Pricing and Hedging Financial Derivatives : A Guide for Practitioners.


Leonardo. Marroni
Bok Engelsk 2013 · Electronic books.
Omfang
1 online resource (266 pages)
Utgave
1st ed.
Opplysninger
Intro -- Pricing and Hedging Financial Derivatives: A Guide for Practitioners -- Contents -- Preface -- Acknowledgements -- 1 An Introduction to the Major Asset Classes -- 1.1 EQUITIES -- 1.1.1 Introduction -- 1.1.2 Pricing equities -- 1.1.3 Fundamental analysis -- 1.1.4 Technical analysis -- 1.1.5 Quantitative analysis -- 1.1.6 The equity risk premium and the pre-FOMC announcement drift -- 1.2 COMMODITIES -- 1.2.1 Introduction -- 1.2.2 Hedging -- 1.2.3 Backwardation and contango -- 1.2.4 Investment in commodities -- 1.2.5 Commodity fundamentals -- 1.2.6 Super-cycles in commodity prices -- 1.2.7 Future regulation -- 1.3 FIXED INCOME -- 1.3.1 Introduction -- 1.3.2 Credit risk -- 1.3.3 The empirical pattern of yield curve moves -- 1.3.4 Modelling interest rate movements -- 1.3.5 Modelling the risks of default -- 1.4 FOREIGN EXCHANGE -- 1.4.1 Introduction -- 1.4.2 How foreign exchange rates are quoted -- SUMMARY -- 2 Derivatives: Forwards, Futures and Swaps -- 2.1 DERIVATIVES -- 2.2 FORWARD CONTRACTS -- 2.2.1 Definition -- 2.2.2 Payoffs of forward contracts -- 2.2.3 Forward price versus delivery price -- 2.3 FUTURES CONTRACTS -- 2.4 CALCULATING IMPLIED FORWARD PRICES AND VALUING EXISTING FORWARD CONTRACTS -- 2.4.1 Calculating implied forward prices on equities -- 2.4.2 Calculating implied forward prices on foreign exchange rates -- 2.4.3 Calculating implied forward prices on commodities -- 2.4.4 Valuing existing forward contracts -- 2.5 PRICING FUTURES CONTRACTS -- 2.6 SWAPS -- 2.6.1 Introduction -- 2.6.2 Interest rate swaps -- 2.6.3 Commodity swaps -- 2.6.4 Commodity swap valuation -- 2.6.5 Commodity swaps with variable notional and price -- 2.6.6 Currency swaps -- 2.6.7 Equity swaps -- SUMMARY -- 3 Derivatives: Options and Related Strategies -- 3.1 CALL OPTIONS -- 3.1.1 Definition -- 3.1.2 Examples -- 3.1.3 Scenario analysis for the S&amp.. - 5.10 MONTE CARLO PRICING -- 5.10.1 Introduction to the Monte Carlo technique -- 5.10.2 Generation of a Monte Carlo path -- 5.11 OTHER PRICING TECHNIQUES -- 5.11.1 Partial differential equation -- 5.11.2 Binomial/trinomial tree pricing -- 5.12 PRICING TECHNIQUES SUMMARY -- 5.13 THE EXCEL SPREADSHEET "OPTION REPLICATION" -- 5.13.1 Introduction and description of the spreadsheet -- 5.13.2 Why the replication is not perfect -- SUMMARY -- 6 Implied Volatility and the Greeks -- 6.1 IMPLIED VOLATILITY -- 6.2 THE GREEKS -- 6.3 DELTA AND ITS DYNAMICS -- 6.3.1 Definition and calculation -- 6.3.2 The dynamics of delta -- 6.4 GAMMA AND ITS DYNAMICS -- 6.5 VEGA AND ITS DYNAMICS -- 6.6 THETA AND ITS DYNAMICS -- 6.6.1 Definition and calculation -- 6.6.2 Gamma versus theta: An equilibrium at the heart of option pricing -- 6.6.3 Dynamics of theta -- 6.7 RHO -- 6.8 OPTION TRADING -- 6.8.1 Taking a position on implied volatility or on implied versus realized volatility -- 6.8.2 Taking a position on the terminal payoff or re-hedging with a certain frequency -- 6.9 SOME ADDITIONAL REMARKS (IN Q&amp -- A FORMAT) -- 6.10 AN EXAMPLE OF THE BEHAVIOUR OF IMPLIED VOLATILITY: EUR/USD RATE AND S&amp -- P 500 IN 2010-2012 -- SUMMARY -- 7 Volatility Smile and the Greeks of Option Strategies -- 7.1 THE VOLATILITY SMILE - WHY IS THE IMPLIED VOLATILITY NOT FLAT ACROSS DIFFERENT STRIKES? -- 7.2 THE "STICKY DELTA" AND "STICKY STRIKE" APPROACHES TO DESCRIBING VOLATILITY SMILE -- 7.3 THE VOLATILITY TERM STRUCTURE - WHY IS THE IMPLIED VOLATILITY NOT FLAT ACROSS DIFFERENT EXPIRIES? -- 7.4 THE VOLATILITY SURFACE - COMBINING SMILE AND TERM STRUCTURE -- 7.5 ANALYSING THE GREEKS OF COMMON OPTION STRATEGIES -- 7.5.1 Vertical call or put spreads -- 7.5.2 Straddles and strangles -- 7.5.3 Risk reversals -- 7.5.4 Butterflies -- 7.5.5 Butterflies and volatility convexity.. - 7.6 SOME ADDITIONAL REMARKS ON STRADDLES, RISK REVERSALS AND BUTTERFLIES -- 7.7 VEGA HEDGING IS NOT JUST SIMPLY OFFSETTING OVERALL VEGA EXPOSURE -- 7.8 HEDGING VOLATILITY RISK: A BRIEF INTRODUCTION OF THE VANNA-VOLGA APPROACH -- 7.9 THE VOLATILITY SMILE - ONE STEP FURTHER -- 7.9.1 Introduction -- 7.9.2 Why and how to build a smile -- 7.9.3 Smile arbitrage -- 7.9.4 Volatility surface -- 7.9.5 Volatility time dependence in forward-based assets -- 7.9.6 Models of forward-based asset volatilities -- 7.9.7 Calibrating a model of forward-based asset volatilities -- 7.10 PRICING EXOTIC OPTIONS -- 7.11 DIFFERENT TYPES OF VOLATILITY -- 7.11.1 Volatilities discussed so far -- 7.11.2 Forward-starting volatility -- 7.11.3 Local volatility -- 7.11.4 The limits of local volatility -- 7.11.5 Stochastic volatility models -- 7.11.6 Local-stochastic volatility models -- SUMMARY -- 8 Exotic Derivatives -- 8.1 EXOTIC DERIVATIVES WITH FIXED PAYOFFS -- 8.1.1 European digital options -- 8.1.2 One touch and no touch options -- 8.1.3 Combinations of fixed payoff options -- 8.2 OTHER COMMON EXOTIC DERIVATIVES -- 8.2.1 Barrier options -- 8.2.2 Asian options -- 8.3 EUROPEAN DIGITAL OPTIONS: PRICING AND GREEKS -- 8.3.1 Pricing European digital options -- 8.3.2 The Greeks of a digital option -- 8.3.3 Incorporating volatility skew into the price of a digital option -- 8.4 OTHER EXOTIC OPTIONS: PRICING AND GREEKS -- 8.4.1 Pricing common barrier options -- 8.4.2 Greeks of common barrier options -- 8.4.3 Greeks of Asian options -- SUMMARY -- 9 Multi-Asset Derivatives -- 9.1 BASKET OPTIONS -- 9.1.1 Basket option definition and Greeks -- 9.1.2 Cross-gamma and correlation revisited -- 9.2 BEST-OF AND WORST-OF OPTIONS -- 9.2.1 Best-of and worst-of definitions -- 9.2.2 The price and the Greeks of best-of and worst-of options -- 9.2.3 Best-of call -- 9.2.4 Best-of put.. - 9.2.5 Worst-of call -- 9.2.6 Worst-of put -- 9.2.7 Cross-gamma and correlation revisited (again . . . ) -- 9.3 QUANTO DERIVATIVES -- 9.4 "COMPO" DERIVATIVES -- SUMMARY -- 10 Structured Products -- 10.1 DEFINITION -- 10.2 COMMON FEATURES -- 10.3 PRINCIPAL PROTECTION -- 10.4 THE BENEFIT TO THE ISSUER -- 10.5 REDEMPTION AMOUNTS AND PARTICIPATION -- 10.6 PRINCIPAL AT RISK: EMBEDDING A SHORT OPTION -- 10.7 MORE COMPLICATED PAYOFFS -- 10.7.1 "Shark fin" notes -- 10.7.2 Reverse convertible notes -- 10.7.3 Range accrual notes -- 10.7.4 Auto-callable notes -- 10.8 AUTO-CALLABLE NOTE: PRICING AND RISK PROFILE -- 10.8.1 Pricing -- 10.8.2 Risk profile -- 10.9 ONE STEP FORWARD: THE WORST-OF DIGITAL NOTE -- 10.10 A REAL-LIFE EXAMPLE OF STRUCTURED PRODUCT -- 10.11 LIQUIDITY AND EXCHANGE-TRADED NOTES (ETNs) -- SUMMARY -- Index.. - P 500 Index call option -- 3.2 PUT OPTIONS -- 3.2.1 Definition -- 3.2.2 Examples -- 3.2.3 Scenario analysis for put options -- 3.3 BOUNDARY CONDITIONS FOR CALL AND PUT OPTIONS PRICES -- 3.3.1 Introduction and basic notation -- 3.3.2 A call option cannot be worth more than the price of the underlying asset -- 3.3.3 The price of a put option cannot be higher than the present value of the strike price, K -- 3.3.4 Lower boundaries for call options on non-dividend paying stocks -- 3.3.5 Lower boundaries for put options on non-dividend paying stocks -- 3.4 PUT-CALL PARITY -- 3.5 SWAPTIONS -- 3.6 OPTIONS STRATEGIES -- 3.6.1 Introduction to option strategies -- 3.6.2 Option spreads -- 3.6.3 Directional strategies using vertical spreads -- 3.6.4 Risk reversal and collars -- 3.6.5 Volatility strategies with puts and calls -- SUMMARY -- 4 Binomial Option Pricing -- 4.1 ONE-PERIOD BINOMIAL TREE: REPLICATION APPROACH -- 4.2 RISK-NEUTRAL VALUATION -- 4.2.1 Introduction to risk-neutral valuation -- 4.2.2 An alternative way to think of the option price -- 4.2.3 Risk-neutral probabilities -- 4.3 TWO-PERIOD BINOMIAL TREE: VALUING BACK DOWN THE TREE -- 4.4 THE BINOMIAL TREE: A GENERALIZATION -- 4.5 EARLY EXERCISE AND AMERICAN OPTIONS -- 4.6 VOLATILITY CALIBRATION -- SUMMARY -- 5 The Fundamentals of Option Pricing -- 5.1 INTRINSIC VALUE AND TIME VALUE OF AN OPTION -- 5.1.1 Introduction and definitions -- 5.1.2 Jensen's inequality -- 5.1.3 Time value of an option -- 5.2 WHAT IS VOLATILITY AND WHY DOES IT MATTER? -- 5.3 MEASUREMENT OF REALIZED VOLATILITY AND CORRELATION -- 5.4 OPTION PRICING IN THE BLACK-SCHOLES FRAMEWORK -- 5.5 THE OPTION DELTA AND THE REPLICATION OF THE OPTION PAYOFF -- 5.6 OPTION REPLICATION -- 5.7 OPTION REPLICATION, RISK-NEUTRAL VALUATION AND DELTA HEDGING REVISITED -- 5.8 OPTIONS ON DIVIDEND PAYING ASSETS -- 5.9 OPTIONS ON FUTURES: THE BLACK MODEL.. - The only guide focusing entirely on practical approaches to pricing and hedging derivatives One valuable lesson of the financial crisis was that derivatives and risk practitioners don't really understand the products they're dealing with. Written by a practitioner for practitioners, this book delivers the kind of knowledge and skills traders and finance professionals need to fully understand derivatives and price and hedge them effectively. Most derivatives books are written by academics and are long on theory and short on the day-to-day realities of derivatives trading. Of the few practical guides available, very few of those cover pricing and hedging-two critical topics for traders. What matters to practitioners is what happens on the trading floor-information only seasoned practitioners such as authors Marroni and Perdomo can impart. Lays out proven derivatives pricing and hedging strategies and techniques for equities, FX, fixed income and commodities, as well as multi-assets and cross-assets Provides expert guidance on the development of structured products, supplemented with a range of practical examples Packed with real-life examples covering everything from option payout with delta hedging, to Monte Carlo procedures to common structured products payoffs The Companion Website features all of the examples from the book in Excel complete with source code.
Emner
Sjanger
Dewey
ISBN
9781119954576
ISBN(galt)

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