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Derivatives Markets and Analysis

Book Description

A practical, informative guide to derivatives in the real world

Derivatives is an exposition on investments, guiding you from the basic concepts, strategies, and fundamentals to a more detailed understanding of the advanced strategies and models. As part of Bloomberg Financial's three part series on securities, Derivatives focuses on derivative securities and the functionality of the Bloomberg system with regards to derivatives. You'll develop a tighter grasp of the more subtle complexities involved in the evaluation, selection, and management of derivatives, and gain the practical skillset necessary to apply your knowledge to real-world investment situations using the tools and techniques that dominate the industry. Instructions for using the widespread Bloomberg system are interwoven throughout, allowing you to directly apply the techniques and processes discussed using your own data. You'll learn the many analytical functions used to evaluate derivatives, and how these functions are applied within the context of each investment topic covered. All Bloomberg information appears in specified boxes embedded throughout the text, making it easy for you to find it quickly when you need or, or easily skip it in favor of the theory-based text.

Managing securities in today's dynamic and innovative investment environment requires a strong understanding of how the increasing variety of securities, markets, strategies, and methodologies are used. This book gives you a more thorough understanding, and a practical skillset that investment managers need.

  • Understand derivatives strategies and models from basic to advanced
  • Apply Bloomberg information and analytical functions
  • Learn how investment decisions are made in the real world
  • Grasp the complexities of securities evaluation, selection, and management

The financial and academic developments of the past twenty years have highlighted the challenge in acquiring a comprehensive understanding of investments and financial markets. Derivatives provides the detailed explanations you've been seeking, and the hands-on training the real world demands.

Table of Contents

  1. Cover
  2. Title Page
  3. Preface
    1. Content
  4. Acknowledgments
  5. About the Author
  6. PART 1: Futures and Forward Contracts
    1. CHAPTER 1: Futures Markets
      1. Introduction to Futures and Options Markets
      2. The Nature of Futures Trading and the Role of the Clearinghouse
      3. Types of Futures Contracts
      4. The Organized Markets and Characteristics of Futures Trading
      5. Commodity Futures Hedging
      6. Commodity Speculating with Futures
      7. Pricing Futures and Forward Contracts: Carrying‐Cost Model
      8. Conclusion
      9. Selected References
      10. Problems and Questions
      11. Bloomberg Exercises
    2. CHAPTER 2: Currency Futures and Forward Contracts
      1. Hedging with Foreign Currency Futures and Forward Contracts
      2. Speculating with Foreign Currency Futures and Forward Contracts
      3. Hedging and Speculating with Equivalent Money Market Positions
      4. Carrying‐Cost Model for a Currency
      5. Conclusion
      6. Selected References
      7. Problems and Questions
      8. Bloomberg Exercises
    3. CHAPTER 3: Equity Index Futures
      1. Speculative Strategies
      2. Hedging Equity Positions
      3. Carrying‐Cost Model for an Equity Index
      4. Non‐Equity Indexes
      5. Conclusion
      6. Selected References
      7. Problems and Questions
      8. Bloomberg Exercises
    4. CHAPTER 4: Interest Rate and Bond Futures and Forward Contracts
      1. Types of Interest Rate Futures and Forward Contracts
      2. Speculating with Interest Rate and Bond Futures Contracts
      3. Hedging with Interest Rate and Bond Futures Contracts
      4. Pricing Interest Rate and Bond Futures
      5. Conclusion
      6. Selected References
      7. Problems and Questions
      8. Bloomberg Exercises
  7. PART 2: Options Markets and Strategies
    1. CHAPTER 5: Fundamentals of Options Trading
      1. Option Terminology
      2. Fundamental Option Strategies
      3. Other Option Strategies
      4. Option Price Relations
      5. Put‐Call Parity
      6. Option Exchanges
      7. Conclusion
      8. Selected References
      9. Problems and Questions
      10. Bloomberg Exercises
    2. CHAPTER 6: Non‐Stock Options: Equity Index, Futures, OTC, and Embedded Options
      1. Equity‐Index Options
      2. Futures Options
      3. Over‐the‐Counter Options
      4. Convertible Securities
      5. Embedded Options
      6. Equity and Debt as Call Option Positions
      7. Conclusion
      8. Selected References
      9. Problems and Questions
      10. Bloomberg Exercises
    3. CHAPTER 7: Option Strategies
      1. Call Purchases
      2. Call Purchases in Conjunction with Other Positions
      3. Naked Call Writes
      4. Covered Call Writes
      5. Ratio Call Writes
      6. Put Purchases
      7. Naked Put Writes
      8. Covered Put Writes
      9. Ratio Put Writes
      10. Call Spreads
      11. Put Spreads
      12. Straddle, Strip, and Strap Positions
      13. Combinations
      14. Condors
      15. Simulated Stock Positions
      16. Conclusion
      17. Selected References
      18. Problems and Questions
      19. Bloomberg Exercises
    4. CHAPTER 8: Option Hedging
      1. Hedging Stock Portfolio Positions
      2. Hedging Currency and Commodity Positions
      3. Hedging Fixed‐Income Positions with Options
      4. Conclusion
      5. Selected References
      6. Problems and Questions
      7. Bloomberg Exercises
  8. PART 3: Option Pricing
    1. CHAPTER 9: Option Boundary Conditions and Fundamental Price Relations
      1. Call Boundary Conditions
      2. Put Boundary Conditions
      3. Put and Call Boundary Conditions
      4. Boundary Conditions Governing Non‐Stock Options
      5. Conclusion
      6. Selected References
      7. Problems and Questions
      8. Bloomberg Exercises
    2. CHAPTER 10: The Binomial Option Pricing Model
      1. Single‐Period BOPM
      2. Multiple‐Period BOPM
      3. Estimating the BOPM
      4. Features of the BOPM
      5. Conclusion
      6. Selected References
      7. Problems and Questions
      8. Bloomberg Exercises
      9. Appendix 10A: Risk‐Neutral Pricing
      10. Risk‐Neutral Probability Pricing—Single‐Period Case
      11. Risk‐Neutral Probability Pricing—Multiple‐Period Case
      12. Appendix 10B: Discrete Dividend‐Payment Approach
      13. Example
    3. CHAPTER 11: The Black‐Scholes Option Pricing Model
      1. The Black‐Scholes Call Model
      2. The Black‐Scholes Put Model
      3. Estimating the B‐S OPM
      4. Applications of the OPM
      5. Empirical Studies
      6. Conclusion
      7. Selected References
      8. Problems and Questions
      9. Bloomberg Exercises
    4. CHAPTER 12: Pricing Non‐Stock Options and Futures Options
      1. Pricing of Spot Index and Currency Options
      2. Binomial Pricing of Futures Options
      3. Pricing Equity Convertibles with the B‐S OPM
      4. Greeks
      5. Conclusion
      6. Selected References
      7. Problems and Questions
      8. Bloomberg Exercises
    5. CHAPTER 13: Pricing Bond and Interest Rate Options
      1. The Binomial Interest Rate Model
      2. Estimating the Binomial Interest Rate Tree
      3. Pricing Bond and Interest Rate Options with the B‐S and Black OPMs
      4. Conclusion
      5. Selected References
      6. Problems and Questions
      7. Bloomberg Exercises
  9. PART 4: Financial Swaps
    1. CHAPTER 14: Interest Rate Swaps
      1. Generic Interest Rate Swaps
      2. Swap Markets
      3. Swap Valuation
      4. Comparative Advantage
      5. Swap Applications
      6. Forward Swaps
      7. Swaptions
      8. Non‐Generic Swaps
      9. Conclusion
      10. Selected References
      11. Problems and Questions
      12. Bloomberg Exercises
      13. Appendix 14A: Valuation of Forward Swaps and Swaptions
    2. CHAPTER 15: Credit Default and Currency Swaps
      1. Generic Credit Default Swap
      2. Currency Swaps
      3. Conclusion
      4. Selected References
      5. Problems and Questions
      6. Bloomberg Exercises
  10. PART 5: Supplemental Appendixes
    1. Appendix A: Overview and Guide to the Bloomberg System
      1. Bloomberg System—Bloomberg Keyboard
      2. Accessing Security Information
      3. Indexes
      4. Functionality
      5. Economic, Industry, Law, and Municipal Information Screens
      6. Monitor and Portal Screens
      7. Portfolios and Baskets
      8. Screening and Search Functions
      9. The Bloomberg Excel Add‐In: Importing Bloomberg into Excel
      10. Launchpad
      11. Conclusion
      12. Bloomberg Exercises
    2. Appendix B: Directory Listing of Bloomberg Screens by Menu and Function
    3. Appendix C: Uses of Exponents and Logarithms
      1. Exponential Functions
      2. Logarithms
      3. Selected Reference
  11. Index
  12. End User License Agreement