The book is a step-by-step
guide to derivative products. By distilling the complex mathematics and theory that
underlie the subject, Chisholm explains derivative products in straightforward terms,
focusing on applications and intuitive explanations wherever possible. Case studies and
examples of how the products are used to solve real-world problems, as well as an
extensive glossary and material on the latest derivative products make this book a must
have for anyone working with derivative products.
Table of contents
Preface.
1. The Market Background.
Derivatives building blocks.
Market participants.
Origins and development of
derivatives.
The modern OTC derivatives
market.
Exchange-traded futures and
options.
Chapter summary.
2. Equity and Currency
Forwards.
Introduction.
The forward price.
Components of the forward
price.
Forward price and expected
payout.
Foreign exchange forwards.
Managing currency risk.
Hedging with FX forwards.
The forward FX rate.
Forward points.
FX swaps.
Applications of FX swaps.
Chapter summary.
3. Forward Rate Agreements.
Introduction.
FRA application: corporate
borrower.
Results of the FRA hedge.
FRA payment dates and
settlement.
The FRA as two payment legs.
Dealing in FRAs.
Forward interest rates.
Chapter summary.
4. Commodity and Bond
Futures.
Introduction.
Commodity futures.
Futures prices and the
basis.
Bond futures.
Gilt and Euro bund futures.
The cheapest-to-deliver.
Chapter summary.
5. Interest Rate and Equity
Futures.
Introduction.
Interest rate futures.
Trading interest rate
futures.
Hedging with interest rate
futures.
Interest rate futures
prices.
Equity index futures.
The margining system.
Single stock futures.
Chapter summary.
6. Interest Rate Swaps.
Introduction.
Sterling interest rate swap.
Hedging with interest rate
swaps.
Dollar interest rate swap.
Summary of IRS applications.
Swap rates and credit risk.
Cross-currency swaps.
Gains from cross-currency
swap.
Chapter summary.
7. Equity and Credit Default
Swaps.
Equity swaps.
Monetizing corporate
cross-holdings.
Other applications of equity
swaps.
Equity index swaps.
Hedging equity swaps.
Credit default swaps.
Credit default swap premium.
Chapter summary.
8. Fundamentals of Options.
Introduction.
Call option: intrinsic and
time value.
Long call expiry payoff.
Short call expiry payoff.
Put option: intrinsic and
time value.
Long put expiry payoff.
Short put expiry payoff.
Chapter summary.
9. Hedging with Options.
Introduction.
Forward hedge revisited.
Protective put.
Payoff profile of protective
put.
Changing the put strike.
Equity collar.
Zero-cost equity collar.
Collars and forwards.
Protective put with barrier
option.
Covered call writing (buy-write).
Chapter summary.
10. Exchange-Traded Equity
Options.
Introduction.
UK stock options on LIFFE.
Stock options: call expiry
payoff.
US-listed stock options.
CME options on S&P 500
R_ index futures.
FT-SE 100 index options.
Expiry payoff of FT-SE 100
call.
Exercising FT-SE 100 index
options.
Chapter summary.
11. Currency Options.
Introduction.
Currency options and
forwards.
Results from the option
hedge.
Zero-cost collar.
Reducing premium on FX
hedges.
Compound options.
Exchange-traded currency
options.
Hedging with exchange-traded
options.
FX covered call writing.
Chapter summary.
12. Interest Rate Options.
Introduction.
OTC interest rate options.
Hedging with interest rate
calls.
Caps, floors and collars.
Swaptions.
Eurodollar options.
Euro and sterling interest
rate options.
Bond options.
Exchange-traded bond
options.
Bund and gilt bond options.
Chapter summary.
13. Option Valuation
Concepts.
Introduction.
The concept of expected
payout.
Inputs to the Black-Scholes
model.
Historical volatility.
Implied volatility.
Share price simulations.
Value of a call and put
option.
Pricing currency options.
Pricing interest rate
options.
Chapter summary.
14. Option Sensitivities:
The 'Greeks'.
Introduction.
Delta.
Gamma.
Delta, gamma and expiry.
Theta.
Vega.
Rho.
Signs of the 'Greeks'.
Chapter summary.
15. Managing Trading Risks
on Options.
Introduction.
Delta risk on a short call.
Delta hedging and gamma.
Profit from a short call
position.
Chasing the delta.
Practical constraints on
hedging.
Chapter summary.
16. Option Trading
Strategies.
Introduction.
Bull spread.
Bull position with digital
options.
Bear spread.
Put or bear ratio spread.
Long straddle.
Chooser option.
Short straddle.
Managing the gamma risk.
Calendar or time spread.
Chapter summary.
17. Convertible and
Exchangeable Bonds.
Introduction.
Investors in convertible
bonds.
Issuers of convertible
bonds.
CB measures of value.
Conversion premium and
parity.
Other factors affecting CB
value.
Participation rates.
Mandatorily convertibles and
exchangeables.
Structuring a mandatorily
exchangeable.
Chapter summary.
18. Structured Securities:
Examples.
Introduction.
Capital protection
equity-linked notes.
Expiry value of 100% capital
protection notes.
100% participation notes.
Capped participation notes.
Average price notes.
Locking in interim gains:
cliquet options.
Securitization.
Synthetic securitization.
Chapter summary.
Appendix A: Financial
Calculations.
Appendix B: Glossary of
Terms.
Appendix C: Further
Information.
Index.
250 pages