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• Title Page
• Copyright
• Dedication
• Contents In Brief
• Business Snapshots
• Contents
• Preface
• Chapter 1: Introduction
• 1.1 Futures Contracts
• 1.2 History of Futures Markets
• 1.3 The Over-the-Counter Market
• 1.4 Forward Contracts
• 1.5 Options
• 1.6 History of Options Markets
• 1.7 Types of Trader
• 1.8 Hedgers
• 1.9 Speculators
• 1.10 Arbitrageurs
• 1.11 Dangers
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 2: Futures Markets and Central Counterparties
• 2.1 Opening and Closing Futures Positions
• 2.2 Specification of a Futures Contract
• 2.3 Convergence of Futures Price to Spot Price
• 2.4 The Operation of Margin Accounts
• 2.5 OTC Markets
• 2.6 Market Quotes
• 2.7 Delivery
• 2.8 Types of Trader and Types of Order
• 2.9 Regulation
• 2.10 Accounting and Tax
• 2.11 Forward vs. Futures Contracts
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 3: Hedging Strategies Using Futures
• 3.1 Basic Principles
• 3.2 Arguments for and Against Hedging
• 3.3 Basis Risk
• 3.4 Cross Hedging
• 3.5 Stock Index Futures
• 3.6 Stack and Roll
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Appendix: Review of Key Concepts in Statistics and the CAPM
• Chapter 4: Interest Rates
• 4.1 Types of Rates
• 4.2 Swap Rates
• 4.3 The Risk-Free Rate
• 4.4 Measuring Interest Rates
• 4.5 Zero Rates
• 4.6 Bond Pricing
• 4.7 Determining Zero Rates
• 4.8 Forward Rates
• 4.9 Forward Rate Agreements
• 4.10 Theories of the Term Structure of Interest Rates
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Appendix: Exponential and Logarithmic Functions
• Chapter 5: Determination of Forward and Futures Prices
• 5.1 Investment Assets vs. Consumption Assets
• 5.2 Short Selling
• 5.3 Assumptions and Notation
• 5.4 Forward Price for an Investment Asset
• 5.5 Known Income
• 5.6 Known Yield
• 5.7 Valuing Forward Contracts
• 5.8 Are Forward Prices and Futures Prices Equal?
• 5.9 Futures Prices of Stock Indices
• 5.10 Forward and Futures Contracts on Currencies
• 5.11 Futures on Commodities
• 5.12 The Cost of Carry
• 5.13 Delivery Options
• 5.14 Futures Prices and Expected Spot Prices
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 6: Interest Rates Futures
• 6.1 Day Count and Quotation Conventions
• 6.2 Treasury Bond Futures
• 6.3 Eurodollar Futures
• 6.4 Duration
• 6.5 Duration-Based Hedging Strategies Using Futures
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 7: Swaps
• 7.1 Mechanics of Interest Rate Swaps
• 7.2 Day Count Issues
• 7.3 Confirmations
• 7.4 The Comparative-Advantage Argument
• 7.5 Valuation of Interest Rate Swaps
• 7.6 How the Value Changes through Time
• 7.7 Fixed-for-Fixed Currency Swaps
• 7.8 Valuation of Fixed-for-Fixed Currency Swaps
• 7.9 Other Currency Swaps
• 7.10 Credit Risk
• 7.11 Credit Default Swaps
• 7.12 Other Types of Swaps
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 8: Securitization and the Credit Crisis of 2007
• 8.1 Securitization
• 8.2 The U.S. Housing Market
• 8.3 What Went Wrong?
• 8.4 The Aftermath
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 9: Mechanics of Options Markets
• 9.1 Types of Option
• 9.2 Option Positions
• 9.3 Underlying Assets
• 9.4 Specification of Stock Options
• 9.5 Trading
• 9.6 Commissions
• 9.7 Margin Requirements
• 9.8 The Options Clearing Corporation
• 9.9 Regulation
• 9.10 Taxation
• 9.11 Warrants, Employee Stock Options, and Convertibles
• 9.12 Over-the-Counter Options Markets
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 10: Properties of Stock Options
• 10.1 Factors Affecting Option Prices
• 10.2 Assumptions and Notation
• 10.3 Upper and Lower Bounds for Option Prices
• 10.4 Put–Call Parity
• 10.5 Calls on a Non-Dividend-Paying Stock
• 10.6 Puts on a Non-Dividend-Paying Stock
• 10.7 Effect of Dividends
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 11: Trading Strategies Involving Options
• 11.1 Principal-Protected Notes
• 11.2 Strategies Involving a Single Option and a Stock
• 11.3 Spreads
• 11.4 Combinations
• 11.5 Other Payoffs
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 12: Introduction to Binomial Trees
• 12.1 A One-Step Binomial Model and a No-Arbitrage Argument
• 12.2 Risk-Neutral Valuation
• 12.3 Two-Step Binomial Trees
• 12.4 A Put Example
• 12.5 American Options
• 12.6 Delta
• 12.7 Determining u and d
• 12.8 Increasing the Number of Time Steps
• 12.9 Using DerivaGem
• 12.10 Options on Other Assets
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Appendix: Derivation of Black–Scholes–Merton Option Pricing Formula from Binomial Tree
• Chapter 13: Valuing Stock Options: The Black–Scholes–Merton Model
• 13.1 Assumptions about How Stock Prices Evolve
• 13.2 Expected Return
• 13.3 Volatility
• 13.4 Estimating Volatility from Historical Data
• 13.5 Assumptions Underlying Black–Scholes–Merton
• 13.6 The Key No-Arbitrage Argument
• 13.7 The Black–Scholes–Merton Pricing Formulas
• 13.8 Risk-Neutral Valuation
• 13.9 Implied Volatilities
• 13.10 Dividends
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Appendix: The Early Exercise of American Call Options on Dividend-Paying Stocks
• Chapter 14: Employee Stock Options
• 14.1 Contractual Arrangements
• 14.2 Do Options Align the Interests of Shareholders and Managers?
• 14.3 Accounting Issues
• 14.4 Valuation
• 14.5 Backdating Scandals
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 15: Options on Stock Indices and Currencies
• 15.1 Options on Stock Indices
• 15.2 Currency Options
• 15.3 Options on Stocks Paying Known Dividend Yields
• 15.4 Valuation of European Stock Index Options
• 15.5 Valuation of European Currency Options
• 15.6 American Options
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 16: Futures Options and Black’s Model
• 16.1 Nature of Futures Options
• 16.2 Reasons for the Popularity of Futures Options
• 16.3 European Spot and Futures Options
• 16.4 Put–Call Parity
• 16.5 Bounds for Futures Options
• 16.6 A Futures Price as an Asset Providing a Yield
• 16.7 Black’s Model for Valuing Futures Options
• 16.8 Using Black’s Model Instead of Black–Scholes–Merton
• 16.9 Valuation of Futures Options Using Binomial Trees
• 16.10 American Futures Options vs. American Spot Options
• 16.11 Futures-Style Options
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 17: The Greek Letters
• 17.1 Illustration
• 17.2 Naked and Covered Positions
• 17.3 Greek Letter Calculation
• 17.4 Delta
• 17.5 Theta
• 17.6 Gamma
• 17.7 Relationship Between Delta, Theta, and Gamma
• 17.8 Vega
• 17.9 Rho
• 17.10 The Realities of Hedging
• 17.11 Scenario Analysis
• 17.12 Extension of Formulas
• 17.13 Creating Options Synthetically for Portfolio Insurance
• 17.14 Stock Market Volatility
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 18: Binomial Trees in Practice
• 18.1 The Binomial Model for a Non-Dividend-Paying Stock
• 18.2 Using the Binomial Tree for Options on Indices, Currencies, and Futures Contracts
• 18.3 The Binomial Model for a Dividend-Paying Stock
• 18.4 Extensions of the Basic Tree Approach
• 18.5 Alternative Procedure for Constructing Trees
• 18.6 Monte Carlo Simulation
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 19: Volatility Smiles
• 19.1 Foreign Currency Options
• 19.2 Equity Options
• 19.3 The Volatility Term Structure and Volatility Surfaces
• 19.4 When a Single Large Jump Is Anticipated
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Appendix: Why the Put Volatility Smile Is the Same As the Call Volatility Smile
• Chapter 20: Value at Risk and Expected Shortfall
• 20.1 The VaR and ES Measures
• 20.2 Historical Simulation
• 20.3 Model-Building Approach
• 20.4 Generalization of Linear Model
• 20.5 Quadratic Model
• 20.6 Estimating Volatilities and Correlations
• 20.7 Comparison of Approaches
• 20.8 Back Testing
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 21: Interest Rate Options
• 21.1 Exchange-Traded Interest Rate Options
• 21.2 Embedded Bond Options
• 21.3 Black’s Model
• 21.4 European Bond Options
• 21.5 Interest Rate Caps
• 21.6 European Swap Options
• 21.7 Term Structure Models
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 22: Exotic Options and Other Nonstandard Products
• 22.1 Exotic Options
• 22.2 Agency Mortgage-Backed Securities
• 22.3 Nonstandard Swaps
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 23: Credit Derivatives
• 23.1 Credit Default Swaps
• 23.2 Valuation of Credit Default Swaps
• 23.3 Total Return Swaps
• 23.4 CDS Forwards and Options
• 23.5 Credit Indices
• 23.6 The Use of Fixed Coupons
• 23.7 Collateralized Debt Obligations
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Questions
• Chapter 24: Weather, Energy, and Insurance Derivatives
• 24.1 Weather Derivatives
• 24.2 Energy Derivatives
• 24.3 Insurance Derivatives
• Summary
• Further Reading
• Quiz
• Practice Questions
• Further Question
• Chapter 25: Derivatives Mishaps and What We Can Learn from Them
• 25.1 Lessons for All Users of Derivatives
• 25.2 Lessons for Financial Institutions
• 25.3 Lessons for Nonfinancial Corporations
• Summary
• Further Reading
• Answers to Quiz Questions
• Glossary of Terms
• DerivaGem Software
• Major Exchanges Trading Futures and Options
• Table for N(x) When x ≤ 0
• Table for N(x) When x ≥ 0
• Index