Best way to master Derivatives?

Hey guys, Derivatives has been my weakness since day one on these exams and, pass or fail, I want to get to a point where it is as intuitive for me as it is for some of you smart muthersuckers on this board. I understand some of the basics (or think I do) but come game time that understanding always seems to find a way to disappear. Any tips on a book, website, or any other resource that makes derivatives a little more than formulas and greek letters? I would love something that combine’s Liar’s Poker with Green Eggs and Ham and an advanced derivatives theory textbook…

Essays in Derivatives by Don Chance is a great one, I have read that one

Try to price options yourself and try to understand the logic behind it. Making a real life practical model to price options will make you far more knowledgeable than you ever need to be for CFA. Then do it for Swaps and FRA and you are golden. So buy Hull, get Matlab and price as if your life depends on it.

I’m starting to read John Hull’s book, although it’s been sitting there for quite a few years. Its thick volume scared me the first time, but after reading thousands of pages for L2, it looks much thinner now. Trying to trade some options will definitely help, if I gain/lose $ due to volatilty, time decay, and etc, the greeks will no longer be just symbols. But I do wish the gov will have a stricter regulation, so some derivatives will be banned, or at least no more new/creative derivatives products. Good for CFA candidates, too.:slight_smile: Derivatives is not part of real economy, it’s a zero-sum game. Like Minsky’s theory, hedge->speculation->ponzi unit. It seems that we’re still in speculation unit…

Derivatives aren’t just speculating. It are great tools for hedging and many companies use them for it. It actually makes some companies better than others. It also helps to create products to be tailored to specific needs (or views) of a specific clients. Without derivatives we would all be poorer so in essence, they aren’t zero sum. They just are with a narrow minded view. I can loose with a position of which someone else gains but we can actually both profit. I could have reduced my risk and that’s worth something. Actually, that’s worth a lot or we wouldn’t need risk managers.

Agreed that some companies are using derivatives for FX, cash flow and even fair value hedges. But more speculators are joining in (no supporting data, though) if trading derivatives can make profits. Overall, they are moving risks around, the risks are still there. Derivatives and structural products like CMO and CDO are created for hedging and meeting different clients’ needs, when the weakest link is broken, the next one will be exposed to the same or even larger risk. That’s the problem from Subprime, the world is linked together. Can’t criticize too much for derivatives - I’m reading Hull’s book.:> He gave a presentation Jun 23. Here is the info. ====== PRMIA invites you to join risk industry expert John C. Hull as he discusses new directions for risk management with PRMIA’s executive director, Steve Lindo. This 60 minute free webinar will take place on Tuesday, June 23 at 9:00 a.m. EST. Mr. Hull, Maple Financial Professor of Derivatives and Risk Management in the Joseph L. Rotman School of Management at the University of Toronto, will make a short presentation and then answer questions about the way in which risk management is changing as a result of the credit crisis. He will discuss challenges facing risk managers and explain how we can avoid some of the mistakes that were made in the period leading up to July 2007. The discussion will include: Key mistakes made in assessing the risk of the instruments that were created from mortgage portfolios The importance of liquidity risk and stress testing The future of VaR John is well known for his books. He has spent much of the last year working on the second edition of Risk Management and Financial Institutions, which will be out in June 2009. Webinar attendees will be given the opportunity to purchase this book at a 25% discount. This Webinar is an excellent opportunity for PRMIA members to draw upon Mr. Hull’s extensive industry knowledge in a convenient and cost-effective setting. Visit to register or learn more about this event. A recording will be available following the event for all who are unable to attend.

open an account and put some play money in it. you’ll see how fast the market teaches you. :slight_smile:

Start with paper money account, then real money after passing L3.