3 Review(s)

This book is based on a series of seminars delivered over a period of many years to peopleworking in the global financial markets. The material has expanded and evolved over thattime. Participation on the seminars has covered the widest possible spectrum in terms ofage, background and seniority, ranging all the way from new graduate entrants to the financialservices industry up to very senior managing directors. What all these many and variedindividuals had in common was a strong desire to understand how derivative products areused in practice, without becoming too involved in the more complex mathematics of thesubject.The seminars (and this book) originated from the conviction that bankers, fund managers andother professionals in the modern financial markets must have a grasp of derivative products.In fact the target audience broadened out over the years to include technology specialists, operationsexperts, finance professionals working in the corporate environment and their businessadvisers. It is estimated that over 90% of theworld's largest 500 companies nowuse derivativesto help to manage their exposures to the risks arising from factors such as currency fluctuations, interest rate changes and unstable commodity prices.Derivatives are everywhere in the modern world, but sometimes are not easily detectedexcept by those in the know. If you have the option to extend a loan or redeem a mortgageearly, then you have a derivative product. If a company has the opportunity to increase itsproduction facilities or exploit some new technology, then it has what is known in the worldof derivatives as a real option. This has a value, and given certain assumptions its value can bemeasured.It is my view that with a little application anyone can achieve a working knowledge of thekey derivative products. It is not widely appreciated that many people in the financial marketswho handle derivatives regularly are not specialists in higher mathematics. Nor is it importantfor them to be so, but they do need to understand how the products can be used in practice tocreate risk management, investment and trading solutions that are appropriate for particularorganizations in certain market circumstances. The real strength of derivatives is that theyoffer a new set of tools with which to solve real-world problems. They are not a substitute forthought or creativity; quite the reverse. Human beings have to analyse the problems and learnhow to use the appropriate tools to design the best possible solutions. Anumber of excellent textbooks are available that take a quantitative approach to this subjectand explain in detail the pricing models used to value derivative products. At the end of this book there is a list of further reading for those who wish to delve more deeply into this subject.