9780470298305

The book is a step-by-step guide to derivative products. By distilling the complex mathematics and theory that underlie the subject, Chisholm explains derivative products in straightforward terms, focusing on applications and intuitive explanations wherever possible. Case studies and examples of how the products are used to solve real-world problems, as well as an extensive glossary and material on the latest derivative products make this book a must have for anyone working with derivative products.

Preface
The Market Background
Derivatives building blocks
Market participants
Origins and development of derivatives
The modern OTC derivatives market
Exchange-traded futures and options
Chapter summary
Equity and Currency Forwards
Introduction
The forward price
Components of the forward price
Forward price and expected payout
Foreign exchange forwards
Managing currency risk
Hedging with FX forwards
The forward FX rate
Forward points
FX swaps
Applications of FX swaps
Chapter summary
Forward Rate Agreements
Introduction
FRA application: corporate borrower
Results of the FRA hedge
FRA payment dates and settlement
The FRA as two payment legs
Dealing in FRAs
Forward interest rates
Chapter summary
Commodity and Bond Futures
Introduction
Commodity futures
Futures prices and the basis
Bond futures
Gilt and Euro bund futures
The cheapest-to-deliver
Chapter summary
Interest Rate and Equity Futures
Introduction
Interest rate futures
Trading interest rate futures
Hedging with interest rate futures
Interest rate futures prices
Equity index futures
The margining system
Single stock futures
Chapter summary
Interest Rate Swaps
Introduction
Sterling interest rate swap
Hedging with interest rate swaps
Dollar interest rate swap
Summary of IRS applications
Swap rates and credit risk
Cross-currency swaps
Gains from cross-currency swap
Chapter summary
Equity and Credit Default Swaps
Equity swaps
Monetizing corporate cross-holdings
Other applications of equity swaps
Equity index swaps
Hedging equity swaps
Credit default swaps
Credit default swap premium
Chapter summary
Fundamentals of Options
Introduction
Call option: intrinsic and time value
Long call expiry payoff
Short call expiry payoff
Put option: intrinsic and time value
Long put expiry payoff
Short put expiry payoff
Chapter summary
Hedging with Options
Introduction
Forward hedge revisited
Protective put
Payoff profile of protective put
Changing the put strike
Equity collar
Zero-cost equity collar
Collars and forwards
Protective put with barrier option
Covered call writing (buy-write)
Chapter summary
Exchange-Traded Equity Options
Introduction
UK stock options on LIFFE
Stock options: call expiry payoff
US-listed stock options
CME options on S&P 500 R _ index futures
FT-SE 100 index options
Expiry payoff of FT-SE 100 call
Exercising FT-SE 100 index options
Chapter summary
Currency Options
Introduction
Currency options and forwards
Results from the option hedge
Zero-cost collar
Reducing premium on FX hedges
Compound options
Exchange-traded currency options
Hedging with exchange-traded options
FX covered call writing
Chapter summary
Interest Rate Options
Introduction
OTC interest rate options
Hedging with interest rate calls
Caps, floors and collars
Swaptions
Eurodollar options
Euro and sterling interest rate options
Bond options
Exchange-traded bond options
Bund and gilt bond options
Chapter summary
Option Valuation Concepts
Introduction
The concept of expected payout
Inputs to the Black-Scholes model
Historical volatility
Implied volatility
Share price simulations
Value of a call and put option
Pricing currency options
Pricing interest rate options
Chapter summary
Option Sensitivities: The 'Greeks'
Introduction
Delta
Gamma
Delta, gamma and expiry
Theta
Vega
Rho
Signs of the 'Greeks'
Chapter summary
Managing Trading Risks on Options
Introduction
Delta risk on a short call
Delta hedging and gamma
Profit from a short call position
Chasing the delta
Practical constraints on hedging
Chapter summary
Option Trading Strategies
Introduction
Bull spread
Bull position with digital options
Bear spread
Put or bear ratio spread
Long straddle
Chooser option
Short straddle
Managing the gamma risk
Calendar or time spread
Chapter summary
Convertible and Exchangeable Bonds
Introduction
Investors in convertible bonds
Issuers of convertible bonds
CB measures of value
Conversion premium and parity
Other factors affecting CB value
Participation rates
Mandatorily convertibles and exchangeables
Structuring a mandatorily exchangeable
Chapter summary
Structured Securities: Examples
Introduction
Capital protection equity-linked notes
Expiry value of 100% capital protection notes
100% participation notes
Capped participation notes
Average price notes
Locking in interim gains: cliquet options
Securitization
Synthetic securitization
Chapter summary
Financial Calculations
Glossary of Terms
Further Information
Index
Table of Contents provided by Publisher. All Rights Reserved.

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Derivatives Demystified : A Step-by-Step Guide to Forwards, Futures, Swaps and Options

0470298308

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Table of Contents

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