Managing Financial Risk

For those of you who may not be aware, Charles Smithson is the "father" of the building-block approach to making derivatives understandable, showing a linked, family-tree approach, rather than each explaining each one separately with no clear connections. He is both a top practitioner with many years of senior-level experience, as well as an academic for more theoretical work. I am amazed at some of the negative reviews. I can only think that is because there aren't enough partial differential equations and complex pricing/hedging models (there really aren't any, but that doesn't make this a simplistic book). I also teach finance at the Masters level, as well as teaching practical applications of derivatives to various bank clients. In my oppinion, this is the single best book on derivatives for non-specialists that I have seen (and I have seen most of the derivatives books around). Even people on the trading floor would benefit from the clear forest-for-the-trees approach. This is not an easy book, though it doesn't require any more than school algebra (with the exeption of one chapter on option pricing, contributed by Cliff Smith and, even there, the calculus could be skipped over lightly). This book will give the reader a very good understanding of the most important aspects of derivatives and their applications. This is something that is often woefully lacking in banks, where the focus is on the minutiae of quantitative models, treated almost as an exercise in math, without a very clear understanding of the finance that the math is there to model. The treatment is broad and balanced, from pure product knowledge to issuer applications to investor applications and to banks managing their own market risk. This breadth is very rare in derivatives books. My only criticisms are that there are some mistakes (as in most technical books that are not textbooks, benefiting from the review of many students, if you look hard enough for them) and there is insufficient emphasis now on credit derivatives and the management of credit risk, though I feel sure Charles Smithson will address that in the next edition - he has written a separate book "Credit Portfolio Management." Perhaps someone should take up the offer of a free copy from a previous reviewer - a real "free lunch." I highly recommend this book to relative beginners, as well as to experienced practitioners who want more breadth.

I bought this book to give myself a thorough education on derivatives. And, I got it. It is very readable, yet it covers all the topics in adequate technical detail, so you can hold your own in the company of derivatives traders and the like. I often refer to this book, to refresh my memory on the different structure of option models, or how to value an interest rate swap. This is the sort of stuff you will not remember unless you use these concepts on a weekly basis. But, with this book, it does not matter, it is easy to refresh your knowledge.

We used this book in an MBA Financial Risk course. I think it' a fantastic book for everyone who want to get a big picutre of derivatives applied to financial risk management. It's a great basic book in order to proceed futher studies in topics like Value at Risk. Smithson amd Smith done a great job in covering many subjects in one book. You learn about the basics of derivatives, numerical methods, engineering products, and handling risk for financial and non financial companies.

A good find in a world full of books based on the same subject. Worth spending your time on. Read it and enjoy it.