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| Preface | |
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| Acknowledgments | |
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| Introduction | |
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| Overview | |
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| Derivatives defined | |
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| Applications of financial derivatives | |
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| The concept of arbitrage | |
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| The organization of the text | |
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| Exercises | |
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| Notes | |
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| Futures markets | |
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| Overview | |
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| Futures markets | |
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| Exchanges and types of futures | |
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| Purposes of futures markets | |
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| Regulation of futures markets | |
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| Taxation of futures trading | |
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| Brokers, advisors, and commodity fund managers | |
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| The changing environment of futures markets | |
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| Market manipulation | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| Futures prices | |
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| Overview | |
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| Reading futures prices | |
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| The basis and spreads | |
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| Models of futures prices | |
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| Futures prices and expectations | |
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| Futures prices and risk aversion | |
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| Characteristics of futures prices | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| Using futures markets | |
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| Overview | |
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| Price discovery | |
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| Speculation | |
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| Speculative profits | |
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| Hedging | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| Interest rate futures: an introduction | |
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| Overview | |
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| Short-maturity interest rate futures contracts | |
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| Longer-maturity interest rate futures | |
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| The pricing of interest rate futures contracts | |
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| Speculating with interest rate futures | |
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| Hedging with interest rate futures | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| Interest rate futures: refinements | |
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| Overview | |
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| The T-bond futures contract in detail | |
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| Seller's options in T-bond futures | |
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| The efficiency of the interest rate futures market | |
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| Applications: Eurodollar and T-bill futures | |
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| Hedging with T-bond futures | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| Security futures products: an introduction | |
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| Overview | |
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| The indexes | |
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| Stock index futures contracts | |
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| Stock index futures prices | |
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| Index arbitrage and program trading | |
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| Speculating with stock index futures | |
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| Single stock futures | |
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| Risk management with security futures products | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| Security futures products: refinements | |
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| Overview | |
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| Stock index futures prices | |
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| Real-world program trading | |
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| Hedging with stock index futures | |
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| Asset allocation | |
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| Hedge fund uses of stock index futures | |
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| Portfolio insurance | |
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| Index futures and stock market volatility | |
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| Index futures and stock market crashes | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| Foreign exchange futures | |
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| Overview | |
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| Price quotations | |
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| Geographic and cross-rate arbitrage | |
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| Forward and futures market characteristics | |
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| The European Monetary Union | |
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| Determinants of foreign exchange rates | |
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| Forward and futures prices for foreign exchange | |
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| More futures price parity relationships | |
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| Foreign exchange forecasting accuracy | |
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| The efficiency of foreign exchange futures markets | |
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| Speculation in foreign exchange futures | |
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| Hedging with foreign exchange futures | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| The options market | |
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| Overview | |
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| An option example | |
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| Moneyness | |
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| American and European options | |
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| Why trade options? | |
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| The option contract | |
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| The options marketplace | |
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| Option trading procedures | |
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| The clearinghouse | |
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| Margins | |
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| Commissions | |
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| Taxation | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| Option payoffs and option strategies | |
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| Overview | |
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| Stocks and bonds | |
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| Option notation | |
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| European and American option values at expiration | |
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| Buy or sell a call option | |
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| Call options at expiration and arbitrage | |
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| Buy or sell a put option | |
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| Moneyness | |
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| Option combinations | |
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| Combining options with bonds and stocks | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| Bounds on option prices | |
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| Overview | |
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| The boundary space for call and put options | |
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| Relationships between call option prices | |
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| Relationships between put option prices | |
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| Option prices and the interest rate | |
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| Option prices and stock price movements | |
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| Option prices and the riskiness of stocks | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| European option pricing | |
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| Overview | |
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| The single-period binomial model | |
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| The multi-period binomial model | |
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| Stock price movements | |
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| The binomial approach to the Black-Scholes model | |
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| The Black-Scholes option pricing model | |
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| Inputs for the Black-Scholes model | |
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| European options and dividends | |
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| Tests of the option pricing model | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| Option sensitivities and option hedging | |
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| Overview | |
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| Option sensitivities in the Merton and Black-Scholes models | |
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| Delta | |
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| Theta | |
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| Vega | |
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| Rho | |
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| Gamma | |
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| Creating neutral portfolios | |
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| Option sensitivities and option trading strategies | |
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| Conclusion | |
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| Exercises | |
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| Note | |
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| American option pricing | |
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| Overview | |
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| American versus European options | |
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| American versus European calls | |
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| Dividend capture strategies | |
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| Pseudo-American call option pricing | |
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| Exact American call option pricing | |
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| Analytic approximations of American option prices | |
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| The binomial model and American option prices | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| Options on stock indexes, foreign currency, and futures | |
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| Overview | |
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| European option pricing | |
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| Option sensitivities | |
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| Pricing American options | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| The options approach to corporate securities | |
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| Overview | |
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| Equity and a pure discount bond | |
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| Senior and subordinated debt | |
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| Callable bonds | |
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| Convertible bonds | |
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| Warrants | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| Exotic options | |
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| Overview | |
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| Assumptions of the analysis and the pricing environment | |
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| Forward-start options | |
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| Compound options | |
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| Chooser options | |
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| Barrier options | |
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| Binary options | |
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| Lookback options | |
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| Average price options | |
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| Exchange options | |
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| Rainbow options | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| Interest rate options | |
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| Overview | |
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| Interest rate options: markets and instruments | |
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| The term structure of interest rates | |
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| Stripped Treasury securities and forward rate agreements (FRAs) | |
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| The option-adjusted spread (OAS) | |
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| The Black model | |
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| Applications of the Black model | |
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| Forward put-call parity | |
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| Caps, floors, and collars | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| The swaps market: an introduction | |
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| Overview | |
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| Swaps | |
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| The swaps market | |
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| Plain vanilla swaps | |
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| Motivations for swaps | |
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| Swap facilitators | |
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| Pricing of swaps | |
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| Swap portfolios | |
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| Beyond plain vanilla swaps | |
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| Commodity swaps | |
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| Equity swaps | |
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| Credit swaps | |
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| Swaptions | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| Swaps: economic analysis and pricing | |
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| Overview | |
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| The economic analysis of swaps | |
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| Interest rate swap pricing | |
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| Currency swap pricing | |
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| Swap counterparty credit risk | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| Swaps: applications | |
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| Overview | |
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| The parallel loan-how swaps began | |
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| Creating synthetic securities with swaps | |
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| The all-in cost | |
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| The B. F. Goodrich - Rabobank interest rate swap | |
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| The duration of interest rate swaps | |
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| Interest rate immunization with swaps | |
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| Structured notes | |
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| Pricing flavored interest rate and currency swaps | |
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| Equity swap pricing and applications | |
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| Swaption pricing and applications | |
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| Day count conventions | |
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| Conclusion | |
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| Exercises | |
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| Notes | |
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| A summary of accounting rules for derivative instruments | |
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| The cumulative distribution function for the standard normal random variable | |
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| Index | |