on 24 January 2015
My first edition of this book I read was the second edition. It was the best of a few books on the theme. It has changed a lot, but the principle constitution of the book is in every edition the same. It begins with forwards and futures, option and hedging. He turns to the preliminaries, like yield curve, duration, interest rate future, swaps and the boundaries of options. On this basis, he develops the binomial tree and Black Scholes valuation.
All modern forms of derivatives can be valued with the classical instruments, like credit contracts, knock out derivatives and other exotic options. It is easily explained and the reader can follow it. All stochastic models are explained for the advanced one. It is a great book for beginners and for the advanced reader it is a reference book.