This
is a textbook for a second course in derivatives at the undergraduate or MBA
level or for a first course in a financial engineering program. It aims
at a middle ground between the introductory books on derivative securities and
those that provide advanced mathematical treatments. It is written for
mathematically capable students who have not necessarily had prior exposure to
probability theory, stochastic calculus, or computer programming. It provides
derivations of pricing and hedging formulas (using the probabilistic change of numeraire technique) for standard options, exchange
options, options on forwards and futures, quanto
options, exotic options, caps, floors and swaptions, as
well as VBA code implementing the formulas. It also contains an introduction to
Monte Carlo, binomial models, and finite-difference methods.

The option pricing
functions in the book (including worksheet examples and the VBA source code)
are available in this Excel
workbook. Here is the data for Problem 3.9, and here is an errata. Solutions and
slides are available for adopting instructors through Springer.

A
Course in Derivative Securities was selected by riskbook.com as one of the top
ten finance books of 2005. According to the review at
riskbook.com, "this book is an outstanding portal to the mathematics
of financial engineering as it is practiced today."

Here
are some recommendations from distinguished people in the field:

"Professor
Back has written a superb book on advanced derivatives. The book provides
wonderfully clear explanations without sacrificing mathematical accuracy. I
highly recommend this book for everyone who wants to understand more about this
fascinating and important area." Mark Broadie,
Columbia University, New York.

“Professor
Kerry Back's book fills a void in the derivative literature by providing an
excellent and much needed book for a second course in derivatives. The clear
presentation and the choice of VBA as the software tool makes this a perfect
textbook for such a course. Using VBA via Excel is an excellent choice as it
exhibits an 'open source' environment that is available for users." Eliezer Z. Prisman, York
University, Toronto.