ISBN13: 978-0030244834

ISBN10: 0030244838

Cover type:

Edition/Copyright: 4TH 98

Publisher: Dryden Press

Published: 1998

International: No

ISBN10: 0030244838

Cover type:

Edition/Copyright: 4TH 98

Publisher: Dryden Press

Published: 1998

International: No

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Expanding on its solid background, this new edition continues to present technical material in a student friendly manner. Fresh new quotes from industry demonstrate key concepts and the addition of Internet-related information keeps the material up to date. This comprehensive text provides detailed coverage of options, futures, forwards, swaps and risk management, plus a solid analytical introduction to pricing, trading, and strategy. A flexible mathematical approach places more complex material in end-of-chapter appendices, allowing instructors to use the text with students of varying backgrounds.

1. Introduction

Overview of the Economic/Financial System

Derivative Markets

Some Important Concepts in Financial and Derivative Markets

Fundamental Linkages Between Spot and Derivative Markets

The Role of Derivative Markets

Criticisms of Derivative Markets

I. Options

2. The Structure of Options Markets

The Development of Options Markets

Call Options

Put Options

The Over-the-Counter Options Market

Organized Options Trading

Exchanges on which Options Trade

Option Traders

The Mechanics of Trading

Option Price Quotations

Types of Options

Transaction Costs in Option Trading

The Regulation of Options Markets

3. Principles of Option Pricing

Basic Notation and Terminology

Principles of Call Option Pricing

Principles of Put Option Pricing

4. Option Pricing Models

One-Period Binomial Model

Two-Period Binomial Model

Some Useful Extensions of the Binomial Model

Black-Scholes Option Pricing Model

Variables in the Black-Scholes Model

Black-Scholes Model in the Presence of Dividends

American Options

Estimating the Volatility (Standard Deviation)

The Binomial Model and the Black-Scholes Model

Put Option Pricing Models

5. Basic Option Strategies

Terminology and Notation

Stock Transactions

Call Option Transactions

Put Option Transactions

Calls and Stock: The Covered Call

Puts and Stock: The Protective Put

Synthetic Puts and Calls

6. Advanced Option Strategies

Option Spreads: Basic Concepts

Money Spreads

Calendar Spreads

Ratio Spreads

Straddles, Straps, and Strips

Box Spreads

II. Futures

7. The Structures of Forward and Futures Markets

The Development of Forward and Futures Markets

Over-the-Counter Forward Market

Organized Futures Trading

Futures Exchanges

Futures Traders

Mechanics of Futures Trading

Futures Price Quotations

Types of Futures Contracts

Transaction Costs in Forward and Futures Trading

Regulation of Futures Markets

8. Principles of Spot Pricing

Principles of Pricing of Fixed-Income Securities

Principles and Pricing of Equity Securities

Formation of Spot Prices

9. Principles of Forward and Futures Pricing

Some Properties of Forwards and Futures Prices

A Forward and Futures Pricing Model

10. Futures Hedging Strategies

Why Hedge

Hedging Concepts

Determination of the Hedge Ratio

Hedging Strategies

11. Advanced Futures Strategies

Short-Term Interest Rate Futures

Intermediate- and Long-Term Interest Rate Futures Strategies

Stock Index Futures Strategies

III. Advanced Topics

12. Options on Futures

Characteristics of Options on Futures

Pricing Options on Futures

Trading Strategies for Options on Futures

Options on Futures versus Options on the Spot

13. Foreign Currency Derivatives

Characteristics of Foreign

Currencies and Markets

Pricing Foreign Currency Derivatives

Trading Strategies in Foreign Currency Futures and Options

Other Instruments for Managing Foreign Exchange Risk

14. Interest Rate Derivatives

Forward Rate Agreements

Interest Rate Swaps

Interest Rate Options

Modeling the Term Structure and Pricing Interest Rate Derivatives

15. Advanced Derivatives and Strategies

Advanced Equity Derivatives and Strategies

Advanced Interest Rate Derivatives

Exotic Options

16. Financial Risk Management

Why Practice Risk Management

Structure of the Risk Management Industry

Managing Market Risk

Managing Credit Risk

Other Types of Risks

Organizational Issues in Risk Management

Appendix A: List of Symbols

Appendix B: List of Formulas

Glossary

Index

ISBN10: 0030244838

Cover type:

Edition/Copyright: 4TH 98

Publisher: Dryden Press

Published: 1998

International: No

Expanding on its solid background, this new edition continues to present technical material in a student friendly manner. Fresh new quotes from industry demonstrate key concepts and the addition of Internet-related information keeps the material up to date. This comprehensive text provides detailed coverage of options, futures, forwards, swaps and risk management, plus a solid analytical introduction to pricing, trading, and strategy. A flexible mathematical approach places more complex material in end-of-chapter appendices, allowing instructors to use the text with students of varying backgrounds.

Table of Contents

1. Introduction

Overview of the Economic/Financial System

Derivative Markets

Some Important Concepts in Financial and Derivative Markets

Fundamental Linkages Between Spot and Derivative Markets

The Role of Derivative Markets

Criticisms of Derivative Markets

I. Options

2. The Structure of Options Markets

The Development of Options Markets

Call Options

Put Options

The Over-the-Counter Options Market

Organized Options Trading

Exchanges on which Options Trade

Option Traders

The Mechanics of Trading

Option Price Quotations

Types of Options

Transaction Costs in Option Trading

The Regulation of Options Markets

3. Principles of Option Pricing

Basic Notation and Terminology

Principles of Call Option Pricing

Principles of Put Option Pricing

4. Option Pricing Models

One-Period Binomial Model

Two-Period Binomial Model

Some Useful Extensions of the Binomial Model

Black-Scholes Option Pricing Model

Variables in the Black-Scholes Model

Black-Scholes Model in the Presence of Dividends

American Options

Estimating the Volatility (Standard Deviation)

The Binomial Model and the Black-Scholes Model

Put Option Pricing Models

5. Basic Option Strategies

Terminology and Notation

Stock Transactions

Call Option Transactions

Put Option Transactions

Calls and Stock: The Covered Call

Puts and Stock: The Protective Put

Synthetic Puts and Calls

6. Advanced Option Strategies

Option Spreads: Basic Concepts

Money Spreads

Calendar Spreads

Ratio Spreads

Straddles, Straps, and Strips

Box Spreads

II. Futures

7. The Structures of Forward and Futures Markets

The Development of Forward and Futures Markets

Over-the-Counter Forward Market

Organized Futures Trading

Futures Exchanges

Futures Traders

Mechanics of Futures Trading

Futures Price Quotations

Types of Futures Contracts

Transaction Costs in Forward and Futures Trading

Regulation of Futures Markets

8. Principles of Spot Pricing

Principles of Pricing of Fixed-Income Securities

Principles and Pricing of Equity Securities

Formation of Spot Prices

9. Principles of Forward and Futures Pricing

Some Properties of Forwards and Futures Prices

A Forward and Futures Pricing Model

10. Futures Hedging Strategies

Why Hedge

Hedging Concepts

Determination of the Hedge Ratio

Hedging Strategies

11. Advanced Futures Strategies

Short-Term Interest Rate Futures

Intermediate- and Long-Term Interest Rate Futures Strategies

Stock Index Futures Strategies

III. Advanced Topics

12. Options on Futures

Characteristics of Options on Futures

Pricing Options on Futures

Trading Strategies for Options on Futures

Options on Futures versus Options on the Spot

13. Foreign Currency Derivatives

Characteristics of Foreign

Currencies and Markets

Pricing Foreign Currency Derivatives

Trading Strategies in Foreign Currency Futures and Options

Other Instruments for Managing Foreign Exchange Risk

14. Interest Rate Derivatives

Forward Rate Agreements

Interest Rate Swaps

Interest Rate Options

Modeling the Term Structure and Pricing Interest Rate Derivatives

15. Advanced Derivatives and Strategies

Advanced Equity Derivatives and Strategies

Advanced Interest Rate Derivatives

Exotic Options

16. Financial Risk Management

Why Practice Risk Management

Structure of the Risk Management Industry

Managing Market Risk

Managing Credit Risk

Other Types of Risks

Organizational Issues in Risk Management

Appendix A: List of Symbols

Appendix B: List of Formulas

Glossary

Index

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