Derivatives (Hardcover)

Foreword

Preface

Acknowledgments

About the CFA Institute Investment Series

Chapter 1: Derivative Markets and Instruments

           Learning Outcomes

1. Derivatives: Introduction, Definitions, and Uses
2. The Structure of Derivative Markets
3. Types of Derivatives: Introduction, Forward Contracts
4. Types of Derivatives: Futures
5. Types of Derivatives: Swaps
6. Contingent Claims: Options
7. Contingent Claims: Credit Derivatives
8. Types of Derivatives: Asset-Backed Securities and Hybrids
9. Derivatives Underlyings
10. The Purposes and Benefits of Derivatives
11. Criticisms and Misuses of Derivatives
12. Elementary Principles of Derivative Pricing

Chapter 2: Basics of Derivative Pricing and Valuation

           Learning Outcomes

1. Introduction
2. Basic Derivative Concepts, Pricing the Underlying
3. The Principle of Arbitrage
4. Pricing and Valuation of Forward Contracts: Pricing vs. Valuation; Expiration; Initiation
5. Pricing and Valuation of Forward Contracts: Between Initiation and Expiration; Forward Rate Agreements
6. Pricing and Valuation of Futures Contracts
7. Pricing and Valuation of Swap Contracts
8. Pricing and Valuation of Options
9. Lower Limits for Prices of European Options
10.  Put–Call Parity, Put–Call–Forward Parity 10.1. Put–Call–Forward Parity
11.  Binomial Valuation of Options
12.  American Option Pricing

           Summary
           Problems

Chapter 3: Pricing and Valuation of Forward Commitments

           Learning Outcomes

1. Introduction to Pricing and Valuation of Forward Commitments
2. Carry Arbitrage
3. Pricing Equity Forwards and Futures
4. Pricing Fixed-Income Forward and Futures Contracts
5. Pricing and Valuing Swap Contracts
6. Pricing and Valuing Currency Swap Contracts
7. Pricing and Valuing Equity Swap Contracts

          Summary
          Problems

Chapter 4: Valuation of Contingent Claims

           Learning Outcomes

1. Introduction and Principles of a No- Arbitrage Approach to Valuation
2. Binomial Option Valuation Model
3. One- Period Binomial Model
4. Binomial Model: Two- Period (Call Options)
5. Binomial Model: Two- Period (Put Options)
6. Binomial Model: Two- Period (Role of Dividends & Comprehensive Example)
7. Interest Rate Options & Multiperiod Model
8. Black–Scholes–Merton (BSM) Option Valuation Model, Introduction and Assumptions of the BSM Model
9. BSM Model: Components
10.  BSM Model: Carry Benefits and Applications
11.  Black Option Valuation Model and European Options on Futures
12.  Interest Rate Options
13.  Swaptions
14.  Option Greeks and Implied Volatility: Delta
15.  Gamma
16.  Theta
17.  Vega
18.  Rho
19. Implied Volatility

          Summary
          Problems

Chapter 5: Credit Default Swaps

           Learning Outcomes

1. Introduction
2. Basic Definitions and Concepts
3. Important Features of CDS Markets and Instruments, Credit and Succession Events, and Settlement Proposals
4. Basics of Valuation and Pricing
5. Applications of CDS
6. Valuation Differences and Basis Trading

          Summary
          Problems

Chapter 6: Introduction to Commodities and Commodity Derivatives

           Learning Outcomes

1. Introduction
2. Commodity Sectors
3. Life Cycle of Commodities
4. Valuation of Commodities
5. Commodities Futures Markets: Participants
6. Commodity Spot and Futures Pricing
7. Theories of Futures Returns
8. Components of Futures Returns
9. Contango, Backwardation, and the Roll Return
10. Commodity Swaps
11. Commodity Indexes

          Summary
          References
          Problems

Chapter 7: Currency Management: An Introduction

           Learning Outcomes

1. Introduction
2. Review of Foreign Exchange Concepts
3. Currency Risk and Portfolio Risk and Return
4. Strategic Decisions in Currency Management: Overview
5. Strategic Decisions in Currency Management: Spectrum of Currency Risk
6. Strategic Decisions in Currency Management: Formulating a Currency Management Program
7. Active Currency Management: Based on Economic Fundamentals, Technical Analysis, and the Carry Trade
8. Active Currency Management: Based on Volatility Trading
9. Currency Management Tools: Forward Contracts, FX Swaps, and Currency Options
10. Currency Management Strategies
11. Hedging Multiple Foreign Currencies
12. Currency Management Tools and Strategies: A Summary
13. Currency Management for Emerging Market Currencies

          Summary
          References
          Problems

Chapter 8: Options Strategies

           Learning Outcomes

1. Introduction
2. Position Equivalencies
3. Covered Calls and Protective Puts
4. Investment Objectives of Protective Puts
5. Equivalence to Long Asset/Short Forward Position
6. Risk Reduction Using Covered Calls and Protective Puts
7. Spreads and Combinations
8. Straddle
9. Implied Volatility and Volatility Skew
10. Investment Objectives and Strategy Selection
11. Uses of Options in Portfolio Management
12. Hedging an Expected Increase in Equity Market Volatility

          Summary
          Problems

Chapter 9: Swaps, Forwards, and Futures Strategies

        Learning Outcomes

1. Managing Interest Rate Risk with Swaps
2. Managing Interest Rate Risk with Forwards, Futures, and Fixed- Income Futures
3. Managing Currency Exposure
4. Managing Equity Risk
5. Volatility Derivatives: Futures and Options
6. Volatility Derivatives: Variance Swaps
7. Using Derivatives to Manage Equity Exposure and Tracking Error
8. Using Derivatives in Asset Allocation
9. Using Derivatives to Infer Market Expectations

          Summary
          Problems

Chapter 10: Introduction to Risk Management

           Learning Outcomes

1. Introduction
2. The Risk Management Process
3. The Risk Management Framework
4. Risk Governance − An Enterprise View
5. Risk Tolerance
6. Risk Budgeting
7. Identification of Risk − Financial and Non- Financial Risk
8. Identification of Risk − Interactions Between Risks
9. Measuring and Modifying Risk − Drivers and Metrics
10. Methods of Risk Modification − Prevention, Avoidance, and Acceptance
11. Methods of Risk Modification − Transfer, Shifting, Choosing a Method for Modifying

           Summary
           Problems

Chapter 11: Measuring and Managing Market Risk

           Learning Outcomes

1. Introduction
2. Estimating VaR
3. The Parametric Method of VaR Estimation
4. The Historical Simulation Method of VaR Estimation
5. The Monte Carlo Simulation Method of VaR Estimation
6. Advantages and Limitations of VaR and Extensions of VaR
7. Other Key Risk Measures − Sensitivity Risk Measures; Sensitivity Risk Measures
8. Scenario Risk Measures
9. Sensitivity and Scenario Risk Measures and VaR
10. Using Constraints in Market Risk Management
11. Applications of Risk Measures
12. Pension Funds and Insurers

          Summary
          References
          Problems

Chapter 12: Risk Management for Individuals

           Learning Outcomes

1. Introduction
2. Human Capital, Financial Capital, and Economic Net Worth
3. A Framework for Individual Risk Management
4. The Individual Balance Sheet
5. Individual Risk Exposures
6. Life Insurance: Uses, Types, and Elements
7. Life Insurance: Pricing, Policy Cost Comparison, and Determining Amount Needed
8. Other Types of Insurance
9. Annuities: Types, Structure, and Classification
10. Annuities: Advantages and Disadvantages of Fixed and Variable Annuities
11. Risk Management Implementation: Determining the Optimal Strategy and Case Analysis
12. The Effect of Human Capital on Asset Allocation and Risk Reduction

          Summary
          References
          Problems

Chapter 13: Case Study in Risk Management: Private Wealth

            Learning Outcomes

1. Introduction and Case Background
2. Identification and Analysis of Risk Exposures: Early Career Stage
3. Risk Management Recommendations: Early Career Stage
4. Risk Management Considerations Associated with Home Purchase
5. Identification and Analysis of Risk Exposures: Career Development Stage
6. Risk Management Recommendations: Career Development Stage
7. Identification and Analysis of Risk Exposures: Peak Accumulation Stage
8. Assessment of and Recommendations concerning Risk to Retirement
9. Identification and Analysis of Retirement Objectives, Assets, and Drawdown Plan: Retirement Stage
10. Income and Investment Portfolio Recommendations: Retirement Stage

          Summary
          Problems

Chapter 14: Integrated Cases in Risk Management: Institutional

           Learning Outcomes

1. Introduction
2. Financial Risks Faced by Institutional Investors
3. Environmental and Social Risks Faced by Institutional Investors

References

Glossary

About the Editors and Authors

Index