Without powerful mathematical formulae, and the Quant teams working in derivatives houses that develop these formulae, the derivatives industry could not have evolved to the remarkably technical sophisticated level its at today. However, for most workers in the derivatives industry an in-depth understanding of the mathematical subtleties of each and every derivative instrument and model is, fortunately, not required. What is absolutely essential is a solid grounding in the fundamental theories underlying derivative instruments and a good appreciation of their behaviour under both normal, and extreme, market conditions and the strengths and weaknesses of the ways in which they can be modelled. It is my aim to offer insight into these practical areas of financial derivatives and if I can leave readers with some slightly improved understanding into the ever more complex world of financial derivatives then that is all that can be hoped.

Over the coming months I plan to slowly build a library of easy to read essays on everything from model types to risk management, and from modelling error to the wise use of derivatives. I anticipate regular revisions, updates, additions and corrections to previous essays and welcome comment, congratulation and criticism in equal measure (well almost).

Happy reading. (24-May-2004)