Derivative Securities

The book by Jarrow and Turnbull serves three important purposes- it gives a solid introduction to derivatives, does not complicate matters with complex mathematical derivations and provides a cohesive reading material. Any person who wishes to embark on the subject of derivatives, will benefit from reading this book. The subject has been treated at an elementary level, and so, people with modest mathematical skills would be able to master the book with minimal efforts. The negative aspect of the book is its incompleteness. There have been very little efforts to discuss the different types of options like straddles, butterfly options etc. Also, there is no Value at Risk in this book. From practicability considerations, the book would be rated low- it only serves as a foundation for other books. It is best to use it with some other book like Hull (which by itself is a nightmare). The problems at the end of the chapters are challenging and will stimulate the mature readers. From personal experience, this book has helped me a lot.

Readers with exposure to abstract mathematics will appreciate the care in which the authors develop each topic, from notations to derivations to examples. All results are obtained axiomatically. Readers who prefer careful derivations in which all results seem to follow intuitively will probably prefer John C. Hull.

My colleague at Kamakura Corporation Robert Jarrow and Stewart Turnbull of Canadian Imperial Bank of Commerce have written what I consider the single most valuable financial theory and practice text in my library. Bob, who was the IAFE Financial Engineer of the Year in 1997, and Stewart go into tremendous depth in topics as diverse as term structure models, credit risk, options theory, numerical methods, vulnerable derivatives pricing and many others. The book is theoretically precise, practically useful, and presented in a very intuitive manner. It is filled with original insights and is much more than a survey of the state of the art--it establishes the state of the art.