Derivatives An Introduction

Name: Derivatives An Introduction
Price: 7.19 USD
Availability: InStock
ISBN: 9780324273021

ISBN-10: 0324273029

ISBN-13: 9780324273021

Edition: 2nd 2005 (Revised)

Authors: Robert A. Strong

List price: $172.95

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Bob Strong's practical, applied approach, and his ability to explain the intuition underlying the math, makes this text the first truly accessible, yet comprehensive, derivatives book.

Book details

List price: $172.95
Edition: 2nd
Copyright year: 2005
Publisher: Cengage South-Western
Binding: Hardcover
Pages: 397
Size: 7.50" wide x 9.25" long x 0.75" tall
Weight: 1.848

Introduction	p. 1
Introduction	p. 1
Types of Derivatives	p. 3
Options	p. 3
Futures Contracts	p. 3
Swaps	p. 4
Product Characteristies	p. 4
Participants in the Derivatives World	p. 5
Hedging	p. 5
Speculation	p. 5
Arbitrage	p. 6
Uses of Derivatives	p. 7
Risk Management	p. 7
Income Generation	p. 8
Financial Engineering	p. 8
Effective Study of Derivatives	p. 9
Appendix	p. 11
A Review of Statistical Principles Useful in the Study of Derivatives	p. 11
Basic Principles Of Stock Options	p. 15
What Options Are and Where They Come From	p. 16
Call Options	p. 16
Put Options	p. 17
Where Options Come From	p. 18
Opening and Closing Transactions	p. 18
The Role of the Options Clearing Corporation	p. 21
Why Options Are a Good Idea	p. 21
Portfolio Risk Management	p. 22
Risk Transfer	p. 22
Financial Leverage	p. 23
Income Generation	p. 23
Where and How Options Trade	p. 23
Exchanges	p. 23
Over-the-Counter Options	p. 24
Other Listed Options	p. 25
Trading Mechanics	p. 26
The Option Premium	p. 29
Intrinsic Value and Time Value	p. 29
Option Price Quotations	p. 29
Profits and Losses with Options	p. 31
Understanding the Exercise of an Option	p. 31
Profit and Loss Diagrams	p. 33
Buying a Call Option	p. 33
Writing a Call Option	p. 34
Buying a Put Option	p. 35
Writing a Put Option	p. 36
A Note on Margin Requirements	p. 37
Basic Option Strategies: Covered Calls And Protective Puts	p. 41
Using Options as a Hedge	p. 41
Protective Puts	p. 42
Using Calls to Hedge a Short Position	p. 47
Writing Covered Calls to Protect Against Market Downturns	p. 50
Using Options to Generate Income	p. 52
Writing Calls to Generate Income	p. 52
Writing Puts to Generate Income	p. 55
Profit and Loss Diagrams with Seasoned Stock Positions	p. 58
Adding a Put to an Existing Stock Position	p. 58
Writing a Call Against an Existing Stock Position	p. 59
Improving on the Market	p. 60
Writing Calls to Improve on the Market	p. 60
Writing Puts to Improve on the Market	p. 61
Option Combinations and Spreads	p. 66
Combinations	p. 66
Spreads	p. 73
Types of Spreads	p. 73
Nonstandard Spreads	p. 83
Other Strategies	p. 85
Margin Considerations	p. 87
Evaluating Spreads	p. 90
Option Pricing	p. 97
A Brief History of Options Pricing	p. 98
The Early Work	p. 98
The Middle Years	p. 99
The Present	p. 99
Arbitrage and Option Pricing	p. 100
Free Lunches	p. 100
The Theory of Put/Call Parity	p. 101
The Binomial Option Pricing Model	p. 107
Put Pricing in the Presence of Call Options: Further Study	p. 112
Binomial Put Pricing	p. 113
Binomial Pricing with Asymmetric Branches	p. 114
The Effect of Time	p. 115
The Effect of Volatility	p. 116
Intuition into Black-Scholes	p. 118
Continuous Time and Multiple Periods	p. 118
Option Pricing and the Roll of Dice	p. 119
Appendix	p. 126
Multi-Period Binomial Option Pricing	p. 126
Option Pricing with Continuous Compounding	p. 126
Risk Neutrality and Implied Branch Probabilities	p. 127
Extension of Two Periods	p. 128
Recombining Binomial Trees	p. 131
Another Example	p. 131
Binomial Pricing with Lognormal Returns	p. 132
Multiperiod Binomial Put Pricing	p. 134
Exploiting Arbitrage	p. 136
American vs. European Option Pricing	p. 137
The Black-Scholes Option Pricing Model	p. 139
The Black-Scholes Option Pricing Model	p. 140
The Model	p. 140
Development and Assumptions of the Model	p. 140
Determinants of the Option Premium	p. 141
Assumptions of the Black-Scholes Model	p. 143
Intuition Into the Black-Scholes Model	p. 147
Calculating Black-Scholes Prices from Historical Data	p. 149
Call Values	p. 149
Implied Volatility	p. 153
Calculating Implied Volatility	p. 153
An Implied Volatility Heuristic	p. 154
Historical Versus Implied Volatility	p. 154
Pricing in Volatility Units	p. 156
Volatility Smiles	p. 158
Using Black-Scholes to Solve for the Put Premium	p. 162
Problems Using the Black-Scholes Model	p. 162
Option Greeks	p. 167
The Principal Option Pricing Derivatives	p. 167
Delta	p. 167
Measure of Option Sensitivity	p. 168
Hedge Ratio	p. 169
Likelihood of Becoming in-the-Money	p. 169
Theta	p. 170
Gamma	p. 171
Sign Relationships	p. 172
Other Derivatives	p. 173
Vega	p. 173
Rho	p. 174
The Greeks of Vega	p. 175
Others	p. 175
Position Derivatives	p. 175
An Example	p. 175
Caveats About Position Derivatives	p. 175
Delta Neutrality	p. 176
Calculating Delta Hedge Ratios	p. 177
Why Delta Neutrality Matters	p. 177
Two Markets: Directional and Speed	p. 179
Directional Market	p. 179
Speed Market	p. 179
Combining Directional and Speed Markets	p. 179
Dynamic Hedging	p. 180
Minimizing the Cost of Delta Adjustments	p. 181
Position Risk	p. 182
Fundamentals Of The Futures Market	p. 190
The Concept of Futures Contracts	p. 191
The Futures Promise	p. 191
Why We Have Futures Contracts	p. 194
Ensuring the Promise Is Kept	p. 195
Market Mechanics	p. 196
Types of Orders	p. 196
Ambience of the Marketplace	p. 198
Creation of a Contract	p. 200
Market Participants	p. 201
Hedgers	p. 201
Processors	p. 202
Speculators	p. 204
Scalpers	p. 205
The Clearing Process	p. 206
Matching Trades	p. 206
Accounting Supervision	p. 208
Intramarket Settlement	p. 211
Settlement Prices	p. 212
Delivery	p. 212
Principles of Futures Contract Pricing	p. 213
The Expectations Hypothesis	p. 213
Normal Backwardation	p. 214
A Full Carrying Charge Market	p. 215
Reconciling the Three Theories	p. 217
Spreading with Commodity Futures	p. 217
Intercommodity Spreads	p. 217
Intermarket Spreads	p. 218
Intracommodity Spreads	p. 218
Why Spread in the First Place?	p. 219
Stock Index Futures	p. 223
Stock Indexes and Their Futures Contracts	p. 223
Stock Indexes	p. 224
Stock Index Futures Contracts	p. 227
The SandP 500 Stock Index Futures Contract	p. 227
Pricing of Stock Index Futures	p. 228
Basis Convergence	p. 232
Use of Stock Index Futures	p. 232
Speculation	p. 232
Spreading	p. 233
Arbitrage	p. 233
Anticipation of Stock Purchase or Sale	p. 234
Hedging	p. 234
Hedging with Stock Index Futures	p. 235
Systematic and Unsystematic Risk	p. 235
The Need to Hedge	p. 236
The Hedge Ratio	p. 236
Hedging in Retrospect	p. 239
Adjusting Market Risk	p. 241
Foreign Exchange Futures	p. 245
Foreign Exchange Risk	p. 246
FX Risk and Interest Rates	p. 247
The Concept of Exposure	p. 248
Accounting Exposure	p. 248
Economic Exposure	p. 248
FX Risk from a Business Perspective	p. 249
FX Risk from an Investment Perspective	p. 251
Forward Rates	p. 252
Purchasing Power Parity	p. 253
Interest Rate Parity	p. 254
Foreign Currency Futures	p. 256
Pricing of Foreign Exchange Futures Contracts	p. 256
Dealing with the Risk	p. 258
Dealing with the Exposure	p. 258
A Business Example	p. 258
An Investment Example	p. 260
Key Issues in Foreign Exchange Risk Management	p. 261
Fundamentals Of Interest Rate Futures	p. 265
Interest Rate Futures	p. 266
Treasury Bills, Eurodollars, and Their Futures Contracts	p. 266
Characteristics of U.S. Treasury Bills	p. 266
The Treasury Bill Futures Contract	p. 268
Characteristics of Eurodollars	p. 269
The Eurodollar Futures Contract	p. 269
Speculating with T-Bill Futures	p. 271
Hedging with T-Bill Futures	p. 272
Treasury Bonds and Their Futures Contracts	p. 273
Characteristics of U.S. Treasury Bonds	p. 273
Pricing of Treasury Bonds	p. 274
The Treasury Bond Futures Contract	p. 275
Dealing with Coupon Differences	p. 275
The Matter of Accrued Interest	p. 278
Delivery Procedures	p. 279
The Invoice Price	p. 280
Cheapest to Deliver	p. 281
Pricing Interest Rate Futures Contracts	p. 282
Arbitrage with T-Bill Futures	p. 285
Delivery Options	p. 286
Spreading with Interest Rate Futures	p. 287
TED Spread	p. 287
The NOB Spread	p. 289
Other Spreads with Financial Futures	p. 290
Futures Contracts And Portfolio Management	p. 294
The Concept of Immunization	p. 295
Bond Risks	p. 295
Duration Matching	p. 296
Bank Immunization	p. 298
Duration Shifting	p. 301
Hedging with Interest Rate Futures	p. 303
Increasing Duration with Futures	p. 304
Disadvantages of Immunizing	p. 306
Altering Asset Allocation with Futures	p. 308
Tactical Changes	p. 308
Initial Situation	p. 309
Bond Adjustment	p. 310
Stock Adjustment	p. 310
Neutralizing Cash	p. 311
Swaps And Interest Rate Options	p. 315
Interest Rate Swaps	p. 316
Immunizing with Interest Rate Swaps	p. 322
Exploiting Comparative Advantage in the Credit Market	p. 324
Foreign Currency Swaps	p. 325
Circus Swap	p. 329
Swap Variations	p. 329
Interest Rate Options	p. 330
Interest Rate Cap	p. 330
Interest Rate Floor	p. 332
Calculating Cap and Floor Payoffs	p. 333
Interest Rate Collar	p. 334
Swaption	p. 334
Swap Pricing	p. 340
Intuition Into Swap Pricing	p. 340
Swaps as a Pair of Bonds	p. 341
Swaps as a Series of Forward Contracts	p. 341
Swaps as a Pair of Option Contracts	p. 342
Solving for the Swap Price	p. 342
The Role of the Forward Curve for LIBOR	p. 343
Implied Forward Rates	p. 344
Initial Condition Pricing	p. 346
Quoting the Swap Price	p. 348
Counterparty Risk Implications	p. 349
Valuing an Off-Market Swap	p. 350
Hedging the Swap	p. 351
Hedging Against a Parallel Shift in the Yield Curve	p. 352
Hedging Against Any Shift in the Yield Curve	p. 353
Tailing the Hedge	p. 355
Pricing a Currency Swap	p. 356
Other Derivative Assets	p. 361
Futures Options	p. 361
Characteristics	p. 362
Speculating with Futures Options	p. 365
Spreading with Futures Options	p. 365
Basis Risk with Spreads	p. 365
Hedging with Futures Options	p. 366
Speculators and Hedging	p. 367
Early Exercise of Futures Options	p. 368
Pricing Futures Options	p. 368
Disposing of Valuable Options	p. 369
Futures Option Deltas	p. 370
Implied Volatility	p. 370
Warrants	p. 370
Characteristics	p. 371
Pricing	p. 371
Hedging with Stock Warrants	p. 373
Other Derivative Assets	p. 374
Characteristics	p. 375
A Note on the Pricing of Foreign Currency Options	p. 375
When-Issued Stock	p. 376
Common Stock Trading on a When-Issued Basis	p. 377
Financial Engineering And Risk Management	p. 381
Financial Engineering	p. 382
Engineering an Option	p. 383
Gamma Risk	p. 388
Risk Management	p. 390
Managing Company Risk	p. 391
A Case Study	p. 392
Managing Market Risk	p. 395
Contemporary Issues	p. 401
Long-Term Capital Management	p. 402
Value at Risk	p. 403
VAR Calculation	p. 405
New Product Development	p. 406
Weather Derivatives	p. 406
Telecom Capacity	p. 409
Rental Caps	p. 409
Equity Swaps	p. 410
Program Trading	p. 411
Implementation	p. 412
The Open Outcry and Specialist Systems	p. 413
FAS 133	p. 414
Requirements	p. 414
Criticism	p. 415
Implications	p. 416
Glossary	p. 419
Self Test Answers	p. 435
Index	p. 440
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