“Derivatives Demystified, Twice,” Tax Notes, June 1997 TNT 1997-6 Derivatives Demystified Twice
The deluge of books on derivatives has become so overwhelming, professional will need a perpetually update annotated bibliography before they even approach the financial aisles of bookstores or libraries. The coincidence of the title of these two books is a symptom of the phenomenon. I hope to see continuing review of these types of books so that students of the financial markets can look beyond the glossy titles to the substance of the texts.
Derivatives Demystified by John Braddock, managing director of the Structured Products Groups at Oppenheimer & Co. in New York, is an outstanding introduction to the subject matter. He approaches derivatives from the transactional viewpoint, showing how a product is created, developed, sold and used in the marketplace. After describing why an organization would use structured products, he outlines the duties of the officers and directors to their shareholder in managing the risk inherent in such products, in the context of the U.S legal environment. The author then gives a brief outline of the structured product creation, development and offering process, which for most people outside the investment banking world is a black box.
After outlining the very basic mathematics of derivatives, Braddock devotes a chapter to each of several significant types of products, such as asset-linked notes, convertible securities, exotic options, warrants, and swaps. In each chapter, her gives detailed examples of who would use each of the products, what financial problem could be solved by their use and what role they would serve within an organization’s capital structure. There is a chapter on monetizing and hedging strategies for concentrated equity positions and one on the capital-raising strategies in the era of derivative products.