Preface
Acknowledgments
PART 1. INTRODUCTION TO DERIVATIVES AND RISK MANAGEMENT
1. An Overview of Derivative Contracts
1.1. Forward Contracts and Futures Contracts
1.2. Swaps
1.3. Options
1.4. Why Is It Important to Learn About Derivatives?
1.5. Summary
2. Risk and Risk Management
2.1. What Is Risk?
2.2. How Is Risk Managed?
2.3. Should Firms Manage Risk?
2.4. What Should Be Done After Risk Exposures Have Been Identified?
2.5. Accounting for Derivatives: FAS 133
2.6. Summary
PART 2. FORWARD CONTRACTS AND FUTURES CONTRACTS
3. Introduction to Forward Contracts
3.1. General Concepts
3.2. Forward Rate Agreements
3.3. Forward Foreign Exchange Contracts
3.4. Summary
4. Using Forward Contracts to Manage Risk
4.1. Using Forwards to Manage Commodity Price Risk
4.2. Using Forwards to Manage Interest Rate Risk
4.3. Using Forward Foreign Exchange Contracts to Manage Risk
4.4. What Quantity Should Be Bought or Sold Forward?
4.5. Summary
5. Determining Forward Prices and Futures Prices
5.1. Forward Commodity Prices
5.2. Forward Exchange Rates
5.3. Forward Interest Rates
5.4. Summary
6. Introduction to Futures
6.1. Futures Contracts and Forward Contracts
6.2. Margin Requirements for Futures Contracts
6.3. Marking to Market
6.4. Basis and Convergence
6.5. Should Futures Prices Equal Forward Prices?
6.6. Futures Contracts, Exchanges, and Regulation
6.7. The Purposes of Futures Markets
6.8. Reading Futures Prices in the Wall Street Journal
6.9. Limits on Price Fluctuations
6.10. Orders and Position Limits
6.11. Individuals in the Futures Industry
6.12. Taxes and Commissions
6.13. Summary
7. Risk Management with Futures Contracts
7.1. Introduction
7.2. Some Special Considerations in Hedging with Futures
7.3. The Hedge Ratio
7.4. Tailing the Hedge
7.5. Managing the Futures Hedge
7.6. Summary
8. Stock Index Futures
8.1. What Is An Index?
8.2. Pricing Stock Index Futures
8.3. Risk Management With Stock Index Futures
8.4. Summary
9. Treasury Bond and Treasury Note Futures
9.1. Features of the T-Bond Futures Contracts
9.2. Determining T-Bond and T-Note Futures Prices
9.3. Using T-Bond Futures to Shift Interest Rate Risk
9.4. Advanced Applications of T-Bond and T-Note Futures Contracts
9.5. Summary
10. Treasury Bill and Eurodollar Features
10.1. The Spot Treasury Bill Market
10.2. T-Bill Futures Contracts
10.3. The Eurodollar Cash Market
10.4. Eurodollar Futures Contracts
10.5. Two Useful Applications of Eurodollar Futures Contracts
10.6. Hedging with Short-Term Interest Rate Futures
10.7. Eurodollar Bundles and Packs
10.8. Summary
PART 3. SWAPS
11. An Introduction to Swaps
11.1. Interest Rate Swaps
11.2. Currency Swaps
11.3. Commodity Swaps
11.4. Equity Index Swaps
11.5. Credit Risk in Swaps and Credit Swaps
11.6. Summary
12. Using Swaps to Manage Risk
12.1. Using Interest Rate Swaps
12.2. Using Currency Swaps
12.3. Using Commodity Swaps
12.4. Using Equity Swaps
12.5. Using Index Swaps
12.6. Using Diff Swaps
12.7. Summary
13. Pricing and Valuing Swaps
13.1. Pricing and Valuing Plain Vanilla Fixed Floating Interest Rate Swaps
13.2. Pricing a Currency Swap
13.3. Pricing a Commodity Swap
13.4. Summary
PART 4. OPTIONS
14. Introduction to Options
14.1. Call Options
14.2. Put Options
14.3. In the Money, At the Money, Out of the Money
14.4. Intrinsic Value and Time Value
14.5. Payout Protection
14.6. Pricing at Expiration
14.7. A Brief Look at Option Pricing Before Expiration
14.8. Stock Options Markets
14.9. Reading Options Prices in the Financial Press
14.10. Transaction Costs
14.11. Margin
14.12. Taxes
14.13. Index Options
14.14. Foreign Exchange Options
14.15. Futures Options
14.16. Other Options
14.17. Summary
15. Options Strategies and Profit Diagrams
15.1. Profit Diagrams for Long Stock and Short Stock
15.2. Long Calls
15.3. Writing a Naked Call
15.4. Long Puts
15.5. Writing a Naked Put
15.6. Covered Call Writing
15.7. Vertical Spreads
15.8. Straddles and Strangles
15.9. Synthetic Forward
15.10. Other Strategies
15.11. Ratio-of-Return Diagrams
15.12. Profit Diagrams for Different Holding Periods
15.13. Several Caveats
15.14. Research on Option Strategies
15.15. Summary
16. Arbitrage Restrictions on Option Prices
16.1. Notation
16.2. Pricing Restrictions for Calls
16.3. Puts
16.4. Put-Call Parity
16.5. Box Spreads Using European Options
16.6. Summary
17. The Binomial Option Pricing Model
17.1. A Quiz
17.2. Deriving the Binomial Option Pricing Model for Calls on Non-Dividend-Paying Stocks
17.3. Using the Binomial Option Pricing Model to Value Calls on Dividend-Paying Stocks
17.4. Puts
17.5. Portfolio Insurance and Dynamic Trading
17.6. Other References on the BOPM and Dynamic Trading
17.7. Summary
18. Continuous Time Option Pricing Models
18.1. The Black-Scholes Option Pricing Model
18.2. The Black-Scholes Option Pricing Model and a Detailed Numerical Example
18.3. An Intuitive Look at the Black-Scholes Option Pricing Model
18.4. The Black-Scholes Option Pricing Model and European Put Prices
18.5. Two Handy Extensions of the Black-Scholes Option Pricing Model
18.6. The Relationship Between the Binomial Option Pricing Model and the Black-Scholes Option Pricing Model
18.7. The Nettlesome Task of Estimating a Security's Volatility
18.8. Generalizing the Black-Scholes Option Pricing Model
18.9. Options on Futures Contracts
18.10. American Call Options
18.11. Summary
19. Risk Management for Using Options
19.1. The Greeks
19.2. The Importance of Delta
19.3. Riskless Hedging
19.4. Position Deltas and Gammas
19.5. Caps, Floors, and Collars: Using Options to Manage Interest Rate Risk
19.6. Summary
PART 5. DERIVATIVE FRONTIERS
20. Current Topics in Risk Management
20.1. Value at Risk (VaR)
20.2. Credit Derivatives and Options on Debt Instruments
20.3. Exotic Options
20.4. Summary
Bibliography
Index