general

John Hull manages to give a useful overview of all of the major derivatives products. He gives methods of valuation that are easy to understand. The first step to understanding is to get the correct terminology and breadth. Critics might say he doesn't give the most technical valuation techniques. That's not the point of a work like this. This is a reference which promotes illumination and allows one to integrate knowledge in the entire field. Detailed pricing models for each of these products and sophisticated yield curve building methods require additional study and separate debate. No one said it wasn't work, but this gives the dedicated professional the best cognitive guide book in the field. The coverage of credit derivatives is light, however. In addition to this book, I also highly recommend Tavakoli's "Credit Derivatives & Synthetic Structures".

I have read most of the books on derivatives and mathematical finance. I have also read the most important papers on the subject, and no book covers the subject so extensively and so carefully. The difficult math is explained by Hull in a brilliantly intuitive way, without sacrificing the mathematical rigor. He explains succinctly and accurately the heart of the most advanced papers in the subject, in unpretentious terms, and always with the reader in mind (unlike most of the other academics' attempt at writing a book.) Having studied the subject in depth, from a practical and a theoretical point of view, I can say, without reservation, that (up to 1996) this book is all you need to learn about the subject. In fact, I dare say that if you read the book cover to cover you will be an expert in the subject. I read the second version, and some of the most recent topics (like Value at Risk) are not treated in it, but it is my understanding that the third edition includes all of these newer developments. If they are explained as all the other subjects in the 2nd edition, then they should be the best explanations around. Excellent book for novices in the subject, excellent reference book for experts, great mathematical education for finance people, and great financial exposition for mathematicians. (From a mathematical point of view, the only details missing are the mathematical foundations of risk-neutral valuation, i.e. Girsanov's theorem) This book should be read (and more importantly CAN be read) by any financial officer, county treasurer (is Orange County listening?), trader, regulator investor and banker. I also recomend this book to unemployed mathematicians, physicists, and engineers. The starting salary for these quantitative disciplines goes up by $30,000 a year after reading that book.

This is a great manual for market practitioners. It does not use detailed math, does not go into issues of corporate finance. But it is very easy to follow and it is "complete". More than that, the book is to the point and very clear. Market professionals will find the examples spread around the book very useful for their daily work. The surprising new book by Nefci which I just got, but did not have time to study in detail, seem to provide all the missing links.

I had used an earlier edition of Hull, and it appears that John Hull adds all the relevant material needed for market finance with each new edition. In fact I have purchased several books on Mathematical Finance and Derivatives but few of them remain on my desk for future consultation.