The entry of mankind into modern society shows the great wisdom of creating wealth. The development of financial innovation has brought a lot of derivatives to the global financial market. At present, the variety is very rich, which makes people see things in a blur. The development of derivatives has greatly broadened the market space and time. Theoretically and technically, locally familiar products can be connected with products in any market in the world through derivatives, and the transaction of products can be extended for several years or decades if they are willing to pay enough costs.
The emergence of financial derivatives has broken through the limit that traditional commercial banks can only use 8% capital to amplify 12 times at most, and amplified the leverage of funds, which can amplify the funds to dozens of times or even more, making transactions more flexible and convenient, and meeting the different needs of investors and speculators to a greater extent. However, the excessive leverage ratio has also increased the risk of the market, which has become the chief culprit of the bankruptcy of American long-term capital management companies and the global subprime mortgage crisis.
China's financial market has always been cautious about adopting derivative financial instruments. In recent years, RMB derivatives, represented by RMB interest rate swap, have developed rapidly, constantly meeting the needs of enterprises and individuals to lock in interest rate and exchange rate risks, and playing an increasingly important role in enriching China's financial market.
Derivatives are characterized by complex product design and lack of transparency in transactions. The design of products often needs complex mathematical model calculation, and transactions are often one-to-one relative transactions, lacking liquidity. Therefore, learning and understanding derivative products is an important prerequisite for correct use.
Options, Futures and Other Derivatives (8th Edition) is an important representative work of Professor John Hull, with a total of 35 chapters, which comprehensively and systematically introduces the theory and practical application of financial derivatives. It is a textbook and reference book worth recommending. Dr. Wang Yong and Professor Suo Wulin have been engaged in the risk management and teaching of derivative products in foreign banks and universities for many years, and they have profound attainments in theory and practice. Dr. Wang Yong has written many books on risk management and derivatives, and has taught senior managers of domestic financial institutions many times. Professor Suo Wulin has also written many articles about derivative products. Options, Futures and Other Derivatives (8th Edition) translated by Dr. Wang Yong and Professor Suo Wulin can accurately grasp the professionalism of the original work. The publication of the Chinese version of Options, Futures and Other Derivatives (8th Edition) will undoubtedly provide an excellent teaching material for domestic financial practitioners and theoretical researchers, help financial practitioners to deepen their understanding of derivatives, and thus promote the development of financial derivatives in China.
You Guo, President of China Everbright Bank
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The subprime mortgage crisis in the United States since 2007, especially the financial crisis in the United States and even the world triggered by Lehman's bankruptcy filing in mid-September 2008, gave the world a rare lesson in popularizing financial derivatives knowledge, which is still going on today. Even in North America and Western Europe, where finance is very developed, financial derivatives, especially various financial derivatives between banks, are only professional knowledge that a few professionals can understand. Derivatives traded between banks or over-the-counter in the subprime mortgage storm and financial crisis, such as mortgage-backed securities, debt-backed bonds and credit default swaps, are only products that a few financial professionals can fully understand in western developed countries. For China, where financial innovation has just started, these products are still unfamiliar words for most investors and even many financial practitioners.
With the continuous spread of the financial crisis, many people at home and abroad believe that this financial crisis is mainly caused by excessive financial innovation and derivatives in the United States. However, people who have a little research on financial derivatives will think that all kinds of financial derivatives involved in subprime mortgage and financial turmoil existed more than ten years ago or even decades ago, so why did the financial crisis that did not happen more than ten years ago happen in 2007? If we do a little research on the turmoil and crisis in the past year or so, we will find that the root cause of this turmoil and crisis is not these products, but the basic market-"foundation" on which these products depend. If the foundation is not well laid, the houses or buildings built on it will tilt lightly or collapse heavily. The main reason for the subprime mortgage crisis in the United States is that the prudential principle of real estate mortgage loans has not been adhered to, and the corresponding prudential supervision has not been put in place. So there is nothing wrong with derivatives themselves. The problem lies in the "foundation", the problem lies in supervision, and the problem lies in the excessive use of leverage, not the product itself.
Confucius said more than two thousand years ago, "I don't know, the sages have passed, and the unscrupulous are not as good as it." The "Tao" here is the "golden mean" rooted in the profound culture of our country for more than two thousand years. In our present language, there is always a degree of development of things. Exceeding this degree is excessive and becomes a fault; At the same time, less than this degree is not the best state, but also a fault. From the subprime mortgage crisis in the United States for more than a year to the financial crisis, we can see that the leverage of the American financial industry has been overused; However, in recent years, although China has made gratifying achievements in financial innovation, the development of market and products is obviously insufficient, and it has just started, and there is still a considerable distance from the best state. Therefore, today, when the financial crisis continues to spread, we not only can't make ends meet, slow down the pace of financial innovation, but also continue to work hard.
The development of financial derivatives has experienced decades of history in the west, and there is a development process from simple to complex. We should fully learn from foreign research results in this field and experience and lessons in the process of market development, and combine the actual situation in China to gradually and steadily establish a multi-level financial market structure in China. The book Options, Futures and Other Derivatives by Professor John Hull of the University of Toronto in Canada provides a good teaching material for us to learn financial derivatives. Professor John Hull is a famous expert in the field of international derivatives. For decades, his works on derivatives and risk management have been the main teaching materials for most undergraduates, postgraduates and MBA students in the world. Options, Futures and Other Derivatives (the eighth edition of the original book) has been updated many times, and now it includes derivatives commonly used in the international market, such as forward, futures, interest rate swaps, foreign exchange swaps, credit swaps, ordinary options, exotic options and swap options. In addition to these products, Options, Futures and Other Derivatives (8th Edition) also introduces and analyzes asset securitization products and mortgage bond products in detail. Options, Futures and Other Derivatives (8th Edition) not only has easy-to-understand practical examples, but also has specific mathematical models and pricing formulas. It not only systematically introduces simple stocks, commodities and foreign exchange products, but also introduces and analyzes various major interest rates and credit derivatives, which is of considerable reference value for us to understand, be familiar with and analyze these products. Not only the product design and pricing are systematically elaborated, but also the interest rate model and credit model of the international market for more than ten years are introduced and commented in detail, which is of great reference significance.
In addition to the systematic introduction and analysis of products and pricing, the author also spent a considerable space on the concept, measurement, methods and models of financial risk hedging and management, especially the major risk events in the international market in recent 20 years, such as Orange County, Bank of Bahrain, and Long-term Capital Management Company, which have important reference significance for the risk management and control of China's financial industry. In a word, Options, Futures and Other Derivatives (8th Edition) can be regarded as a complete book on international financial derivatives and risk management, which is of great value to relevant regulators, market participants, investors, school professors and students.
Dr. Wang Yong and Professor Suo Wulin, translators of Options, Futures and Other Derivatives (8th Edition), have many years of practical and teaching experience in derivatives and risk management. Dr. Wang Yong is a senior Canadian risk management expert, a certified financial analyst (CFA) and a certified risk manager (FRM) in the United States. Dr. Wang Yong not only has a solid academic foundation in mathematics, but also has many years of experience in the financial industry. He has more than ten years of direct experience in the operation and management of various financial derivatives and the corresponding risk management in the international market. Professor Suo Wulin studied under Professor John Hull and holds two doctoral titles in mathematics and finance. He has a profound understanding of Professor Hull's works and has published many academic papers in the field of derivatives. Translating Professor John Hull's Options, Futures and Other Derivatives is a huge project. Although I didn't ask the detailed process of translation, I can imagine that it takes considerable time and patience to translate the 800-page masterpiece of the original. It is considered that derivatives such as options and futures (the 8th edition of the original book) can be used for reference to gradually establish China's multi-level financial market, promote financial innovation, strengthen financial risk management and control, and enhance the competitiveness of China's financial industry. Dr. Wang Yong asked me to preface the Chinese version of Options, Futures and Other Derivatives (the eighth edition of the original book). When I am happy, I feel duty-bound. I hope we can learn from the advanced experience of foreign financial industry and combine the current situation of China market to promote China's financial innovation, and make contributions to enhancing China's financial competitiveness and establishing an innovative country.
Dr. Zhang Guangping, Deputy Director of Shanghai Banking Regulatory Bureau.