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Derivatives Markets and Analysis

ISBN: 978-1-118-20269-2
800 pages
August 2017
Derivatives Markets and Analysis (1118202694) cover image

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.

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Table of Contents

Preface

Acknowledgments

About the Author

Part I: Futures and Forward Contracts

Chapter 1: Futures Markets

The Nature of Futures Trading and the Role of the Clearinghouse

Types of Futures Contracts

The Organized Markets and Characteristics of Futures Trading

Commodity Futures Hedging

Commodity Speculating with Futures

Pricing Futures and Forward Contracts: Carrying-Cost Model

Conclusion

Bloomberg: Commodity Futures and Related Screens

Selected References

Problems and Questions

Bloomberg Exercises

Chapter 2: Currency Futures and Forward Contracts

Hedging with Foreign Currency Futures and Forward Contracts

Speculating with Foreign Currency Futures and Forward Contracts

Hedging and Speculating with Equivalent Money Market Positions

Carrying-Cost Model for a Currency

Conclusion

Bloomberg: Currency Futures and Related Screens

Selected References

Problems and Questions

Bloomberg Exercises

Chapter 3: Equity Index Futures 

Speculative Strategies

Hedging Equity Positions

Carrying-Cost Model for an Equity Index

Non-Equity Indexes

Conclusion

Bloomberg: Equity Index Futures and Related Screens

Selected References

Problems and Questions

Bloomberg Exercises

Chapter 4: Interest Rate and Bond Futures and Forward Contracts

Speculating with Interest Rate and Bond Futures Contracts

Hedging with Interest Rate and Bond Futures Contracts

Pricing Interest Rate and Bond Futures

Conclusion

Selected References

Problems and Questions

Bloomberg Exercises

Bloomberg: Bond and Interest Rate Futures and Related Screens

Appendix 4A: T-Bond and T-Note Delivery Procedures

Part II: Options Markets and Strategies

Chapter 5: Fundamentals of Options Trading

Option Terminology

Fundamental Option Strategies

Other Option Strategies

Option Price Relations

Put-Call Parity

Option Exchanges

Conclusion

Bloomberg: Options Screens

Selected References

Problems and Questions

Bloomberg Exercises

Chapter 6: Non-Stock Options: Equity Index, Futures, OTC, and Embedded Options

Equity-Index Options

Futures Options

Over-the-Counter Options

Convertible Securities

Embedded Options

Conclusion

Bloomberg: Options Screens 

Selected References

Problems and Questions

Bloomberg Exercises

Chapter 7: Option Strategies

Call Purchase

Call Purchases in Conjunction with Other Positions

Naked Call Write

Covered Call Write

Ratio Call Write

Put Purchase

Naked Put Write

Covered Put Write

Ratio Put Write

Call Spreads

Put Spreads

Combinations

Condors

Simulated Stock Positions

Conclusion

Bloomberg: Option Scenario Analysis Screen—OSA

Selected References

Problems and Questions

Bloomberg Exercises

Chapter 8: Option Hedging

Hedging Stock Portfolio Positions

Hedging Currency and Commodity Positions

Hedging Fixed-Income Positions with Options

Conclusion

Bloomberg Hedging Screens

Selected References

Problems and Questions

Bloomberg Exercises

Part III: Option Pricing

Chapter 9: Option Boundary Conditions and Fundamental Price Relations

Call Boundary Conditions

Put Boundary Conditions

Put and Call Boundary Conditions

Boundary Conditions Governing Non-Stock Options

Conclusion

Bloomberg: Chart Screen, OMON, Call, and PUT

Selected References

Problems and Questions

Bloomberg Exercises

Chapter 10: The Binomial Option Pricing Model

Single-Period BOPM

Multiple-Period BOPM

Estimating the BOPM

Features of the BOPM

Conclusion

Bloomberg: Screens for Applying the BOPM

Selected References

Problems and Questions

Bloomberg Exercises

Appendix 10A: Risk-Neutral Pricing

Appendix 10B: Discrete Dividend-Payment Approach

Chapter 11: The Black-Scholes Option Pricing Model

The Black-Scholes Call Model

The Black-Scholes Put Model

Estimating the B-S OPM

Applications of the OPM

Empirical Studies

Conclusion

Bloomberg Option Valuation Screen, OVME

Selected References

Problems and Questions

Bloomberg Exercises

Chapter 12: Pricing Non-Stock Options and Futures Options

Pricing of Spot Index and Currency Options

Binomial Pricing of Futures Options

Pricing Equity Convertibles with the B-S OPM

Greeks

Conclusion

Bloomberg Option Valuation Screens for Indexes and Futures Options, OVME

Selected References

Problems and Questions

Bloomberg Exercises

Chapter 13: Pricing Bond and Interest Rate Options

The Binomial Interest Rate Model

Estimating the Binomial Interest Rate Tree

Pricing Bond and Interest Rate Options with the B-S and Black OPMs

Conclusion

Bloomberg Option Valuation Screens for Bond and Interest Rate Options, OVME

Selected References

Problems and Questions

Bloomberg Exercises

Part IV: Financial Swaps

Chapter 14: Interest Rate Swaps

Generic Interest Rate Swaps

Swap Market

Swap Valuation

Comparative Advantage

Swap Applications

Forward Swaps

Swaptions

Non-Generic Swaps

Conclusion

Bloomberg Screens for Swaps

Appendix 14A: Valuation of Forward Swaps and Swaptions

Selected References

Problems and Questions

Bloomberg Exercises

Chapter 15: Credit Default and Currency Swaps

Generic Credit Default Swap

Currency Swaps

Conclusion

Bloomberg CDS and Currency Swap Screens

Selected References

Problems and Questions

Bloomberg Exercises

Supplemental Appendices

Appendix A: Overview and Guide to the Bloomberg System

Bloomberg System—Bloomberg Keyboard

The Bloomberg keyboard allows one to access information within the “Bloomberg

Accessing Security Information

Indexes

Economic, Industry, Law, and Municipal Information Screens

Monitor and Portal Screens

Portfolios and Baskets

Screening and Search Functions

The Bloomberg Excel Add-In: Importing Bloomberg into Excel

Launchpad

Bloomberg Exercises

Appendix B: Directory Listing of Bloomberg Screens by Menu and Function

Appendix C: Uses of Exponents and Logarithms

Exponential Functions

Logarithms

Rules of Logarithms

Uses of Logarithm

Index

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