Breaking News

Book Review: Derivatives Essentials

By Brenda JubinMarket OverviewAug 07, 2016 05:15AM ET,-derivatives-essentials-200146522
Book Review: Derivatives Essentials
By Brenda Jubin   |  Aug 07, 2016 05:15AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

Derivatives Essentials: An Introduction to Forwards, Futures, Options, and Swaps (Wiley, 2016) by Aron Gottesman is an excellent textbook/self-study guide. It describes the basic concepts of derivatives in refreshingly clear prose. And it’s perfect for those who want to understand some of the math behind derivatives but have a limited, though more than rudimentary math background. After all, there’s no way you can explain Black-Scholes to someone with only high school algebra.

Gottesman is a professor of finance at the Lubin School of Business at Pace University in Manhattan. I don’t know how sophisticated or focused his MBA students are, but he expects from his readers only a willingness to learn how derivatives function and an ability to work through formulas that he explains step by step. After every couple of pages or so he inserts a knowledge check, easy to answer if you’ve been paying attention, a wake-up call if you haven’t.

The book is divided into five parts: introduction to forwards, futures, and options; pricing and valuation (including the Black-Scholes and binomial option pricing models); the Greeks; trading strategies; and swaps.

Gottesman often takes a different approach to derivatives from most textbook writers. For instance, he explains theta by saying at the outset that “there are two ways that a decrease in the time to expiration can impact the value of a position:

The present value effect: As time to expiration decreases, the present value of the forward price/strike increases.

The optionality value effect: As time to expiration decreases, optionality value erodes.”

Traders who want instant gratification in the form of specific setup recommendations will find Gottesman's book disappointing. But anyone who wants to understand what options are all about, especially in the context of other derivatives, and how the pieces fit together mathematically should read this book. It’s also a book that deserves a permanent place on a derivative trader's reference shelf.

Book Review: Derivatives Essentials
Book Review: Derivatives Essentials

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email