Efnisyfirlit

• Contents
• Business Snapshots
• Technical Notes
• Preface
• Chapter 1: Introduction
• 1.1 Exchange-traded markets
• Electronic Markets
• 1.2 Over-the-counter markets
• Market Size
• 1.3 Forward contracts
• Payoffs from Forward Contracts
• Forward Prices and Spot Prices
• 1.4 Futures contracts
• 1.5 Options
• 1.6 Types of traders
• 1.7 Hedgers
• Hedging Using Forward Contracts
• Hedging Using Options
• A Comparison
• 1.8 Speculators
• Speculation Using Futures
• Speculation Using Options
• A Comparison
• 1.9 Arbitrageurs
• 1.10 Dangers
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 2: Mechanics of futures markets
• 2.1 Background
• Closing Out Positions
• 2.2 Specification of a futures contract
• The Asset
• The Contract Size
• Delivery Arrangements
• Delivery Months
• Price Quotes
• Price Limits and Position Limits
• 2.3 Convergence of futures price to spot price
• 2.4 The operation of margin accounts
• Daily Settlement
• Further Details
• The Clearing House and Its Members
• Credit Risk
• 2.5 OTC markets
• Central Counterparties
• Bilateral Clearing
• Futures Trades vs. OTC Trades
• 2.6 Market quotes
• Prices
• Settlement Price
• Trading Volume and Open Interest
• Patterns of Futures
• 2.7 Delivery
• Cash Settlement
• 2.8 Types of traders and types of orders
• Orders
• 2.9 Regulation
• Trading Irregularities
• 2.10 Accounting and tax
• Accounting
• Tax
• 2.11 Forward vs. futures contracts
• Profits from Forward and Futures Contracts
• Foreign Exchange Quotes
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 3: Hedging strategies using futures
• 3.1 Basic principles
• Short Hedges
• Long Hedges
• 3.2 Arguments for and against hedging
• Hedging and Shareholders
• Hedging and Competitors
• Hedging Can Lead to a Worse Outcome
• 3.3 Basis risk
• The Basis
• Choice of Contract
• 3.4 Cross hedging
• Calculating the Minimum Variance Hedge Ratio
• Optimal Number of Contracts
• Tailing the Hedge
• 3.5 Stock index futures
• Stock Indices
• Hedging an Equity Portfolio
• Reasons for Hedging an Equity Portfolio
• Changing the Beta of a Portfolio
• Locking in the Benefits of Stock Picking
• 3.6 Stack and roll
• Summary
• Further reading
• Practice questions
• Further questions
• Appendix: Capital asset pricing model
• Chapter 4: Interest rates
• 4.1 Types of rates
• Treasury Rates
• LIBOR
• The Fed Funds Rate
• Repo Rates
• The “Risk-Free” Rate
• 4.2 Measuring interest rates
• Continuous Compounding
• 4.3 Zero rates
• 4.4 Bond pricing
• Bond Yield
• Par Yield
• 4.5 Determining Treasury zero rates
• 4.6 Forward rates
• 4.7 Forward rate agreements
• Valuation
• 4.8 Duration
• Modified Duration
• Bond Portfolios
• 4.9 Convexity
• 4.10 Theories of the term structure of interest rates
• The Management of Net Interest Income
• Liquidity
• Summary
• Further reading
• Practice questions
• Further questions
• 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
• A Generalization
• What If Short Sales are not possible?
• 5.5 Known Income
• A Generalization
• 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
• Index Arbitrage
• 5.10 Forward and futures contracts on currencies
• 5.11 Futures on commodities
• Income and Storage Costs
• Consumption Commodities
• Convenience Yields
• 5.12 The cost of carry
• 5.13 Delivery options
• 5.14 Futures prices and expected future spot prices
• Keynes and Hicks
• Risk and Return
• The Risk in a Futures Position
• Normal Backwardation and Contango
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 6: Interest rate futures
• 6.1 Day count and quotation conventions
• Day Counts
• Price Quotations of US Treasury Bills
• Price Quotations of US Treasury Bonds
• 6.2 Treasury bond futures
• Quotes
• Conversion Factors
• Cheapest-to-Deliver Bond
• Determining the Futures Price
• 6.3 Eurodollar futures
• Forward vs. Futures Interest Rates
• Convexity Adjustment
• Using Eurodollar Futures to Extend the LIBOR Zero Curve
• 6.4 Duration-based hedging strategies using futures
• 6.5 Hedging portfolios of assets and liabilities
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 7: Swaps
• 7.1 Mechanics of interest rate swaps
• LIBOR
• Illustration
• Using the Swap to Transform a Liability
• Using the Swap to Transform an Asset
• Role of Financial Intermediary
• Market Makers
• 7.2 Day count issues
• 7.3 Confirmations
• 7.4 The comparative-advantage argument
• Criticism of the Argument
• 7.5 The nature of swap rates
• 7.6 Determining the LIBOR/swap zero rates
• 7.7 Valuation of interest rate swaps
• Valuation in Terms of Bond Prices
• Valuation in Terms of FRAs
• 7.8 Term structure effects
• 7.9 Fixed-for-fixed currency swaps
• Illustration
• Use of a Currency Swap to Transform Liabilities and Assets
• Comparative Advantage
• 7.10 Valuation of fixed-for-fixed currency swaps
• Valuation in Terms of Bond Prices
• Valuation as Portfolio of Forward Contracts
• 7.11 Other currency swaps
• 7.12 Credit risk
• Central Clearing
• Credit Default Swaps
• 7.13 Other types of swaps
• Variations on the Standard Interest Rate Swap
• Diff Swaps
• Equity Swaps
• Options
• Commodity Swaps, Volatility Swaps, and Other Exotic Instruments
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 8: Securitization and the credit crisis of 2007
• 8.1 Securitization
• ABSs
• ABS CDOs
• 8.2 The US housing market
• The Relaxation of Lending Standards
• Subprime Mortgage Securitization
• The Bubble Bursts
• The Losses
• The Credit Crisis
• 8.3 What went wrong?
• Regulatory Arbitrage
• Incentives
• 8.4 The aftermath
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 9: OIS discounting, credit issues, and funding costs
• 9.1 The risk-free rate
• 9.2 The OIS rate
• Determining the OIS Zero Curve
• 9.3 Valuing swaps and FRAs with OIS discounting
• Determining Forward LIBOR Rates with OIS Discounting
• 9.4 OIS vs. LIBOR: Which is correct?
• 9.5 Credit risk: CVA and DVA
• Collateral
• 9.6 Funding costs
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 10: Mechanics of options markets
• 10.1 Types of options
• Call Options
• Put Options
• Early Exercise
• 10.2 Option positions
• 10.3 Underlying assets
• Stock Options
• Foreign Currency Options
• Index Options
• Futures Options
• 10.4 Specification of stock options
• Expiration Dates
• Strike Prices
• Terminology
• FLEX Options
• Other Nonstandard Products
• Dividends and Stock Splits
• Position Limits and Exercise Limits
• 10.5 Trading
• Market Makers
• Offsetting Orders
• 10.6 Commissions
• 10.7 Margin requirements
• Writing Naked Options
• Other Rules
• 10.8 The options clearing corporation
• Exercising an Option
• 10.9 Regulation
• 10.10 Taxation
• Wash Sale Rule
• Constructive Sales
• 10.11 Warrants, employee stock options, and convertibles
• 10.12 Over-the-counter options markets
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 11: Properties of stock options
• 11.1 Factors affecting option prices
• Stock Price and Strike Price
• Time to Expiration
• Volatility
• Risk-Free Interest Rate
• Amount of Future Dividends
• 11.2 Assumptions and notation
• 11.3 Upper and lower bounds for option prices
• Upper Bounds
• Lower Bound for Calls on Non-Dividend-Paying Stocks
• Lower Bound for European Puts on Non-Dividend-Paying Stocks
• 11.4 Put–call parity
• 11.5 Calls on a non-dividend-paying stock
• Bounds
• 11.6 Puts on a non-dividend-paying stock
• Bounds
• 11.7 Effect of dividends
• Lower Bound for Calls and Puts
• Early Exercise
• Put–Call Parity
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 12: Trading strategies involving options
• 12.1 Principal-protected notes
• 12.2 Trading an option and the underlying asset
• 12.3 Spreads
• Bull Spreads
• Bear Spreads
• Box Spreads
• Butterfly Spreads
• Calendar Spreads
• Diagonal Spreads
• 12.4 Combinations
• Straddle
• Strips and Straps
• Strangles
• 12.5 Other payoffs
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 13: Binomial trees
• 13.1 A one-step binomial model and a no-arbitrage argument
• A Generalization
• Irrelevance of the Stock’s Expected Return
• 13.2 Risk-neutral valuation
• The One-Step Binomial Example Revisited
• Real World vs. Risk-Neutral World
• 13.3 Two-step binomial trees
• A Generalization
• 13.4 A put example
• 13.5 American options
• 13.6 Delta
• 13.7 Matching volatility with u and d
• Girsanov’s Theorem
• 13.8 The binomial tree formulas
• 13.9 Increasing the number of steps
• 13.10 Using DerivaGem
• 13.11 Options on other assets
• Options on Stocks Paying a Continuous Dividend Yield
• Options on Stock Indices
• Options on Currencies
• Options on Futures
• Summary
• Further reading
• Practice questions
• Further questions
• Appendix: Derivation of the Black–Scholes–Merton option-pricing formula from a binomial tree
• Chapter 14: Wiener processes and Itô’s lemma
• 14.1 The Markov property
• 14.2 Continuous-time stochastic processes
• Wiener Process
• Generalized Wiener Process
• Itô Process
• 14.3 The process for a stock price
• Discrete-Time Model
• Monte Carlo Simulation
• 14.4 The parameters
• 14.5 Correlated processes
• 14.6 Itô’s Lemma
• Application to Forward Contracts
• 14.7 The lognormal property
• Summary
• Further reading
• Practice questions
• Further questions
• Appendix: Derivation of Itô’s lemma
• Chapter 15: The Black–Scholes–Merton model
• 15.1 Lognormal property of stock prices
• 15.2 The distribution of the rate of return
• 15.3 The expected return
• 15.4 Volatility
• Estimating Volatility from Historical Data
• Trading Days vs. Calendar Days
• 15.5 The idea underlying the Black–Scholes–Merton differential equation
• 15.6 Derivation of the Black–Scholes–Merton differential equation
• A Perpetual Derivative
• The Prices of Tradeable Derivatives
• 15.7 Risk-neutral valuation
• Application to Forward Contracts on a Stock
• 15.8 Black–Scholes–Merton pricing formulas
• Understanding N(d1) and N(d2)
• Properties of the Black–Scholes–Merton Formulas
• 15.9 Cumulative normal distribution function
• 15.10 Warrants and employee stock options
• 15.11 Implied volatilities
• The VIX Index
• 15.12 Dividends
• European Options
• American Call Options
• Black’s Approximation
• Summary
• Further reading
• Practice questions
• Further questions
• Appendix: Proof of Black–Scholes–Merton formula using risk-neutral valuation
• Chapter 16: Employee stock options
• 16.1 Contractual arrangements
• The Early Exercise Decision
• 16.2 Do options align the interests of shareholders and managers?
• 16.3 Accounting issues
• Alternatives to Stock Options
• 16.4 Valuation
• The “Quick and Dirty” Approach
• Binomial Tree Approach
• The Exercise Multiple Approach
• A Market-Based Approach
• Dilution
• 16.5 Backdating scandals
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 17: Options on stock indices and currencies
• 17.1 Options on stock indices
• Portfolio Insurance
• When the Portfolio’s Beta is Not 1.0
• 17.2 Currency options
• Range Forwards
• 17.3 Options on stocks paying known dividend yields
• Lower Bounds for Option Prices
• Put–Call Parity
• Pricing Formulas
• Differential Equation and Risk-Neutral Valuation
• 17.4 Valuation of European stock index options
• Forward Prices
• Implied Dividend Yields
• 17.5 Valuation of European currency options
• Using Forward Exchange Rates
• 17.6 American options
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 18: Futures options
• 18.1 Nature of futures options
• Expiration Months
• Options on Interest Rate Futures
• 18.2 Reasons for the popularity of futures options
• 18.3 European spot and futures options
• 18.4 Put–call parity
• 18.5 Bounds for futures options
• 18.6 Valuation of futures options using binomial trees
• A Generalization
• Multistep Trees
• 18.7 Drift of a futures prices in a risk-neutral world
• 18.8 Black’s model for valuing futures options
• Using Black’s Model Instead of Black–Scholes–Merton
• 18.9 American futures options vs. American spot options
• 18.10 Futures-style options
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 19: The Greek letters
• 19.1 Illustration
• 19.2 Naked and covered positions
• 19.3 A stop-loss strategy
• 19.4 Delta hedging
• Delta of European Stock Options
• Dynamic Aspects of Delta Hedging
• Where the Cost Comes From
• Delta of a Portfolio
• Transaction Costs
• 19.5 Theta
• 19.6 Gamma
• Making a Portfolio Gamma Neutral
• Calculation of Gamma
• 19.7 Relationship between delta, theta, and gamma
• 19.8 Vega
• 19.9 Rho
• 19.10 The realities of hedging
• 19.11 Scenario analysis
• 19.12 Extension of formulas
• Delta of Forward Contracts
• Delta of a Futures Contract
• 19.13 Portfolio insurance
• Use of Index Futures
• 19.14 Stock market volatility
• Summary
• Further reading
• Practice questions
• Further questions
• Appendix: Taylor series expansions and hedge parameters
• Chapter 20: Volatility smiles
• 20.1 Why the volatility smile is the same for calls and puts
• 20.2 Foreign currency options
• Empirical Results
• Reasons for the Smile in Foreign Currency Options
• 20.3 Equity options
• The Reason for the Smile in Equity Options
• 20.4 Alternative ways of characterizing the volatility smile
• 20.5 The volatility term structure and volatility surfaces
• 20.6 Greek letters
• 20.7 The role of the model
• 20.8 When a single large jump is anticipated
• Summary
• Further reading
• Practice questions
• Further questions
• Appendix: Determining implied risk-neutral distributions from volatility smiles
• Chapter 21: Basic numerical procedures
• 21.1 Binomial trees
• Risk-Neutral Valuation
• Determination of p, u, and d
• Tree of Asset Prices
• Working Backward through the Tree
• Expressing the Approach Algebraically
• Estimating Delta and Other Greek Letters
• 21.2 Using the binomial tree for options on indices, currencies, and futures contracts
• 21.3 Binomial model for a dividend-paying stock
• Known Dividend Yield
• Known Dollar Dividend
• Control Variate Technique
• 21.4 Alternative procedures for constructing trees
• Trinomial Trees
• 21.5 Time-dependent parameters
• 21.6 Monte Carlo simulation
• Derivatives Dependent on More than One Market Variable
• Generating the Random Samples from Normal Distributions
• Number of Trials
• Sampling through a Tree
• Calculating the Greek Letters
• Applications
• 21.7 Variance reduction procedures
• Antithetic Variable Technique
• Control Variate Technique
• Importance Sampling
• Stratified Sampling
• Moment Matching
• Using Quasi-Random Sequences
• 21.8 Finite difference methods
• Implicit Finite Difference Method
• Explicit Finite Difference Method
• Change of Variable
• Relation to Trinomial Tree Approaches
• Other Finite Difference Methods
• Applications of Finite Difference Methods
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 22: Value at Risk
• 22.1 The VaR measure
• The Time Horizon
• 22.2 Historical simulation
• Illustration: Investment in Four Stock Indices
• 22.3 Model-building approach
• Daily Volatilities
• Single-Asset Case
• Two-Asset Case
• The Benefits of Diversification
• 22.4 The linear model
• Correlation and Covariance Matrices
• Handling Interest Rates
• Applications of the Linear Model
• The Linear Model and Options
• 22.5 The quadratic model
• 22.6 Monte Carlo simulation
• 22.7 Comparison of approaches
• 22.8 Stress testing and back testing
• 22.9 Principal components analysis
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 23: Estimating volatilities and correlations
• 23.1 Estimating volatility
• Weighting Schemes
• 23.2 The exponentially weighted moving average model
• 23.3 The GARCH (1,1) model
• The Weights
• Mean Reversion
• 23.4 Choosing between the models
• 23.5 Maximum likelihood methods
• Estimating a Constant Variance
• Estimating EWMA or GARCH (1,1) Parameters
• How Good is the Model?
• 23.6 Using GARCH (1,1) to forecast future volatility
• Volatility Term Structures
• Impact of Volatility Changes
• 23.7 Correlations
• Consistency Condition for Covariances
• 23.8 Application of EWMA to four-index example
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 24: Credit risk
• 24.1 Credit ratings
• 24.2 Historical default probabilities
• Hazard Rates
• 24.3 Recovery rates
• The Dependence of Recovery Rates on Default Rates
• 24.4 Estimating default probabilities from bond yield spreads
• Matching Bond Prices
• The Risk-Free Rate
• Asset Swap Spreads
• 24.5 Comparison of default probability estimates
• Real-World vs. Risk-Neutral Probabilities
• Which Default Probability Estimate Should Be Used?
• 24.6 Using equity prices to estimate default probabilities
• 24.7 Credit risk in derivatives transactions
• CVA and DVA
• Credit Risk Mitigation
• Special Cases
• 24.8 Default correlation
• The Gaussian Copula Model for Time to Default
• A Factor-Based Correlation Structure
• 24.9 Credit VaR
• CreditMetrics
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 25: Credit derivatives
• 25.1 Credit default swaps
• Credit Default Swaps and Bond Yields
• The Cheapest-to-Deliver Bond
• 25.2 Valuation of credit default swaps
• Marking to Market a CDS
• Estimating Default Probabilities
• Binary Credit Default Swaps
• How Important is the Recovery Rate?
• 25.3 Credit indices
• 25.4 The use of fixed coupons
• 25.5 CDS forwards and options
• 25.6 Basket credit default swaps
• 25.7 Total return swaps
• 25.8 Collateralized debt obligations
• Synthetic CDOs
• Standard Portfolios and Single-Tranche Trading
• 25.9 Role of correlation in a basket CDS and CDO
• 25.10 Valuation of a synthetic CDO
• Using the Gaussian Copula Model of Time to Default
• Valuation of kth-to-Default CDS
• Implied Correlation
• Valuing Nonstandard Tranches
• 25.11 Alternatives to the standard market model
• Heterogeneous Model
• Other Copulas
• Random Factor Loadings
• The Implied Copula Model
• Dynamic Models
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 26: Exotic options
• 26.1 Packages
• 26.2 Perpetual American call and put options
• 26.3 Nonstandard American options
• 26.4 Gap options
• 26.5 Forward start options
• 26.6 Cliquet options
• 26.7 Compound options
• 26.8 Chooser options
• 26.9 Barrier options
• 26.10 Binary options
• 26.11 Lookback options
• 26.12 Shout options
• 26.13 Asian options
• 26.14 Options to exchange one asset for another
• 26.15 Options involving several assets
• 26.16 Volatility and variance swaps
• Valuation of Variance Swap
• Valuation of a Volatility Swap
• The VIX Index
• 26.17 Static options replication
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 27: More on models and numerical procedures
• 27.1 Alternatives to Black–Scholes–Merton
• The Constant Elasticity of Variance Model
• Merton’s Mixed Jump–Diffusion Model
• The Variance-Gamma Model
• 27.2 Stochastic volatility models
• 27.3 The IVF model
• 27.4 Convertible bonds
• 27.5 Path-dependent derivatives
• Illustration Using Lookback Options
• Generalization
• 27.6 Barrier options
• The Adaptive Mesh Model
• 27.7 Options on two correlated assets
• Transforming Variables
• Using a Nonrectangular Tree
• Adjusting the Probabilities
• 27.8 Monte Carlo simulation and American options
• The Least-Squares Approach
• The Exercise Boundary Parameterization Approach
• Upper Bounds
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 28: Martingales and measures
• 28.1 The market price of risk
• Alternative Worlds
• 28.2 Several state variables
• 28.3 Martingales
• The Equivalent Martingale Measure Result
• 28.4 Alternative choices for the numeraire
• Money Market Account as the Numeraire
• Zero-Coupon Bond Price as the Numeraire
• Interest Rates When Zero-Coupon Bond Price is the Numeraire
• Annuity Factor as the Numeraire
• 28.5 Extension to several factors
• 28.6 Black’s model revisited
• 28.7 Option to exchange one asset for another
• 28.8 Change of numeraire
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 29: Interest rate derivatives: The standard market models
• 29.1 Bond options
• Embedded Bond Options
• European Bond Options
• Yield Volatilities
• 29.2 Interest rate caps and floors
• The Cap as a Portfolio of Interest Rate Options
• A Cap as a Portfolio of Bond Options
• Floors and Collars
• Valuation of Caps and Floors
• Spot Volatilities vs. Flat Volatilities
• Theoretical Justification for the Model
• Use of DerivaGem
• The Impact of Day Count Conventions
• 29.3 European swap options
• Valuation of European Swaptions
• Broker Quotes
• Theoretical Justification for the Swaption Model
• The Impact of Day Count Conventions
• 29.4 OIS discounting
• 29.5 Hedging interest rate derivatives
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 30: Convexity, timing, and quanto adjustments
• 30.1 Convexity adjustments
• Application 1: Interest Rates
• Application 2: Swap Rates
• 30.2 Timing adjustments
• Application 1 Revisited
• 30.3 Quantos
• Using Traditional Risk-Neutral Measures
• Summary
• Further reading
• Practice questions
• Further questions
• Appendix: Proof of the convexity adjustment formula
• Chapter 31: Interest rate derivatives: models of the short rate
• 31.1 Background
• 31.2 Equilibrium models
• The Rendleman and Bartter Model
• The Vasicek Model
• The Cox, Ingersoll, and Ross Model
• Properties of Vasicek and CIR
• Applications of Equilibrium Models
• 31.3 No-arbitrage models
• The Ho–Lee Model
• The Hull–White (One-Factor) Model
• The Black–Derman–Toy Model
• The Black–Karasinski Model
• The Hull–White Two-Factor Model
• 31.4 Options on bonds
• 31.5 Volatility structures
• 31.6 Interest rate trees
• Illustration of Use of Trinomial Trees
• Nonstandard Branching
• 31.7 A general tree-building procedure
• First Stage
• Second Stage
• Illustration of Second Stage
• Formulas for α’s and Q’s
• Extension to Other Models
• Handling Low Interest Rate Environments
• Using Analytic Results in Conjunction with Trees
• Tree for American Bond Options
• 31.8 Calibration
• 31.9 Hedging using a one-factor model
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 32: HJM, LMM, and multiple zero curves
• 32.1 The Heath, Jarrow, and Morton model
• Processes for Zero-Coupon Bond Prices and Forward Rates
• Extension to Several Factors
• 32.2 The LIBOR market model
• The Model
• Forward Rate Volatilities
• Implementation of the Model
• Extension to Several Factors
• Ratchet Caps, Sticky Caps, and Flexi Caps
• Valuing European Swap Options
• Calibrating the Model
• Volatility Skews
• Bermudan Swap Options
• 32.3 Handling multiple zero curves
• 32.4 Agency mortgage-backed securities
• Collateralized Mortgage Obligations
• Valuing Agency Mortgage-Backed Securities
• Option-Adjusted Spread
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 33: Swaps Revisited
• 33.1 Variations on the vanilla deal
• 33.2 Compounding swaps
• 33.3 Currency swaps
• 33.4 More complex swaps
• LIBOR-in-Arrears Swap
• CMS and CMT Swaps
• Differential Swaps
• 33.5 Equity swaps
• 33.6 Swaps with embedded options
• Accrual Swaps
• Cancelable Swap
• Cancelable Compounding Swaps
• 33.7 Other swaps
• Bizarre Deals
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 34: Energy and commodity derivatives
• 34.1 Agricultural commodities
• 34.2 Metals
• 34.3 Energy products
• Crude Oil
• Natural Gas
• Electricity
• 34.4 Modeling commodity prices
• A Simple Process
• Mean Reversion
• Interpolation and Seasonality
• Jumps
• Other Models
• 34.5 Weather derivatives
• 34.6 Insurance derivatives
• 34.7 Pricing weather and insurance derivatives
• 34.8 How an energy producer can hedge risks
• Summary
• Further reading
• Practice questions
• Further question
• Chapter 35: Real options
• 35.1 Capital investment appraisal
• 35.2 Extension of the risk-neutral valuation framework
• 35.3 Estimating the market price of risk
• 35.4 Application to the valuation of a business
• 35.5 Evaluating options in an investment opportunity
• Illustration
• Evaluation with No Embedded Options
• Use of a Tree
• Option to Abandon
• Option to Expand
• Multiple Options
• Several Stochastic Variables
• Summary
• Further reading
• Practice questions
• Further questions
• Chapter 36: Derivatives mishaps and what we can learn from them
• 36.1 Lessons for all users of derivatives
• Define Risk Limits
• Take the Risk Limits Seriously
• Do Not Assume You Can Outguess the Market
• Do Not Underestimate the Benefits of Diversification
• Carry out Scenario Analyses and Stress Tests
• 36.2 Lessons for financial institutions
• Monitor Traders Carefully
• Separate the Front, Middle, and Back Office
• Do Not Blindly Trust Models
• Be Conservative in Recognizing Inception Profits
• Do Not Sell Clients Inappropriate Products
• Beware of Easy Profits
• Do Not Ignore Liquidity Risk
• Beware When Everyone is Following the Same Trading Strategy
• Do Not Make Excessive Use of Short-Term Funding for Long-Term Needs
• Market Transparency is Important
• Manage Incentives
• Never Ignore Risk Management
• 36.3 Lessons for nonfinancial corporations
• Make Sure You Fully Understand the Trades You are Doing
• Make Sure a Hedger Does Not Become a Speculator
• Be Cautious about Making the Treasury Department a Profit Center
• Summary
• Further reading
• Glossary of Terms
• DerivaGem Software
• Major exchanges trading futures and options
• Tables for N(x) When x ≤ 0
• Tables for N(x) When x ≥ 0
• Author index
• Subject index