The CME Group Risk Management Handbook: Products and Applications

by CME Group; John W. Labuszewski; John E. Nyhoff; Richard Co; Paul E. Peterson; Foreword by: Leo Melamed

• ISBN13: 9780470634882
• ISBN10: 047063488X
• Format: eBook
• Copyright: 2010-05-01
• Publisher: Wiley

Summary

Praise for The CME Group Risk Management Handbook"Wow! The CME Group Risk Management Handbook is a 'ten strike' and long overdue. A must-read and reference for the risk management industry!" -Jack Sandner, retired chairman of CME Group, member of the Executive Committee"This is a powerful book for its integration of futures and options markets with an understanding of the whole economy. It is an eye-opener to see how central thesemarkets are to our economic lives." -Robert J. Shiller, Okun Professor of Economics, Yale University; Chief Economist, MacroMarkets LLC"Risk management is essential to successful investing, and The CME Group Risk Management Handbook provides the essentials for understanding risk management. In the wake of the financial turmoil of the last few years, managing risk should be part of any investment program. Among the key elements of risk management are stock index, bond, currency, and commodity futures as well as a growing number of futures, options, swaps, and other financial instruments built on indices tracking housing prices, weather conditions, and the economy. The CME Group Risk Management Handbook offers a comprehensive guide for using all of these to better manage financial risks." -David M. Blitzer, PhD, Managing Director and Chairman of the Index Committee, S&P Indices"Dare we ignore the advice of a financial institution, the largest of its kind in the world, that navigated the recent financial crisis without the aid of a single TARP dollar or access to the Fed's cheap loans? For CME Group, risk management has meant risk minimization as it enters its 151st year of life and its 85th year of central counterparty clearing without a single trading debt unpaid. It has been, and continues to be, a leader by example." -Philip McBride Johnson, former CFTC chairman"For the first time, a comprehensive handbook outlining the futures market in today's world is available. The CME Group Risk Management Handbook covers futures basics for the novice trader, while the veterans will benefit from an in-depth look at options and hedging. This handbook is a necessity for any professional, investor, or other market participant seeking to manage risk in the perpetually changing futures market." -H. Jack Bouroudjian, CEO, Index Futures Group

Table of Contents

Foreword

Prologue

Acknowledgments

Introduction

Futures Market Fundamentals

What Is a Futures Contract?

Overview of Popular Financial Futures Contracts

Anatomy of a Futures Transaction

Conclusion

Notes

Order Entry and Execution Methodologies

Open Outcry or Pit Trading

Introduction of the CME Globex Platform

Trade Matching Algorithms

About Options Markets

Ex-Pit Trading

Conclusion

Notes

Role of the Clearinghouse

Financial Safeguards

Financial Surveillance

Default by a Clearing Member

Resources Backing CME Group Clearing System

Customer Protection

Disaster Recovery and Business Continuity

Rule Enforcement

Financial and Regulatory Information Sharing

Conclusion

Currency Futures: The First Financial Futures

Evolution of Foreign Exchange Marketplace

Over-the-Counter Currency Trading Vehicles

Exchange-Traded Currency Futures and Options

Foreign Exchange Market Growth and Trends

Conclusion

Notes

Stock Index Futures: The First Financial Futures

Mechanics of Stock Index Futures

E-Minis versus Exchange-Traded-Funds

Pricing Stock Index Futures

Spreading Stock Index Futures

Hedging with Stock Index Futures

Portable Alpha Strategies

Conclusion

Notes

Eurodollar Futures: Interest Rate Market Building Blocks

Eurodollar Futures Market

Speculating on Shape of Yield Curve

Term Treasury/Eurodollar (TED) Spreads with Futures and Options

Interest Rate Swap Market

Growing Up Together

Pricing Relationship

Hedging Techniques

Conclusion

Technical Appendix: Complications and Shortcuts for Pricing and Hedging Swaps

Notes

Understanding U.S. Treasury Futures

Coupon-Bearing Treasury Securities

Treasury Futures Delivery Practices

Measuring Risk of Coupon-Bearing Securities

Risk Management with Treasury Futures

Macro Hedging with Treasury Futures

Trading the Yield Curve with Treasury Futures

Conclusion

Notes

Commodities: Backbone of the Futures Industry

What Are Commodities?

Grain Markets

Livestock Markets

Energy Products

Precious Metals

The Forward Curve

Intermarket Commodity Spreading

ClearPort Over-the-Counter Clearing Facility

Conclusion

Appendix: Major Commodity Market Specifications

Alternative Investment Market fundamentals

Weather

Residential Housing Futures

Economic Indicators

Conclusion

Notes

Fundamental Market Indicators

Why These Indicators?

Trading Volumes

Volatility: Daily Net Change

Volitility: Daily High-Low Range

Conclusions

Appendix: Economic Indicator Descriptions

Notes

Technical Analysis Primer

Why Technical Analysis?

Interpreting Charts

Elliot Wave Theory

Intraday Trading Techniques

Trend-Following Systems

Conclusion

Fundamentals of Option Markets

What is an Option?

Mathematical Option Pricing Models

Historic and Implied Volatilities

Measuring Option Performance

Conclusion

Option Trading Strategies

Option Spreads

Horizontal Spreads

Diagonal Spreads

Comparing Verticals, Horizontals, and Diagonals

Weighted Spreads

Volatility-Driven Strategies

Specialty Option Strategies

Matching Strategy and Forecast

Conclusion

Hedging with Options

Baseline Futures Hedge

Buying Protection with Puts

Yield Enhancement with Calls

In- and Out-of-the-Money Options

Matching Strategy with Forecast

Collar Strategy

Delta-Neutral Hedge

Conclusion

About the Authors and Contributors

Index

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