300 words. There is a minimum of mathematics and virtually no graphs. Everything is in plain and simple English."

Here's the dust jacket description of the second edition written by my editor, Bill Falloon:

Derivatives can be a painfully difficult subject to master, usually requiring a steep learning curve. As Don Chance points out, “many legal pads are used up, sometimes frustratingly, in working through some of the principles covered in technical derivatives books.” This book is different. In the updated Second Edition of Chance’s well-received Essays in Derivatives, the author once again keeps derivatives simple enough for the beginner, but offers enough in-depth information to satisfy the more experienced investor.
This book provides up-to-date and detailed coverage of various financial products related to derivatives in seven key areas: derivatives and their markets, the basic instruments, derivative pricing, derivative strategies, exotic instruments, and fixed income securities and derivatives. Chance begins with the basics, defining what a derivative is, outlining four common types—forward contracts, futures contracts, options, and swaps—and explaining the kinds of situations in which one type might be used and preferred over another. From there he gradually moves on to more complex topics—all presented in the same accessible, down-to-earth style and non technical language.
    Since the first edition of this book was published in 1998, the derivatives business has become vastly more sophisticated. Recognizing this, the author has eliminated material that has become outdated and, in addition to revising almost every chapter in the book, has added many completely new chapters, covering subjects that include why derivatives are used, forward and futures pricing, operational risk, volatility derivatives, weather derivatives, good and bad practices, and other new topics. In addition, the end of each chapter includes practice questions that allow you to test how much of the material has been retained. Answers are provided at the end of the book. 
    The material in Essays in Derivatives will appeal to individuals at all levels of expertise. Beginners will find these essays particularly useful in gaining a fundamental grasp of the subject, and experts will appreciate the simple manner in which such seemingly complicated subjects can be presented. Both will agree: a basic understanding of derivatives need not be hard . . . and can even be enjoyable."

 The new and improved Second Edition really tops the first.  As proof I submit the following facts:

The usual stats:
Copyright: New York, John Wiley (2008)  (Ok, apologies to all of you good folks in Hoboken, New Jersey, where the book is officially considered to be published.  I just thought calling it "New York" made it sound a little closer to Wall Street.  You still have Sinatra's birthplace.)
414 pages
ISBN: 978-0-470-08625-4
For all of you serious bibliophiles:
    Library of Congress #:  HG6024.A3C475
And you oldtimers:
    Dewey Decimal #:  332.64'57-dc22
Retail price: $55 list, but in the $30s if you shop around.  Here are the links for Amazon, Barnes and Noble, and the publisher's site.

While you're looking around here, check out my other book An Introduction to Derivatives and Risk Management, 7th edition.


Table of Contents

Sample Essays:
Essay 3:  Why Derivatives?
Essay 16:  American versus European Options?
Essay 31:  Risk-Neutral Pricing of Derivatives:  I
Essay 65:  Stock Options


And if you don't enjoy the book, it might at least save be cheaper than a prescription sleep aid.


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Last updated:  May 12, 2008