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• Cover
• About the Authors
• About the Companion Site
• Preface
• STUDENT LEARNING
• FINANCE BLOGS
• SLIDES
• EXERCISES
• EXCEL AND MATLAB
• ACKNOWLEDGEMENTS
• CHAPTER 1: Derivative Securities
• 1.1. FORWARDS AND FUTURES
• 1.2. OPTIONS
• 1.3. SWAPS
• 1.4. HEDGING, SPECULATION, AND ARBITRAGE
• 1.5. SHORT-SELLING
• 1.6. SUMMARY
• EXERCISES
• NOTES
• PART I: FORWARDS AND FUTURES
• CHAPTER 2: Futures Markets
• 2.1 TRADING ON FUTURES MARKETS
• 2.2 FUTURES EXCHANGES AND TRADERS
• 2.3 MARGINS AND MARKING-TO-MARKET
• 2.4 SUMMARY
• EXERCISES
• NOTES
• CHAPTER 3: Forward and Futures Prices
• 3.1 PRICING FORWARD CONTRACTS
• 3.2 DIVIDENDS, STORAGE COSTS, AND CONVENIENCE YIELD
• 3.3 COMMODITY FUTURES
• 3.4 VALUE OF A FORWARD CONTRACT
• 3.5 SUMMARY
• EXERCISES
• NOTES
• CHAPTER 4: Futures: Hedging and Speculation
• 4.1 HEDGING USING FUTURES
• 4.2 NOVEL FUTURES CONTRACTS
• 4.3 SPECULATION
• 4.4 SUMMARY
• EXERCISES
• NOTES
• CHAPTER 5: Index Futures
• 5.1 STOCK INDEX FUTURES (SIF)
• 5.2 INDEX ARBITRAGE
• 5.3 HEDGING
• 5.4 TAILING THE HEDGE
• 5.5 SUMMARY
• APPENDIX 5: HEDGE RATIOS
• EXERCISES
• NOTES
• CHAPTER 6: Strategies: Stock Index Futures
• 6.1 UNDERPRICED STOCKS: HEDGING MARKET RISK
• 6.2 OVERPRICED STOCKS: HEDGING MARKET RISK
• 6.3 MARKET-NEUTRAL HEDGE FUND
• 6.4 LONG-SHORT HEDGE FUND
• 6.5 CHANGING STOCK MARKET EXPOSURE
• 6.6 MERGER ARBITRAGE
• 6.7 SUMMARY
• APPENDIX 6.A: STOCK PICKING AND MARKET RISK
• APPENDIX 6.B: MARKET TIMING
• APPENDIX 6.C: HEDGING: LONG-SHORT PORTFOLIO
• APPENDIX 6.D: MERGER ARBITRAGE AND HEDGING
• EXERCISES
• NOTES
• CHAPTER 7: Currency Forwards and Futures
• 7.1 FX-FUTURES CONTRACTS
• 7.2 PRICING FX-FORWARD CONTRACTS
• 7.3 PRICING FX-FUTURES CONTRACTS
• 7.4 HEDGING AND SPECULATION: FORWARDS
• 7.5 HEDGING AND SPECULATION: FUTURES
• 7.6 SUMMARY
• APPENDIX 7: HEDGING USING FX-FUTURES
• EXERCISES
• NOTE
• PART II: FIXED INCOME: CASH MARKETS
• CHAPTER 8: Interest Rates
• 8.1 LIBOR, REPOS, FED FUNDS, AND OIS RATES
• 8.2 DAY-COUNT CONVENTIONS
• 8.3 FORWARD RATES
• 8.4 FORWARD RATE AGREEMENTS (FRAS)
• SUMMARY
• EXERCISES
• NOTES
• CHAPTER 9: Bond Markets
• 9.1 PRICES, YIELDS, AND RETURN
• 9.2 PRICING COUPON BONDS
• 9.3 SUMMARY
• EXERCISES
• NOTE
• CHAPTER 10: Bonds: Duration and Convexity
• 10.1 YIELD CURVE
• 10.2 DURATION AND CONVEXITY
• 10.3 SUMMARY
• APPENDIX 10: DURATION AND CONVEXITY
• EXERCISES
• NOTE
• PART III: FIXED INCOME FUTURES CONTRACTS
• CHAPTER 11: Interest Rate Futures
• 11.1 THREE-MONTH EURODOLLAR FUTURES CONTRACT
• 11.2 STERLING 3-MONTH FUTURES CONTRACT
• 11.3 T-BILL FUTURES
• 11.4 FUTURES PRICE AND FORWARD RATES
• 11.5 PRICING INTEREST RATE FUTURES
• 11.6 ARBITRAGE: IMPLIED REPO RATE
• 11.7 SPECULATION
• 11.8 SPREAD TRADES
• 11.9 SUMMARY
• APPENDIX 11.A: FUTURES PRICES AND INTEREST RATES
• EXERCISES
• NOTES
• CHAPTER 12: Hedging with Interest Rate Futures
• 12.1 NUMBER OF FUTURES CONTRACTS
• 12.2 DIFFERENT TYPES OF HEDGE
• 12.3 HEDGING: T-BILL AND EURODOLLAR FUTURES
• 12.4 EURODOLLAR STACK HEDGE
• 12.5 SUMMARY
• APPENDIX 12: HEDGE RATIOS
• EXERCISES
• NOTES
• CHAPTER 13: T-bond Futures
• 13.1 CONTRACT SPECIFICATIONS
• 13.2 CONVERSION FACTOR AND CHEAPEST-TO-DELIVER
• 13.3 HEDGING USING T-BONDS
• 13.4 HEDGING: FURTHER ISSUES
• 13.5 MARKET TIMING
• 13.6 WILD CARD PLAY
• 13.7 PRICING T-BOND FUTURES
• 13.8 T-BOND FUTURES SPREADS
• 13.9 SUMMARY
• APPENDIX 13.A: HEDGING: DURATION AND MARKET TIMING
• APPENDIX 13.B: IMPLIED REPO RATE AND ARBITRAGE
• EXERCISES
• NOTES
• PART IV: OPTIONS
• CHAPTER 14: Options Markets
• 14.1 MARKET ORGANISATION
• 14.2 CALL OPTIONS
• 14.3 PUT OPTIONS
• 14.4 INTRINSIC VALUE AND TIME VALUE
• 14.5 SUMMARY
• EXERCISES
• NOTES
• CHAPTER 15: Uses of Options
• 15.1 PROTECTIVE PUT
• 15.2 PUT–CALL PARITY: EUROPEAN OPTIONS
• 15.3 GUARANTEED BOND
• 15.4 OTHER OPTIONS
• 15.5 SUMMARY
• EXERCISES
• NOTES
• CHAPTER 16: Black–Scholes Model
• 16.1 DETERMINANTS OF OPTION PRICES
• 16.2 BLACK–SCHOLES
• 16.3 ARE STOCKS LESS RISKY IN THE LONG RUN?
• 16.4 DELTA HEDGING
• 16.5 IMPLIED VOLATILITY
• 16.6 SUMMARY
• APPENDIX 16: PRICE BOUNDS ON EUROPEAN OPTIONS
• EXERCISES
• NOTES
• CHAPTER 17: Option Strategies
• 17.1 SYNTHETIC SECURITIES
• 17.2 BULL AND BEAR SPREADS
• 17.3 STRADDLE, STRANGLE, BUTTERFLY, AND CONDOR
• 17.4 HORIZONTAL (TIME, CALENDAR) SPREADS
• 17.5 SUMMARY
• EXERCISES
• NOTES
• CHAPTER 18: Stock Options and Stock Index Options
• 18.1 OPTIONS ON STOCKS
• 18.2 STOCK INDEX OPTIONS (SIO)
• 18.3 SUMMARY
• APPENDIX 18.A: STATIC HEDGE: INDEX PUTS
• APPENDIX 18.B: DYNAMIC DELTA HEDGE
• EXERCISES
• NOTES
• CHAPTER 19: Foreign Currency Options
• 19.1 CONTRACT SPECIFICATIONS
• 19.2 SPECULATION
• 19.3 HEDGING FOREIGN CURRENCY EXPOSURE
• 19.4 OTHER CURRENCY OPTIONS
• 19.5 SUMMARY
• EXERCISES
• CHAPTER 20: Options on Futures
• 20.1 MARKET CONVENTIONS
• 20.2 PRICE BOUNDS ON EUROPEAN FUTURES OPTIONS
• 20.3 TRADING STRATEGIES
• 20.4 SUMMARY
• EXERCISES
• NOTES
• PART V: OPTIONS PRICING
• CHAPTER 21: BOPM: Introduction
• 21.1 ONE-PERIOD BOPM
• 21.2 RISK-NEUTRAL VALUATION
• 21.3 DETERMINANTS OF CALL PREMIUM
• 21.4 PRICING A EUROPEAN PUT OPTION
• 21.5 SUMMARY
• APPENDIX 21: NO-ARBITRAGE CONDITIONS
• EXERCISES
• NOTES
• CHAPTER 22: BOPM: Implementation
• 22.1 GENERALISING THE BOPM
• 22.2 REPLICATION PORTFOLIO
• 22.3 BOPM TO BLACK–SCHOLES
• 22.4 SUMMARY
• APPENDIX 22: DELTA HEDGING AND ARBITRAGE
• EXERCISES
• NOTES
• CHAPTER 23: BOPM: Extensions
• 23.1 AMERICAN OPTIONS
• 23.2 OPTIONS ON OTHER UNDERLYING ASSETS
• 23.3 OPTIONS ON FUTURES CONTRACTS
• 23.4 OPTIONS ON DIVIDEND-PAYING STOCKS
• 23.5 SUMMARY
• APPENDIX 23: BOPM AND RISK-NEUTRAL VALUATION
• EXERCISES
• NOTES
• CHAPTER 24: Analysis of Black–Scholes
• 24.1 VOLATILITY
• 24.2 TESTING BLACK–SCHOLES
• 24.3 LIMITATIONS OF BLACK–SCHOLES
• 24.4 SUMMARY
• EXERCISES
• NOTES
• CHAPTER 25: Pricing European Options
• 25.1 WHAT DO N(d1) AND N(d2) REPRESENT?
• 25.2 EUROPEAN OPTIONS: DIVIDEND PAYING STOCKS
• 25.3 FOREIGN CURRENCY AND FUTURES OPTIONS
• 25.4 PUT–CALL PARITY
• 25.5 SUMMARY
• EXERCISES
• NOTE
• CHAPTER 26: Pricing Options: Monte Carlo Simulation
• 26.1 BROWNIAN MOTION: PARALLEL UNIVERSE
• 26.2 PRICING A EUROPEAN CALL
• 26.3 VARIANCE REDUCTION METHODS
• 26.4 THE GREEKS
• 26.5 MULTIPLE STOCHASTIC FACTORS
• 26.6 PATH-DEPENDENT OPTIONS
• 26.7 SUMMARY
• APPENDIX 26: MCS, SEVERAL STOCHASTIC VARIABLES
• EXERCISES
• NOTES
• PART VI: THE GREEKS
• CHAPTER 27: Delta Hedging
• 27.1 DELTA
• 27.2 DYNAMIC DELTA HEDGING
• 27.3 SUMMARY
• EXERCISES
• NOTES
• CHAPTER 28: The Greeks
• 28.1 DIFFERENT GREEKS
• 28.2 HEDGING WITH THE GREEKS
• 28.3 GREEKS AND THE BOPM
• 28.4 SUMMARY
• APPENDIX 28: BLACK–SCHOLES AND THE GREEKS
• EXERCISES
• NOTES
• CHAPTER 29: Portfolio Insurance
• 29.1 STATIC HEDGE
• 29.2 DYNAMIC PORTFOLIO INSURANCE
• 29.3 SUMMARY
• EXERCISES
• NOTE
• PART VII: ADVANCED OPTIONS
• CHAPTER 30: Other Options
• 30.1 CORPORATE EQUITY AND DEBT
• 30.2 WARRANTS
• 30.3 EQUITY COLLAR
• 30.4 SUMMARY
• EXERCISES
• NOTES
• CHAPTER 31: Exotic Options
• 31.1 THREE-PERIOD BOPM
• 31.2 ASIAN OPTIONS
• 31.3 OTHER EXOTICS: LOOKBACKS, BARRIER, COMPOUND, AND CHOOSER
• 31.4 SUMMARY
• EXERCISES
• NOTES
• CHAPTER 32: Energy and Weather Derivatives
• 32.1 ENERGY CONTRACTS
• 32.2 HEDGING WITH ENERGY FUTURES
• 32.3 ENERGY SWAPS
• 32.4 WEATHER DERIVATIVES
• 32.5 REINSURANCE AND CAT BONDS
• 32.6 SUMMARY
• EXERCISES
• NOTES
• PART VIII: SWAPS
• CHAPTER 33: Interest Rate Swaps
• 33.1 USING INTEREST RATE SWAPS
• 33.2 CASH FLOWS IN A SWAP
• 33.3 SETTLEMENT AND PRICE QUOTES
• 33.4 TERMINATING A SWAP
• 33.5 COMPARATIVE ADVANTAGE
• 33.6 SUMMARY
• APPENDIX 33: COMPARATIVE ADVANTAGE WITH SWAP DEALER
• EXERCISES
• NOTES
• CHAPTER 34: Pricing Interest Rate Swaps
• 34.1 CASH FLOWS IN A SWAP
• 34.2 FLOATING RATE NOTE (FRN)
• 34.3 PRICING A SWAP: SHORT METHOD
• 34.4 PRICING A SWAP: FORWARD RATE METHOD
• 34.5 MARKET VALUE OF A SWAP
• 34.6 SWAP DELTA AND PVBP
• 34.7 SUMMARY
• APPENDIX 34: VALUE OF AN FRN USING ARBITRAGE
• EXERCISES
• NOTES
• CHAPTER 35: Other Interest Rate Swaps
• 35.1 SWAP DEALS
• 35.2 PRICING NON-STANDARD SWAPS
• 35.3 HEDGING INTEREST RATE SWAPS
• 35.4 CREDIT RISK
• 35.5 SUMMARY
• EXERCISES
• NOTES
• CHAPTER 36: Currency Swaps
• 36.1 USES
• 36.2 PRICING A FIXED-FIXED CURRENCY SWAP
• 36.3 VALUING A FIXED-FIXED CURRENCY SWAP
• 36.4 SUMMARY
• APPENDIX 36.A: PRICING A CURRENCY SWAP
• APPENDIX 36.B: VALUATION OF A CURRENCY SWAP
• EXERCISES
• NOTES
• CHAPTER 37: Equity Swaps
• 37.1 EQUITY-FOR-LIBOR: FIXED NOTIONAL PRINCIPAL
• 37.2 UNHEDGED CROSS-CURRENCY EQUITY SWAP
• 37.3 HEDGED CROSS-CURRENCY EQUITY SWAP
• 37.4 PRICING EQUITY SWAPS
• 37.5 SUMMARY
• APPENDIX 37: VALUATION OF EQUITY-FOR-LIBOR SWAP
• EXERCISES
• NOTES
• PART IX: FIXED INCOME DERIVATIVES
• CHAPTER 38: T-Bond Option, Caps, Floors and Collar
• 38.1 OPTIONS ON T-BONDS AND EURODOLLARS
• 38.2 CAPLETS AND FLOORLETS
• 38.3 INTEREST RATE CAP
• 38.4 INTEREST RATE FLOOR
• 38.5 INTEREST RATE COLLAR
• 38.6 SUMMARY
• EXERCISES
• NOTES
• CHAPTER 39: Swaptions, Forward Swaps, and MBS
• 39.1 SWAPTIONS
• 39.2 FORWARD SWAPS
• 39.3 MORTGAGE-BACKED SECURITIES (MBS)
• 39.4 HEDGING FIXED INCOME DERIVATIVES
• 39.5 SUMMARY
• EXERCISES
• NOTES
• CHAPTER 40: Pricing Fixed Income Options: Black’s Model and MCS
• 40.1 BLACK’S MODEL: EUROPEAN OPTIONS
• 40.2 PRICING A CAPLET USING MCS
• 40.3 EUROPEAN SWAPTION: BLACK’S MODEL
• 40.4 SUMMARY
• EXERCISES
• NOTE
• CHAPTER 41: Pricing Fixed Income Derivatives: BOPM
• 41.1 NO-ARBITRAGE APPROACH: BOPM
• 41.2 PRICING A COUPON BOND
• 41.3 PRICING OPTIONS
• 41.4 PRICING A CALLABLE BOND
• 41.5 PRICING CAPS
• 41.6 PRICING FRAS
• 41.7 PRICING A SWAPTION
• 41.8 PRICING FRNS WITH EMBEDDED OPTIONS
• 41.9 MORE LATTICES
• 41.10 SUMMARY
• EXERCISES
• NOTES
• PART X: CREDIT DERIVATIVES
• CHAPTER 42: Credit Default Swaps (CDS)
• 42.1 CREDIT RISK AND CDS
• 42.2 SPECULATION WITH CDS
• 42.3 CONTRACT DETAILS
• 42.4 PRICING AND VALUATION
• 42.5 BOND YIELDS AND THE CDS SPREAD
• 42.6 CREDIT INDICES AND OTHER CDS CONTRACTS
• 42.7 DERIVATIVES ON THE CDS SPREAD
• 42.8 SUMMARY
• EXERCISES
• NOTES
• CHAPTER 43: Securitisation, ABSs and CDOs
• 43.1 ABS AND ABS-CDO
• 43.2 CREDIT ENHANCEMENT
• 43.3 LOSSES ON ABS AND ABS-CDO
• 43.4 SUB-PRIME CRISIS 2007–8
• 43.5 SYNTHETIC CDO
• 43.6 SINGLE TRANCHE TRADING
• 43.7 TOTAL RETURN SWAP
• 43.8 SUMMARY
• EXERCISES
• NOTES
• PART XI: MARKET RISK
• CHAPTER 44: Value at Risk
• 44.1 INTRODUCTION
• 44.2 VALUE AT RISK (VAR)
• 44.3 FORECASTING VOLATILITY
• 44.4 BACKTESTING
• 44.5 CAPITAL ADEQUACY
• 44.6 SUMMARY
• EXERCISES
• NOTES
• CHAPTER 45: VaR: Other Portfolios
• 45.1 SINGLE INDEX MODEL
• 45.2 VaR FOR COUPON BONDS
• 45.3 VaR: OPTIONS
• 45.4 SUMMARY
• APPENDIX 45.A: VaR FOR FOREIGN ASSETS
• APPENDIX 45.B: SINGLE INDEX MODEL (SIM)
• APPENDIX 45.C: CASH FLOW MAPPING
• EXERCISES
• NOTES
• CHAPTER 46: VaR: Alternative Measures
• 46.1 HISTORICAL SIMULATION
• 46.2 BOOTSTRAPPING
• 46.3 MONTE CARLO SIMULATION
• 46.4 ALTERNATIVE METHODS
• 46.5 SUMMARY
• EXERCISES
• NOTES
• PART XII: PRICE DYNAMICS
• CHAPTER 47: Asset Price Dynamics
• 47.1 STOCHASTIC PROCESSES
• 47.2 GEOMETRIC BROWNIAN MOTION (GBM) AND ITO’S LEMMA
• 47.3 DISTRIBUTION OF LOG STOCK PRICE AND STOCK PRICE
• 47.4 SUMMARY
• APPENDIX 47: ITO’S LEMMA
• EXERCISES
• NOTES
• CHAPTER 48: Black–Scholes PDE
• 48.1 RISK-NEUTRAL VALUATION AND BLACK–SCHOLES PDE
• 48.2 FINITE DIFFERENCE METHODS
• 48.3 SUMMARY
• APPENDIX 48: DERIVATION OF BLACK–SCHOLES PDE
• EXERCISES
• NOTE
• CHAPTER 49: Equilibrium Models: Term Structure
• 49.1 RISK-NEUTRAL VALUATION
• 49.2 MODELS OF THE SHORT-RATE
• 49.3 PRICING USING CONTINUOUS TIME MODELS
• 49.4 BOND PRICES AND DERIVATIVE PRICES
• 49.5 SUMMARY
• EXERCISES
• NOTES
• Glossary
• Bibliography
• Author Index
• Subject Index
• End User License Agreement