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Financial Engineering: The Evolution of a Profession by Cara M. Marshall, Tanya Beder

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Chapter 6

The Equity Market

Gary L. Gastineau

ETF Consultants LLC

John F. Marshall

Marshall Management Services

Equity Market Snapshot

History: Although some forms of equity derivatives have been around for many years, the growth of the equity derivatives markets has accelerated dramatically within the past fifteen years, with increasing volumes of equity derivatives traded due to improving technology and changing market infrastructure. One of the most successful equity products developed by financial engineers within the past two decades is the exchange-traded fund (ETF).

Size: In comparison to other markets, the over-the-counter and exchange-traded portions of the equity derivatives market have grown at roughly the same pace, and are close in size. The OTC equity derivatives market has expanded from $1.5 trillion in 1998 to $6.6 trillion in 2009, while the exchange-traded derivatives market has grown from $1.2 trillion in 1998 to $5.8 trillion in 2009.

Products: Exchange-traded equity products include equity options, index options, index futures, single-stock futures, and exchange-traded funds (ETFs). OTC equity products include, primarily, equity options and swaps, basket options and swaps, index and share-linked swaps, warrants, forward contracts, and contracts-for-difference (CFDs).

First Usage: The first standardized stock call options began trading in 1973 on the Chicago Board Options Exchange (CBOE). Previously, equity options were bought and sold only in the OTC market ...

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