This is the definitive introduction to derivatives. As evidence of its relevance, the following chapters are assigned to Financial Risk Manager (FRM) candidates: Hedging Strategies using Futures (Chapter 3), Determination of Forward and Futures Prices (5), Interest Rate Futures (6), Swaps (7), Properties of Stock Options (9), Trading Strategies Involving Options (10), Binomial Trees (11), Black-Scholes-Merton Model (13), Greeks (15), Volatility Smiles (16), Exotic Options (22).
Given that this is an expensive text, the most frequent question I get is, do I need to buy the latest edition? Perhaps you do not: the updates from fifth to sixth edition, and from sixth to seventh edition, have both been modest "version" upgrades. Here is a rule-of-thumb: the more introductory the topic (i.e., the earlier the chapter), the less likely you want/need the upgrade. The early chapters on futures, hedging, interest rate futures, swaps, and option pricing have barely changed since the fifth edition. Further, from what i can tell, the end-of-chapter questions are largely the same/similar.
In regard to the seventh, in addition to a number of refinements (e.g., some reorganization), the two noticeable differences are: a new chapter on valuation of employee stock option (a particular expertise of Hull's) and more material on certain credit derivatives (CDOs, credit default swap) including a bit more help on Gaussian copula. However, in regard to credit derivatives, in total, Hull gives a quick tour which may be challenging to the new learner. It is maybe not the best place to start for credit derivatives per se.
But, this is the gold standard, a work of art, as far as finance texts go. It may be an introduction but it offers encyclopedic breadth. I've read it several times over, worked most of the problems, taught from it, argued with it, and yet I keep needing to refer to it--Hull is the trusted adviser you call in a crunch, because you know he knows--full mastery is probably still years away.
