In the last 30 years derivatives have become increasingly important in finance. Futures and options are now traded actively on many exchanges throughout the world. Many different types of forward contracts, swaps, options, and other derivatives are regularly traded by financial institutions, fund managers, and corporate treasurers in the over-the-counter market. Derivatives are added to bond issues, used in executive compensation plans, embedded in capital investment opportunities, and so on. We have now reached the stage where anyone who works in finance needs to understand how derivatives work, how they are used, and how they are priced.