[eBook Code] Elementary Financial Derivatives (eBook Code, 1st)

Preface xi

Acknowledgments xiii

Table of Figures xv

About the Companion Websites xix

1 DERIVATIVE INSTRUMENTS: CONCEPTS AND DEFINITIONS 1

1.1 Key Derivative Instruments Definitions, 1

1.2 The Role, Risks, and Benefits of Derivatives Markets, 2

1.3 Arbitrage, 4

Case Study 1.3-1, 4

Problems, 5

1.4 Miscellaneous, 5

Problems, 7

2 FORWARDS AND FUTURES 9

2.1 Futures Fundamentals, 9

2.1.1 Futures Margin Account and Marking to Market, 17

Case Study 2.1.1-1, 19

Problems, 21

2.1.2 Futures Hedging, 21

Case Study 2.1.2-1, 23

Problems, 26

2.2 Forward Rate Agreements, 27

Case Study 2.2-1, 27

Case Study 2.2-2, 29

Case Study 2.2-3, 34

Case Study 2.2-4, 37

Problems, 38

2.3 Currency Forwards, 40

Case Study 2.3-1, 41

Case Study 2.3-2, 47

Problems, 53

3 SWAPS 55

3.1 Swaps Fundamentals, 55

3.1.1 Interest Rate Swap, 57

Case Study 3.1.1-1, 58

Case study 3.1.1-2, 65

Case Study 3.1.1-3, 68

Problems, 69

3.2 Equity, Currency, and FX Swaps, 69

3.2.1 Equity Swaps, 69

Case Study 3.2.1-1, 72

Case Study 3.2.1-2, 74

Case Study 3.2.1-3, 75

Case Study 3.2.1-4, 77

Case Study 3.2.1-5, 77

Problems, 78

3.2.2 Currency/FX Swap, 80

Case Study 3.2.2-1, 83

Case Study 3.2.2-2, 86

Problems, 89

3.3 Other Yield Curve-Dependent Swaps, 89

3.3.1 Basic Swap, 89

Case Study 3.3.1-1, 91

Case Study 3.3.1-2, 93

Problems, 95

3.3.2 Credit Default Swap, 96

Case Study 3.3.2-1, 105

Problems, 106

4 OPTIONS 107

4.1 Options Fundamentals, 107

4.1.1 Basic Information, 107

4.1.2 Options Trading Strategies, 115

Case Study 4.1.2-1, 121

Case Study 4.1.2-2, 123

Problems, 124

4.2 Pricing, 126

4.2.1 Binomial Tree Option Pricing Model, 126

Case Study 4.2.1-1, 131

Case Study 4.2.1-2, 134

Problems, 135

Case Study 4.2.1-3, 141

Case Study 4.2.1-4, 145

Case Study 4.2.1-5, 149

Problems, 151

4.2.2 Black–Scholes Formula, 153

Case Study 4.2.2-1, 156

Case Study 4.2.2-2, 159

Case Study 4.2.2-3, 160

Case Study 4.2.2-4, 164

Problems, 165

4.3 Greeks, 166

4.3.1 Delta, 166

Case Study 4.3-1, 168

Case Study 4.3-2, 169

4.3.2 Gamma, 170

4.3.3 Rho, 171

Case Study 4.3-3, 172

4.3.4 Vega, 173

Case Study 4.3-4, 174

4.3.5 Theta, 175

Case Study 4.3-5, 176

Problems, 177

4.4 Volatility, 178

4.4.1 Delta Hedging, 178

Case Study 4.4.1-1, 180

4.4.2 Greek Neutrality, 182

Case Study 4.4.2-1, 182

Case Study 4.4.2-2, 184

Case Study 4.4.2-3, 186

4.4.3 Implied Volatility, 187

Case Study 4.4.3-1, 187

Problems, 188

4.5 Exotics, 189

4.5.1 Asian Options, 189

4.5.2 Barrier Option, 189

4.5.3 Basket Options, 190

4.5.4 Binary Options, 190

4.5.5 Chooser Options, 191

4.5.6 Forward Start Options, 192

4.5.7 Look-back Options, 192

Problems, 192

Literature 195

Index 199