1st Edition

Derivatives Unlocked A Practitioner’s Perspective

By Philippe Dufournier Copyright 2025
    352 Pages 158 Color Illustrations
    by Chapman & Hall

    352 Pages 158 Color Illustrations
    by Chapman & Hall

    Derivates Unlocked: A Practitioner's Perspective offers the reader a practical explanation of the key concepts underpinning financial derivatives. Resolutely selective and user-friendly, this book constitutes an introduction to the basic pricing, design and use cases of derivatives products in modern global finance.

    The book is articulated around two parallel streams of content. On the one hand, the Derivatives Toolbox comes as a set of calculation and pricing rules behind the building blocks of most derivatives products, such as discounting, duration, interest rates and credit default swaps, forwards and options. The methodology is approachable, simplified whenever possible, and does not require advanced mathematical training.

    On the other hand, the Case Studies, largely inspired by real European corporate finance and risk management situations, allow the reader to make explicit use of the design and pricing principles learned as he progresses through the Toolbox and to grasp the effective power of derivatives solutions.


    • Easy to follow for non-specialists, helping them build a solid and empirical foundation to encourage continued learning.
    • Provides a unique and balanced combination between learning essential pricing tools for the main derivatives products and the real-life applications of the technology across corporate and financial institutions.
    • Contains numerous case studies and other support material making it suitable for both students and practition.

    Introduction. What to Expect. Definition. The Derivatives Marketplace Structure. Market Size. Chapter 1. The Toolbox: Risk-Free Rate and Discounting. Introduction. 1.1 The Derivatives Risk-Free Rate. 1.2 Compounding and Present Value Calculation. 1.3 The Case of Discounting Bond Cash Flows. 1.4 Discount Factors. 1.5 Zero-Coupon Discounting. Chapter 2. The Toolbox: Duration and Convexity. 2.1 The Case of Fixed Rate Bonds. 2.2 From Fixed Rate Bonds to Discrete Cash Flows. 2.3 Convexity of Fixed Cash Flows. 2.4 The Case of the Austria Bond 2.1% due 2117. Chapter 3. The Toolbox: Interest Rate Swaps. Introduction. 3.1 Fix to O/N Index Swap. 3.2 Forward-Starting Floating Rate Indices. 3.3 IRS as a Risk Transfer Tool. 3.4 Unwinding an Interest Rate Swap. 3.5 Terminating a Bond + Swap Financing. 3.6 RFR and IBOR Swap Curves. Chapter 4. Case Study: Bond Portfolio Duration Hedging. 4.1 The Bond Portfolio DV01. 4.2 Swaps PV01. 4.3 Calibrating the Fix Paying Swaps. Chapter 5. Case Study: Synthetic Fixed Rate Bond Financing. 5.1 Introduction. 5.2 Loan + Swap vs Bond Arbitrage. 5.3 Conclusions. Chapter 6. The Toolbox: Forward Prices. Introduction. 6.1 The Case of Interest Rates. 6.2 A Foreign Exchange Example. 6.3 The Cost of Carry Replication. 6.4 Forward Prices Across Asset Classes. 6.5 Shape and Meaning of Forward Curves. 6.6 Combining Forwards Across Asset Classes. Chapter 7. The Toolbox : Credit Default Swaps. 7.1 The Credit Risk Premium. 7.2 Single-Name Credit Default Swaps. 7.3 CDS Indices. 7.4 Portfolio Credit Default Swaps. Chapter 8. The Toolbox : Credit and Other Mark-to-Market Induced Risks. 8.1 The Issue at Hand. 8.2 Assessing Potential Mark-to-Market Changes. 8.3 Boiling Down MtM Drivers. 8.4 Hedge Accounting Key Principles. 8.5 Management of Derivatives-induced Credit Risk. 8.6  Additional Considerations on MtM Risks. Chapter 9. Case Study: Cross-currency Swaps and Synthetic Euro Financing. 9.1 Introduction. 9.2 Proposed Solution. 9.3 Simplified Pricing Methodology. 9.4 Spreadsheet-based Pricing. 9.5 The Case of Liberty Global. Chapter 10. Case Study: Strategic Balance Sheet FX Hedging. 10.1 Introduction. 10.2 Nature of the Balance Sheet FX Risk. 10.3 Possible Solutions. 10.4 The Economics of X-ccy Swaps and Forwards. 10.5 Accounting Analysis. 10.6 The Hedging Cost Trade-off. 10.7 Execution Considerations. 10.8 The Ukraine Invasion. Chapter 11. Toolbox: Probability Distribution of Asset Returns. Introduction. 11.1 Continuous Compounding. 11.2 The Example of the S&P 500 Daily Returns. 11.3 Normal Distributions: Summary Description and Attributes. 11.4 Using the Normality of Log Returns to Assess Risks. Chapter 12. Toolbox: Introduction to Options. 12.1 An Intuitive Approach to Option Pricing. 12.2 Principles of Options Contracts. 12.3 Standard Option Pay-Off Representations. 12.4 Using Models to Price Options. 12.5 The Greeks. 12.6 Delta Hedging. 12.7 Non-Standard Options. 12.8 At-The-Money-Forward Options. 12.9 Non-ATMF Option Pricing. Chapter 13. Case Study: Equity Stake Hedging and Financing. 13.1 Introduction. 13.2 Pricing of the Collar Strategy. 13.3 NewTech Share Exit Price Scenarios. 13.4 Execution Considerations. 13.5 Financing. Chapter 14. Case Study: Accelerated Stake Acquisition and Financing. 14.1 Initial Block of Shares. 14.2 Collar Structure. 14.3 Financing. Chapter 15. Case Study: Leveraged Employee Shareholding Plan. 14.1 Introduction. 15.2 Leveraged Investment in Shares. 15.3 Pricing of the ESF scheme. 15.4 TopCo Call Option’s Back-of-the-Envelope Pricing. 15.5 Execution Considerations. 15.6 The French Market for Leveraged Employee Plans. Chapter 16. Tool Box: Structured Notes. 16.1 Securitising Derivatives. 16.2 Capital Protected Notes. 16.3 Capital-at-Risk Structures. Chapter 17. Case Study: Synthetic Securitization and Credit-Linked Notes. A Note on Banks Balance Sheets. 17.1  Basics on Regulatory Capital. 17.2 The Case of NewBank. 17.3 Synthetic Securitisation Key Principles. 17.4 SPV-based Funded Structure. 17.5 Credit Protection Agreement. 17.6 NewBank Regulatory Capital Benefits. 17.7 Risk and Reward: The View Point of the CLN Investor. 17.8 The Case of PGGM. Chapter 18. Case Study: Bank Collateral Exchange. 18.1 NewBank’s Funding Paradigm. 18.2 Transaction Structure. 18.3 Transaction Terms. 18.4 Pricing and Relative Value. 


    Philippe Dufournier has spent over 30 years in investment banking in London with a career focused on the structuring, sales and origination of innovative derivatives and capital markets transactions for European corporates, financial institutions, governments and investment funds.

    Throughout the 1990’s, he gained deep derivatives structuring and sales expertise whilst at Bankers Trust in London, a pioneer in the development of the global derivatives markets. He joined Lehman Brothers in 2001 as Head of European Derivatives Sales where he founded the Structured Solutions Group. In 2007, he was made Head of Global Finance for EMEA, in charge of Primary Markets Origination and Private Derivatives Solutions. He kept that role as he transitioned to Nomura International in 2008. In 2015 he joined Mediobanca, first as Head of Corporate Lending and Acquisition Finance and then as Head of the UK Branch until 2020

    During his career, Philippe directly contributed to the training and mentoring of over 20 classes of summer interns, analysts and associates.  Over the last three years, he has been teaching financial derivatives courses in the Finance Masters of the Institute for Finance and Technology at University College London.