Derivatives Demystified: A Step-by-Step Guide to Forwards, Futures, Swaps and OptionsDerivatives are everywhere in the modern world and it is important for everyone in banking, investment and finance to have a good understanding of the subject. Derivatives Demystified provides a step-by-step guide to the subject, enabling the reader to have a solid, working understanding of key derivative products. Adopting a highly accessible approach, the author explains derivative products in straightforward terms and without the complex mathematics that underlie the subject, focusing on practical applications, case studies and examples of how the products are used to solve real-world problems. Derivatives Demystified follows a sequence that is designed to show that, although there are many applications of derivatives, there are only a small number of basic building blocks, namely forwards and futures, swaps and options. The book shows how each building block is applied to different markets and to the solution of various risk management and trading problems. This new edition will be fully revised to reflect the many changes the derivatives markets have seen over the last three years. New material will include a comprehensive history of derivatives, leading up to their use and abuse in the current credit crisis. It will also feature new chapters on regulation and control of derivatives, commodity derivatives, credit derivatives and structured products and new derivative markets including inflation linked and insurance linked products. Derivatives Demystified is essential reading for everyone who operates in the financial markets or within the corporate environment who requires a good understanding of these important financial instruments. |
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Contents
INTEREST RATE CAP | |
INTEREST RATE COLLAR | |
INTEREST RATE SWAP AND SWAPTION | |
SUMMARY OF INTEREST RATE HEDGING STRATEGIES | |
EURODOLLAR OPTIONS | |
EURO AND STERLING INTEREST RATE OPTIONS | |
BOND OPTIONS | |
EXCHANGETRADED BOND OPTIONS | |
THE EXCHANGETRADED DERIVATIVES MARKET | |
CHAPTER SUMMARY | |
INTRODUCTION | |
THE FORWARD PRICE | |
THE FORWARD PRICE AND ARBITRAGE OPPORTUNITIES | |
THE FORWARD PRICE AND THE EXPECTED PAYOUT | |
FOREIGN EXCHANGE FORWARDS | |
MANAGING CURRENCY RISK | |
HEDGING WITH AN OUTRIGHT FORWARD FX DEAL | |
THE FORWARD FOREIGN EXCHANGE RATE | |
THE FORWARD FX RATE AND ARBITRAGE OPPORTUNITIES | |
FORWARD POINTS | |
FX SWAPS | |
APPLICATIONS OF FX SWAPS | |
INTRODUCTION | |
CORPORATE BORROWER | |
RESULTS OF THE FRA HEDGE | |
THE FRA AS TWO PAYMENT LEGS | |
DEALING IN FRAs | |
FORWARD INTEREST RATES | |
CHAPTER SUMMARY | |
INTRODUCTION | |
THE MARGINING SYSTEM AND THE CLEARING HOUSE | |
USERS OF FUTURES CONTRACTS | |
COMMODITY FUTURES | |
FUTURES PRICES AND THE BASIS | |
US TREASURY BOND FUTURES | |
DELIVERY PROCEDURES | |
GILT FUTURES | |
CHAPTER SUMMARY | |
INTRODUCTION | |
EURODOLLAR FUTURES | |
TRADING EURODOLLAR FUTURES | |
HEDGING WITH INTEREST RATE FUTURES | |
INTEREST RATE FUTURES PRICES | |
EQUITY INDEX FUTURES | |
APPLICATIONS OF SP 500 INDEX FUTURES | |
FTSE 100 INDEX FUTURES CONTRACTS | |
ESTABLISHING NET PROFITS AND LOSSES | |
SINGLE STOCK FUTURES SSFs | |
CHAPTER SUMMARY | |
INTRODUCTION | |
INTEREST RATE SWAP STRUCTURE | |
BASIC SINGLECURRENCY INTEREST RATE SWAP | |
THE SWAP AS A PACKAGE OF SPOT AND FORWARD DEALS | |
RATIONALE FOR THE SWAP DEAL | |
TYPICAL SWAP APPLICATIONS | |
INTEREST RATE SWAP VARIANTS | |
CROSSCURRENCY INTEREST RATE SWAPS | |
NET BORROWING COSTS USING A CROSSCURRENCY SWAP | |
INFLATION SWAPS | |
CHAPTER SUMMARY | |
INTRODUCTION TO EQUITY SWAPS | |
EQUITY SWAP CASE STUDY | |
OTHER APPLICATIONS OF EQUITY SWAPS | |
EQUITY INDEX SWAPS | |
HEDGING AN EQUITY INDEX SWAP | |
CREDIT DEFAULT SWAPS | |
BASIC STRUCTURE | |
CREDIT DEFAULT SWAP APPLICATIONS | |
CREDIT SPREADS | |
THE CDS PREMIUM AND THE CREDIT SPREAD | |
PRICING MODELS FOR CDS PREMIUM | |
INDEX CREDIT DEFAULT SWAPS | |
BASKET CREDIT DEFAULT SWAPS | |
CHAPTER SUMMARY | |
INTRODUCTION | |
TYPES OF OPTIONS | |
BASIC OPTION TRADING STRATEGIES | |
EXPIRY PAYOFF PROFILE | |
EXPIRY PAYOFF PROFILE | |
EXPIRY PAYOFF PROFILE | |
EXPIRY PAYOFF PROFILE | |
CHAPTER OVERVIEW | |
PROTECTIVE PUT | |
HEDGING WITH ATM PUT OPTION | |
COVERED CALL WRITING | |
EQUITY COLLAR | |
ZEROCOST EQUITY COLLAR | |
PROTECTIVE PUT WITH A BARRIER OPTION | |
BEHAVIOUR OF BARRIER OPTIONS | |
CHAPTER SUMMARY | |
INTRODUCTION | |
CBOE STOCK OPTIONS | |
UK STOCK OPTIONS ON NYSE LIFFE | |
CME SP 500 INDEX OPTIONS | |
FTSE 100 INDEX OPTIONS | |
CHAPTER SUMMARY | |
INTRODUCTION | |
USERS OF CURRENCY OPTIONS | |
CASE STUDY | |
GRAPH OF HEDGED AND UNHEDGED POSITIONS | |
HEDGING WITH A ZEROCOST COLLAR | |
REDUCING PREMIUM ON FX HEDGES | |
COMPOUND OPTIONS | |
EXCHANGETRADED CURRENCY OPTIONS | |
CHAPTER SUMMARY | |
INTRODUCTION | |
OTC INTEREST RATE OPTION CASE STUDY | |
HEDGING A LOAN WITH A CAPLET | |
CHAPTER SUMMARY | |
INTRODUCTION | |
THE CONCEPT OF A RISKLESS HEDGE | |
A SIMPLE OPTION PRICING MODEL | |
OPTION FAIR VALUE | |
EXTENDING THE BINOMIAL MODEL | |
COST OF DYNAMIC HEDGING | |
THE BLACKSCHOLES OPTION PRICING MODEL | |
HISTORICAL VOLATILITY | |
MEASURING AND USING HISTORICAL VOLATILITY | |
CHAPTER SUMMARY | |
INTRODUCTION | |
IMPLIED VOLATILITY | |
BLACKSCHOLES MODEL ASSUMPTIONS | |
VALUE OF A CALL OPTION | |
VALUE OF A PUT OPTION | |
EQUITY INDEX AND CURRENCY OPTIONS | |
PRICING INTEREST RATE OPTIONS | |
CHAPTER SUMMARY | |
INTRODUCTION | |
DELTA BEHAVIOUR | |
DELTA AS THE HEDGE RATIO | |
THE EFFECTS OF CHANGES IN DELTA | |
READJUSTING THE DELTA HEDGE | |
GAMMA ΓORγ | |
GAMMA AND THE SPOT PRICE OF THE UNDERLYING | |
GAMMA AND TIME TO EXPIRY | |
THETA Θ | |
VEGA OR KAPPA κ | |
RHO p | |
SUMMARY OF GREEKS | |
CHAPTER SUMMARY | |
INTRODUCTION | |
BULL SPREAD | |
BULL POSITION WITH DIGITAL OPTIONS | |
SPOT PRICE AND CON VALUE | |
BEAR SPREAD | |
THE GREEKS FOR THE BEAR SPREAD | |
PUT OR BEAR RATIO SPREAD | |
LONG STRADDLE | |
LONG STRADDLE CURRENT PAYOFF PROFILE | |
POTENTIAL RISKS WITH A LONG STRADDLE | |
CHAPTER SUMMARY | |
INTRODUCTION | |
SHORT STRADDLE | |
POTENTIAL PROFITS WITH A SHORT STRADDLE | |
MANAGING THE RISK ON A SHORT STRADDLE | |
SHORT STRANGLE | |
NEW WAYS OF TRADING VOLATILITY | |
CALENDAR OR TIME SPREAD | |
CHAPTER SUMMARY | |
INTRODUCTION | |
ISSUERS OF CONVERTIBLE BONDS | |
CB MEASURES OF VALUE | |
CONVERSION PREMIUM AND PARITY | |
OTHER FACTORS AFFECTING CB VALUE | |
CONVERTIBLE ARBITRAGE | |
CONVERTIBLE ARBITRAGE EXAMPLE | |
PROFITS AND RISKS WITH THE CB ARBITRAGE TRADE | |
MANDATORILY CONVERTIBLES AND EXCHANGEABLES | |
STRUCTURING A MANDATORILY EXCHANGEABLE ME BOND | |
CHAPTER SUMMARY | |
INTRODUCTION | |
CAPITAL PROTECTION EQUITYLINKED NOTES | |
EXPIRY VALUE OF 100 CAPITAL PROTECTION NOTES | |
100 PARTICIPATION EQUITYLINKED NOTES | |
CAPPED PARTICIPATION EQUITYLINKED NOTES | |
AVERAGE PRICE NOTES | |
CLIQUET OPTIONS | |
SECURITIZATION AND CDOs | |
THE BASIC CDO STRUCTURE | |
RATIONALE FOR SECURITIZATION | |
SYNTHETIC CDOs | |
CHAPTER SUMMARY | |
INTRODUCTION | |
SETTLEMENT OF EXCHANGETRADED DERIVATIVES | |
MAJOR CLEARING HOUSES | |
CONFIRMATION AND SETTLEMENT OF OTC DEALS | |
CONTROLLING COUNTERPARTY RISK ON OTC DERIVATIVES | |
OPERATIONAL RISK | |
BEST PRACTICE IN OPERATIONAL RISK MANAGEMENT | |
CHAPTER SUMMARY | |
TIME VALUE OF MONEY | |
FUTURE VALUE FV WITH PERIODIC COMPOUNDING | |
ANNUAL EQUIVALENT RATE AER | |
PRESENT VALUE PV WITH PERIODIC COMPOUNDING | |
CONTINUOUSLY COMPOUNDED INTEREST RATES | |
YIELD OR RETURN ON INVESTMENT | |
TERM STRUCTURE OF INTEREST RATES | |
CALCULATING FORWARD INTEREST RATES | |
FORWARD RATES AND FRAs | |
DISCOUNT FACTORS DFs | |
PRICING A SWAP FROM THE TERM STRUCTURE | |
CALCULATING THE BINOMIAL VALUES | |
BLACKSCHOLES MODEL | |
BLACKSCHOLES EXAMPLE | |
MEASURING HISTORIC VOLATILITY | |
Asian or average price options | |
Bermudan options | |
Chooser preference options | |
Forwardstart options | |
Lookback options | |
Quanto option | |
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Derivatives Demystified: A Step-by-Step Guide to Forwards, Futures, Swaps ... Andrew M. Chisholm No preview available - 2010 |