Risk Transfer: Derivatives in Theory and Practice - Hardcover

Culp, Christopher L.

Hardcover

ISBN 10: 0471464988 ISBN 13: 9780471464983

Publisher: Wiley, 2004

Synopsis

Based on an enormously popular "derivative instruments and applications" course taught by risk expert Christopher Culp at the University of Chicago, Risk Transfer will prepare both current practitioners and students alike for many of the issues and problems they will face in derivative markets. Filled with in-depth insight and practical advice, this book is an essential resource for those who want a comprehensive education and working knowledge of this major field in finance, as well as professionals studying to pass the GARP FRM exam.

Christopher L. Culp, PhD (Chicago, IL), is a Principal at CP Risk Management LLC and is also Adjunct Professor of Finance at the University of Chicago. He is the author of Corporate Aftershock (0-471-43002-1) and The ART of Risk Management (0-471-12495-8).

About this title

From the Inside Flap

"Derivatives are an essential weapon in the corporate arsenal for managing risk, controlling cost, and increasing shareholder value. They are not weapons of mass destruction, but rather smart bombs that can be very precisely targeted at specific risk or areas of concern. Indeed, perhaps the greatest risk of derivatives to a firm is the risk of not using them when it is appropriate to do so."
-From the Preface

The use of derivatives to manage risk dates back nearly 4,000 years. And despite the current anti-derivatives uproar-fueled by the popular press, driven by well-regarded financiers like Warren Buffett and George Soros, and accompanied by government proposals to prohibit, limit, tax, or further regulate derivatives-these irreplaceable instruments are in truth straightforward and vital to numerous financial practitioners and companies.

Risk Transfer provides a basic understanding of the driving economic theory behind derivatives and risk transfer, then examines the advanced application and implementation of derivative instruments by corporations and institutional investors. Building the book around his popular University of Chicago graduate course, Professor Christopher L. Culp explores three fundamental areas in the structure and use of derivatives:

• PART I: The Economics of Risk Transfer
  Micro and macro foundations underlying risk transfer as a financial activity, and the evolution and use of derivatives as an efficient means of transferring risk
• PART II: Derivatives Valuation and Asset Lending
  The function of derivatives as intertemporal and interspatial resource allocation markets, with discussions of related concepts including own rates of interests, the cost of carry, backwardation and contango in the term structure of futures/forward prices, basis and spread relations, and more
• PART III: Speculation and Hedging
  The role of-and risk premium paid to-speculators, how firms determine their specific objectives and hedge ratios, and how hedging is affected by and can be used to address quality and calendar basis risks

While derivatives have always been-and will always be-a necessary tool in managing exposure to financial risk, professionals must understand the entire picture before they can successfully relate to its individual components. Risk Transfer helps researchers and practitioners to fill in that picture, providing a comprehensive examination of the theoretical foundations of derivatives as risk transfer instruments along with hands-on techniques and examples of how that theory can be successfully applied to the everyday practice of financial risk management.

From the Back Cover

Praise for Risk Transfer

"Culp's book is a masterly account of the economics of risk and the development of derivatives. It is not only soundly based in theory but it serves as a splendid practical guide to the multiplicity of traded risks in the financial markets."
–Sir Alan Walters, Chief Economic Advisor to Margaret Thatcher (1980-85 and 1989) and former Vice Chairman, AIG Trading Group (1990-2000)

"As always, Chris Culp makes me rethink things I thought I already understood. The idea he champions in this book–that derivatives can be viewed through the lens of an asset lending instrument–helps in understanding the behavior of the producers and users of derivatives. And Culp's historical notes add color to the tapestry of risk management."
–Charles Smithson, Managing Director, Rutter Associates

"Derivatives are the highest financial life form on the planet, and Culp does a great job of explaining why. I was especially delighted by Chapter 2, which traces the way we think about risk and uncertainty from Adam Smith (who would have taught at the University of Chicago if he had been born later), through Frank Knight and Bob Lucas. It is a great reminder of why we study economics in the first place. Well done."
–Galen Burghardt, Director of Research, Carr Futures

"Chris Culp's Risk Transfer is an important addition to the literature on derivatives, and not just because it successfully bridges theory and practice. The presentation of the underlying economic thought and academic literature relevant to the broader issues of how we view and treat risk in the economy and in the business world is excellent. It's what makes this new book unique and valuable."
–Wendy L. Gramm, Chairman of Regulatory Studies
Mercatus Center, George Mason University

"Culp's book explains the role derivatives play in our financial system as an invaluable tool for risk transfer in the marketplace. He takes the reader from the macro aspects of derivatives through detailed modern theories, in addition to offering a practical perspective on speculation and hedging. This book is essential for every derivatives professional."
–Dennis A. Dutterer, President and CEO, The Clearing Corporation

Edition details

• Publisher: Wiley
• Publication date: 2004
• ISBN 10: 0471464988
• ISBN 13: 9780471464983
• Binding: Hardcover
• Language: English
• Edition number: 1
• Number of pages: 480