An Introduction to Derivative Securities, Financial Markets, and Risk Management (Third Edition)

The third edition updates the text in two significant ways. First, it updates the presentation to reflect changes that have occurred in financial markets since the publication of the 2nd edition. One such change is with respect to the over-the-counter interest rate derivatives markets and the abolishment of LIBOR as a reference rate. Second, it updates the theory to reflect new research related to asset price bubbles and the valuation of options. Asset price bubbles are a reality in financial markets and their impact on derivative pricing is essential to understand. This is the only introductory textbook that contains these insights on asset price bubbles and options.

Robert A Jarrow is the Ronald P and Susan E Lynch Professor of Investment Management at the Samuel Curtis Johnson Graduate School of Management, Cornell SC Johnson College of Business. He did his PhD at the Massachusetts Institute of Technology under Robert C Merton and Stewart C Myers. He spent his academic career at Cornell where he has done research in nearly all areas of derivatives pricing.

His research has introduced several seminal ideas in finance and has won many awards. He has co-created the Heath-Jarrow-Merton (HJM) model and the reduced form credit risk model, both of which are the standard models used by financial institutions and central banks around the world. He was the recipient of the IAFE Financial Engineer of the Year award (1997) which has been won by many of the biggest names in finance.

Jarrow has consulted for various branches of the US government and several Wall Street firms, including the FDIC and the U.S. Treasury with respect to the TARP program and warrant valuation. He is an advisory editor or associate editor of many finance journals and a member of several corporate and advisory boards.

He is the author of more than 250 academic publications, seven books including Option Pricing (the first textbook on option pricing based on the first options course ever taught; with Andrew Rudd, 1983), Modelling Fixed Income Securities and Interest Rate Options (1996), Derivative Securities (with Stuart Turnbull, 2000), and Continuous-Time Asset Pricing Theory: A Martingale-Based Approach (2022), and several edited volumes.

Arkadev Chatterjea is an academic and a writer. He did his PhD from Cornell, where he was a student of Jarrow. He was a Visiting Professor at the SC Johnson Graduate School of Management at the Cornell SC Johnson College of Business. Earlier, he was a professor of finance at the Indian Institute of Management Calcutta. He has held full time faculty positions at the business schools at the University of Colorado Boulder, Indiana University Bloomington, and the University of North Carolina at Chapel Hill. He has taught derivatives in three continents. Chatterjea has published essays, op-eds, and research articles in international journals. He has won teaching and research awards in the USA.