By Robert A. Jarrow
The first actual introductory textual content in derivatives.
Written by means of Robert Jarrow, one of many real titans of finance, and his former scholar Arkadev Chatterjea, Introduction to Derivatives is the 1st textual content built from the floor up for college kids taking the introductory derivatives path. the mathematics is gifted on the correct point and is often encouraged by way of what’s taking place within the monetary markets. And, as one of many builders of the Heath-Jarrow-Morton version, Robert Jarrow provides a singular, available strategy to comprehend this significant subject.
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Extra resources for An Introduction to Derivative Securities, Financial Markets, and Risk Management
Credit derivatives are cursed as one of the causes of the Great Recession of 2007–9, a period of decreased economic output and high unemployment. But what are derivatives? A derivative security or a derivative is a financial contract that derives its value from an underlying asset’s price, such as a stock or a commodity, or even from an underlying financial index like an interest rate. A derivative can both reduce risk, by providing insurance (which, in financial parlance, is referred to as hedging), and magnify risk, by speculating on future events.
Eurodollar markets, being free from Fed regulations and the peculiarities of the Treasury security auction cycle, have fewer market imperfections and lower liquidity costs. Writing financial contracts on values or cash flows determined by future realizations of real asset prices, financial asset prices, or notional variables creates a derivative security. Early derivatives were created solely from financial and real assets. For example, in the 1960s, agricultural commodity–based futures were the most actively traded derivative contracts in the United States.
Financial markets grow and real economic activity prospers because derivatives make financial markets more efficient. This is a theme to which we return repeatedly throughout the book. Expanding Derivatives Markets Many factors have fueled the growth of derivatives markets. These include regulatory reforms, an increase in international commerce, population growth, political changes, the integration of the world’s economy, and revolutionary strides in information technology (IT). The interrelated financial markets are now more susceptible to global shocks and financial crises.