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By Fred D. Arditti, Harvard Business School Press

$45, 416pp, ISBN: 0-87584-560-6

Reviewed by Viva Hammer, Esq, Price Waterhouse LLP

Derivatives: A Comprehensive Resource for Options, Futures, Interest Rate Swaps, and Mortgage Securities is an excellent introduction to the "D" subject which many people dread. As well as dealing with the conventional subjects of options, futures, and swaps, Fred D. Arditti also gives a thorough explanation of the world of mortgage-backed securities, which is unusual for such a text.

Although Arditti is probably one of the oldest comers to this area, having been chief economist at the Chicago Mercantile Exchange, senior executive in the investment and brokerage business, and now professor of finance at DePaul University, he writes with sufficient clarity that any intelligent layperson can understand the concepts he outlines. His introduction to options, for example, is filled with definitions and terminology commonly used in the field, which can be overwhelming, but if followed carefully, and not skimmed, is an excellent foundation on its own for beginning literacy in this area.

Derivatives has many excellent illustrative and numerical examples, clarifying diagrams, statistical tables, and flowcharts to help explain the theory behind the concepts. The binomial tree diagrams are outstanding. At the same time, for those who are mathematically challenged, there is sufficient separation of the numerical and formulaic sections of the book from the discursive sections, that a reader can glean almost all he or she needs without any mathematical skills at all.

What is most lacking in the book are exercises and problems with solutions. Even if the author did not intend the book to be used as a finance text, a book of finance without examples makes the book rather abstract and bland.

A second thing that is missing from the book is a section on computer applications. Today no person involved with finance can do so without understanding the way the models are interpreted in the technological world. The author could have provided an appendix explaining what computers are used for in this area, the program packages that are available, and what the author prefers to use for which purposes. This book could become the outstanding introduction to the field with the addition of these two topics. *

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