Saturday, 11 February 2012

The Hull nouveau has arrived

Some days ago, after my first Derivatives class, a student asked me whether he should buy the latest edition of John Hull’s “Options, Futures and Other Derivatives” (JH8).  He had borrowed the 1st edition (JH1) from his father and was wondering whether the new version was very different. Browsing through the new edition, he quickly realized that this was the case.  My advice was: “Keep the 1st edition as might gain value. Buy the new edition, use it for this class and transmit it to your children. The return on investment should be positive”.

JH has accompanied me for the last 23 years. I started teaching derivatives in 1989, when the John Hull’s first edition (JH1) had just been published. As it fitted exactly my teaching needs, I chose it as the reference for my course. I have been true to it since then.  The book strikes a delicate balance between mathematics and intuition. It has been hugely successful. The book is ranked #1 on the website in the category  “Books > Business, Finance & Law > Management > Budgeting & Finance”. For a textbook, this is the equivalent of an Oscar award. Interestingly, book#2 in the same category is “Principle of Corporate Finance” by Brealey Myers & Allen, another reference that I used for many years. I am very bad at stock picking but I might be good at book picking.

In 1989, the derivatives industry was still in infancy. The total notional principal was about just 4 trillions US dollar. JH1 had 13 chapters and 330 pages.  Derivatives now weight 789 trillions US dollar.   JH8 has 36 chapters and 846 pages.

But the number of hours I was assigned to teach the topic remained unchanged. Universities do not adapt quickly to changes.

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