An Introduction to Derivatives and Risk Management

An Introduction to Derivatives and Risk Management, 5th ed., by Don M. Chance, 2001, Fort Worth, Texas: Harcourt College Publishers.

Don Chance's textbook provides readers with a thorough initiation into the world of derivative securities. The book discusses options, forwards, futures, swaps, and related derivative instruments, their markets, and some applications. The book's importance has grown with the popularity of derivative contracts in recent years. As recent derivatives debacles illustrate, it is important for anyone in business to be conversant with the terminology in this area. This book helps fill the void in this area by providing a solid introduction to derivative securities and their uses.

The title of the current edition of the text (now in its 5th edition) includes the added-on phrase "and Risk Management." But the traditional concept of risk management is only loosely integrated in the book. Indeed, while the title of the text has changed, the structure of the text is virtually the same as the 4th edition, suggesting that no significant progress has been made to more formally link the area of derivatives and traditional risk management. While risk management concepts may be automatically embedded in any presentation of the subject (e.g., derivatives can be used as hedging instruments, or protective puts are essentially insurance on the value of a portfolio), this book is more directly an exposition on derivatives. The presentation of the book is fairly straightforward. Case studies, vignettes, and other supplemental stories (such as "Derivatives in Practice") are kept to a minimum. After an introductory chapter that provides a foundation for some of the tools employed throughout the book (including arbitrage and short selling), the text is organized into three separate sections. The first part contains six chapters on options. It is interesting that Chance (and many other authors) begins the...