Introduction to Derivative Financial Instruments: Bonds, Swaps, Options, and Hedging
by Chorafas, DimitrisEdition: 1st
Format: Hardcover
Pub. Date: 2008-04-03
Publisher(s): McGraw-Hill Education
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Summary
Written by a renowned corporate financial advisor, this timely guide offers a comprehensive treatment of derivative financial instruments, fully covering bonds, interest swaps, options, futures, Forex, and more. The author explains the strategic use of derivatives, their place in portfolio management, hedging, and the importance of managing risk.
Author Biography
Dimitris N. Chorafas has worked internationally as an advisor to financial institutions and industrial corporations since 1961.
Table of Contents
| Preface | p. xi |
| Innovation in Finance Through Derivative Instruments | |
| Financial Innovation | p. 3 |
| Service Science | p. 3 |
| Motivation for Financial Innovation | p. 5 |
| The Technology Side of Service Science | p. 8 |
| Entrepreneurship | p. 12 |
| Paper Ships: A Case Study | p. 16 |
| Forward Freight Agreements and the Macromarkets | p. 19 |
| Risk Management | p. 22 |
| Derivatives | p. 29 |
| Derivatives Definition by the FASB | p. 29 |
| Derivatives Definition by the IASB | p. 33 |
| Notional Principal Amount and Underlying | p. 35 |
| Options, Futures, Forwards, and Swaps in a Nutshell | p. 39 |
| Exotic Derivatives | p. 43 |
| Synthetic Financial Instruments | p. 45 |
| Structured Financial Instruments | p. 49 |
| Strategic Use of Derivatives | p. 53 |
| Capitalizing on Creativity | p. 53 |
| The Customization of Financial Products | p. 56 |
| Over-the-Counter Derivatives Transactions | p. 59 |
| Risk Appetite and Risk Aversion | p. 63 |
| Learning a Lesson from George Soros | p. 67 |
| Learning a Lesson from Henry Kaufman | p. 69 |
| High Technology for Processes and Products | p. 72 |
| Hedging | p. 75 |
| The Search for Effective Hedges | p. 75 |
| Hedging Practices | p. 78 |
| Types of Hedging Instruments | p. 82 |
| Right and Wrong Hedges | p. 84 |
| Management Intent | p. 88 |
| Hedge Accounting | p. 91 |
| Beware of Assumed Exposure and Illiquidity | |
| Liquidity, Solvency, and Derivatives Exposure | p. 97 |
| Liquidity and Solvency | p. 97 |
| A Quadrillion in Derivatives Exposure | p. 100 |
| Unexpected Consequences | p. 104 |
| The Criticality of Market Positions | p. 108 |
| Free Fall of the Bond Market in 1994: A Case Study | p. 111 |
| Bubbles and Ponzi Games | p. 113 |
| Impact of Megamergers on Exposure | p. 116 |
| The Daunting Task of Capital Adequacy | p. 121 |
| Capital Adequacy Dynamics | p. 121 |
| Management Accounting for Recognized but Not Realized Gains and Losses | p. 124 |
| Capital at Risk and Level of Confidence | p. 128 |
| Quantitative Impact Studies, and Second Thoughts about Capital Adequacy | p. 133 |
| Basel II's Unexpected Headwinds | p. 136 |
| The Effect of Leveraging on Capital Adequacy | p. 141 |
| The Origin of Legislation for Marking-to-Market | p. 144 |
| Options | |
| The Use of Options | p. 149 |
| The Strategic Use of Options | p. 149 |
| Intrinsic Value and Time Value | p. 152 |
| Styles of Options: American, European, Asian, and Others | p. 155 |
| Complex Options | p. 158 |
| Straddles, Strangles, and Butterflies | p. 162 |
| Interest Rate, Yield-Based, and Foreign Currency Options | p. 165 |
| Option Spreading; Long Calls, Short Calls | p. 169 |
| Option Hedges | p. 172 |
| Risks Associated with Options | p. 175 |
| The Pricing of Options | p. 179 |
| Pricing Derivatives: A General Perspective | p. 179 |
| Object of Prediction and Effect of Volatility | p. 182 |
| Options Premiums and Options Pricing | p. 186 |
| Binomial and Lognormal Models | p. 189 |
| The Black-Scholes Model | p. 194 |
| Advantages and Shortcomings of the Black-Scholes Model | p. 197 |
| Testing the Black-Scholes Model | p. 200 |
| Option Traders, Buyers, and Writers | p. 203 |
| Trading Derivative Instruments | p. 203 |
| Options Trading | p. 206 |
| Flexibly Structured Options | p. 209 |
| Buyers' Strategies | p. 211 |
| Writing Options | p. 214 |
| Trading in Synthetic Options | p. 217 |
| Spreads Trading | p. 219 |
| Exercise, Settlement, and Technical Support | p. 222 |
| Risk Control for Options | |
| The Greeks: Delta, Gamma, Theta, Kappa, Rho | p. 227 |
| The Challenge of Measuring Risk and Return | p. 227 |
| The Greeks in a Nutshell | p. 230 |
| Delta Hedging | p. 233 |
| Gamma Hedging | p. 237 |
| Theta, Kappa, Rho | p. 239 |
| Credit Risk and Market Risk with Options | p. 243 |
| Selling Market Risk and Buying Credit Risk | p. 243 |
| Market Risk Control in a Nutshell | p. 246 |
| GM's Put Options for Fiat Auto: A Case Study | p. 250 |
| Credit Risk Control in a Nutshell | p. 251 |
| Credit Improvement and Credit Deterioration | p. 254 |
| The Mispricing of Credit Risk | p. 257 |
| Credit-Risk-Free Debt Options | p. 261 |
| Credit Spreads and Credit Options | p. 264 |
| Futures, Forwards, and Swaps | |
| Futures and Forwards | p. 271 |
| Futures, Forwards, and the Investor | p. 271 |
| Futures and Margin Requirements | p. 274 |
| Futures Trading: A Case Study with Oil | p. 276 |
| Price Discovery through Futures | p. 279 |
| Forward Contracts | p. 282 |
| Forward Positions: An Example with FRAs | p. 285 |
| Synthetic Futures | p. 289 |
| Warrants | p. 290 |
| Swaps | p. 295 |
| Swaps Defined | p. 295 |
| Players, Milestones, and Flavors of Standard Swaps | p. 298 |
| Interest Rate Swaps | p. 301 |
| Swap Spreads | p. 303 |
| Swaptions | p. 305 |
| Asset Swaps and Equity Swaps | p. 308 |
| Total Return Swaps | p. 311 |
| Credit Default Swaps | p. 313 |
| Differential Swaps | p. 316 |
| Risks Assumed with Swaps | p. 318 |
| Interest Rate Risk Management through Derivatives | p. 321 |
| Being Ahead of the Interest Rate Curve | p. 321 |
| The Term Structure of Interest Rates | p. 325 |
| The Contribution of Interest Rate Derivatives | p. 329 |
| Accounting for Interest Rate Derivatives | p. 332 |
| Internal Interest Rate Swaps | p. 334 |
| The Synergy between Interest Rates and Currency Rates | p. 338 |
| Interest Rate Risk and Its Measurement | p. 342 |
| Interest Rate Spreads Associated with Credit Risk | p. 345 |
| Index | p. 349 |
| Table of Contents provided by Ingram. All Rights Reserved. |
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