• NEW - A new chapter (Ch. 14) on value at risk.
  • Provides students with an excellent understanding of value at risk which has become a critically important risk measure.
• NEW - A new chapter (Ch. 15) on estimating volatilities and correlations.
  • Provides students with ways to estimate key data for value at risk calculations.
• NEW - GARCH models covered in much more detailed than in the previous edition.
  • Provides students with a full understanding of what GARCH models are and how the parameters are estimated.
• NEW - Two chapters on no-arbitrage models of the term structure (Chs. 21 and 22).
  • Provides new material on recent developments in this key area.
• NEW - Explains the role played by martingales and measures in the valuation of derivatives (Ch. 19).
  • Provides a full explanation of the equivalent martingale measure argument without excessive math.
• NEW - Revised Ch. 20 on the use of the standard market models for valuing interest rate derivatives - Uses the material in Ch. 19 to provide a more complete coverage of the standard market models for valuing bond options, caps, and swap options. The explanation of convexity adjustments, timing, and quanto also incorporates the Ch. 19 material.
  • Provides students with a full understanding of the methods used in practice for valuing most interest rate derivatives.
• NEW - Coverage of two-factor Markou models and the BMG model.
  • Provides students with an appreciation of recent advances in developing multi-factor term structure models.
• NEW - Saleable Solutions Manual.
• NEW - Ch. 23 on Credit Risk has been rewritten to reflect developments in this important area.
  • Provides students with knowledge on all aspects of credit risk including credit derivatives, which have become increasingly popular in recent years.
• NEW - Ch. 4 on Interest Rates and Duration has been revamped.
  • Clearer presentation of material, which some students found difficult to understand in the previous edition.
• NEW - More material on volatility smiles and related topics (Ch. 17).
  • Students learn more about how traders use option pricing models in practice.
• NEW - Improved and simplified notation - Cumbersome T-t no longer appears in most parts of book.
  • Students understand material better if notation is kept as simple as possible.
• NEW - New Excel-based DerivaGem software - Dramatically improved, this software lets users calculate options prices; imply volatilities; calculate Greek letters for European options, American options, exotic options, and interest rate derivatives; value interest rate derivatives using either Black's model or a no-arbitrage model; display binomial trees and various charts.
  • Puts an array of capabilities right at students' fingertips, letting them perform calculations and display results without getting bogged down in number crunching.
• Mathematics only where necessary - Takes great care in the use of mathematics, either omitting nonessential material or relegating it to end-of-chapter appendices.
  • Lets students flow through the essentials without the interruption of new mathematical principles and calculations.
• Gentle, thorough introductions - Explains new concepts carefully and completely, integrating a wealth of numerical examples.
  • Provides students with easy access to foreign material, ensuring a solid understanding before moving on.
• One- and two-step binomial trees - Provides an effective introduction to no-arbitrage arguments, risk-neutral valuation, and numerical procedures.
  • Guides students through difficult subject matter using a visual, model-based approach for easy understanding.
• A glossary of terms has been included.
  • Assists students to find and retain definitions of new terms.

This book is appropriate for graduate and advanced undergraduate elective courses in business, economics, and financial engineering. It is also suitable for practitioners who want to acquire a working knowledge of how derivatives can be analyzed. 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. In this book, great care has been taken in the use of mathematics. 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. This book provides a unifying approach to the valuation of all derivatives - not just futures and options. The book 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.

1. Introduction.
2. Futures Markets and the Use of Futures for Hedging.
3. Forward and Futures Prices.
4. Interest Rates and Duration.
5. Swaps.
6. Options Markets.
7. Properties of Stock Option Prices.
8. Trading Strategies Involving Options.
9. Introduction to Binomial Trees.
10. Model of the Behavior of Stock Prices.
11. The Black-Scholes Model.
12. Options on Stock Indices, Currencies, and Futures.
13. The Greek Letters.
14. Value at Risk.
15. Estimating Volatilities and Correlations.
16. Numerical Procedures.
17. Volatility Smiles and Alternatives to Black-Scholes.
18. Exotic Options.
19. Extensions of the Theoretical Framework for Pricing Derivatives: Martingales and Measures.
20. Interest Rate Derivatives: The Standard Market Models.
21. Interest Rate Derivatives: Models of the Short Rate.
22. Interest Rate Derivatives: More Advanced Models.
23. Credit Risk.

• Instructor's Manual with Test Bank (0-13-015297-8); (1529G-5)
  • Prepared by the author, includes teaching notes, solutions to assignment questions, and an all new test bank with 10 multiple choice questions per chapter. Also contains about 80 assignments/problems/ questions. Solutions to these are only in the Instructor's Manual.
• Solutions Manual (0-13-014819-9); (1481J-4)
  • Solutions to problems in the text. Available for sale to students.
• PowerPoint Transparencies (0-13-015299-4); (1529J-8)
  • About 30 visuals per chapter, class tested by author. Download off author web site.
• DerivaGem Software (0-13-015290-0); (1529K-6)
  • Developed by the author. Included in each copy.
• Companion Website www.mgmt.utoronto.ca/~hull

• FinCoach, Version A: The Financial Management Math Practice Program (0-13-552076-2); (55207-5)
• Surfing for Success in Finance 1998-1999 (0-13-081527-6); (8152G-4)