The first thought that comes to mind when picking up “Derivatives Pricing: The Classic Collection” by Peter Carr is “Wow! What a treasure chest!”. Akin to common practice in the music industry where collections of greatest hits is a well established way to spur renewed interest in something older, yet worth listening again and again, the 18 papers gathered by Peter Carr into this book serve similar purpose. People working in finance, financial mathematics, econometrics, risk management or similar areas can definitely use this book as a well prepared reference, a collection of keystone scientific papers that are sometimes not easily accessible, yet frequently cited. For the younger generation of researchers and especially students this book can easily be the primary source of seminars, discussions, and influential ideas. The 18 papers of this book are simply a must read for those interested in entering this exciting field at the turbulent time that we now live in. Peter Carr has done a great job of guiding the reader through the early classic literature on modelling financial markets by including into the first section

–

The doctoral dissertation [Théorie de la spéculation. Paris: Gauthier-Villars (1900; JFM 31.0241.02)] by L. Bachelier,

–

[“The pricing of commodity contracts”, J. Financ. Econ. 3, No. 1–2, 167–179 (1976; doi:10.1016/0304-405X(76)90024-6)] by F. Black,

–

[in: The new interest rate models. Recent developments in the theory and application of yield curve dynamics. London: Risk Books. 3–27 (2000; Zbl 1065.91510)] by D. Heath et al.,

–

[J. Appl. Probab. 32, No. 2, 443–458 (1995; Zbl 0829.90007)] by H. Geman et al., and

–

[Math. Finance 7, No. 2, 127–155 (1997; Zbl 0884.90008)] by A. Brace et al.

The second section is devoted to hidden gems of the financial literature that were never published, yet are often cited, namely

–

“A unified theory of volatility” by B. Dupire,

–

”Arbitrage pricing with stochastic volatility” by B. Dupire,

–

[“A general theory of asset valuation under diffusion state processes”, Research Program in Finance Working Papers 50, Berkeley, CA: University of California at Berkeley (1976)] by M. B. Garman, and

–

[“Probability of loss on loan portfolio”, KMV Corporation (1987)] by O. A. Vasicek.

The third section includes widely cited papers that were published in Risk magazine and that can easily be inducted into the financial mathematics/risk management hall of fame, should such be established. The section contains

–

”Quantitative strategies research notes” by Emanuel Derman and Iraj Kani,

–

[in: Mathematics of derivative securities. Forewords are given by R. C. Merton and M. F. Atiyah. Cambridge: Cambridge Univ. Press. 103–111 (1997; Zbl 0913.90012)] by B. Dupire,

–

”A generalized framework for credit risk portfolio models” by H. Ugur Koyluoglu and Andrew Hickman,

●

”Correlation and dependence in risk management: properties and pitfalls” by Paul Embrechts, Alexander McNeil and Daniel Straumann,

–

”Barrier options” by Mark Rubinstein and Eric Reiner,

–

[“Thinking coherently”, RISK 10, 68–71 (1997)] by P. Artzner et al., and

–

[“Static simplicity”, ibid. 7, No. 8, 45–50 (1994)] by J. Bowie and P. Carr.

The final fourth section concludes with three influential papers that later led to the Nobel prize in economics for their authors, namely

–

[J. Polit. Econ. 81, No. 3, 637–654 (1973; Zbl 1092.91524)] by F. Black and M. Scholes,

–

[Bell J. Econ. Manage. Sci. 4, No. 1, 141–183 (1973; Zbl 1257.91043)] by R. C. Merton, and

–

[Econometrica 50, 987–1007 (1982; Zbl 0491.62099)] by R. F. Engle.

Summarizing, I truly believe that this book is a must have for all working in the areas of finance, financial mathematics, econometrics and risk management, and especially for those who plan to enter these exciting fields in the near future. I sincerely hope that we will see a few more such books with diamonds of the financial mathematics/risk management literature soon.