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Derivatives is the definitive guide to derivatives and derivative markets. Written by experts working with CFA Institute, this book is an authoritative reference for students and investment professionals interested in the role of derivatives within comprehensive portfolio management. General discussion of the types of derivatives and their characteristics gives way to detailed examination of each market and its contracts, including forwards, futures, options, and swaps, followed by a look at credit derivative markets and their instruments. The companion workbook (sold separately) provides problems and solutions that align with the text and allows students to test their understanding while facilitating deeper internalization of the material.
Derivatives have become essential for effective financial risk management and for creating synthetic exposure to asset classes. This book builds a conceptual framework for grasping derivative fundamentals, with systematic coverage and thorough explanations. Readers will:
* Understand the different types of derivatives and their characteristics
* Delve into the various markets and their associated contracts
* Examine the role of derivatives in portfolio management
* Learn why derivatives are increasingly fundamental to risk management
CFA Institute is the world's premier association for investment professionals, and the governing body for CFA(r) Program, CIPM(r) Program, CFA Institute ESG Investing Certificate, and Investment Foundations(r) Program. Those seeking a deeper understanding of the markets, mechanisms, and use of derivatives will value the level of expertise CFA Institute brings to the discussion, providing a clear, comprehensive resource for students and professionals alike. Whether used alone or in conjunction with the companion workbook, Derivatives offers a complete course in derivatives and their use in investment management.
Derivatives is the definitive guide to derivatives and derivative markets. Written by experts working with CFA Institute, this book is an authoritative reference for students and investment professionals interested in the role of derivatives within comprehensive portfolio management. General discussion of the types of derivatives and their characteristics gives way to detailed examination of each market and its contracts, including forwards, futures, options, and swaps, followed by a look at credit derivative markets and their instruments. The companion workbook (sold separately) provides problems and solutions that align with the text and allows students to test their understanding while facilitating deeper internalization of the material.
Derivatives have become essential for effective financial risk management and for creating synthetic exposure to asset classes. This book builds a conceptual framework for grasping derivative fundamentals, with systematic coverage and thorough explanations. Readers will:
* Understand the different types of derivatives and their characteristics
* Delve into the various markets and their associated contracts
* Examine the role of derivatives in portfolio management
* Learn why derivatives are increasingly fundamental to risk management
CFA Institute is the world's premier association for investment professionals, and the governing body for CFA(r) Program, CIPM(r) Program, CFA Institute ESG Investing Certificate, and Investment Foundations(r) Program. Those seeking a deeper understanding of the markets, mechanisms, and use of derivatives will value the level of expertise CFA Institute brings to the discussion, providing a clear, comprehensive resource for students and professionals alike. Whether used alone or in conjunction with the companion workbook, Derivatives offers a complete course in derivatives and their use in investment management.
Foreword xvii
Preface xix
Acknowledgments xxi
About the CFA Institute Investment Series xxiii
Chapter 1 Derivative Markets and Instruments 1
Learning Outcomes 1
1. Derivatives: Introduction, Definitions, and Uses 1
2. The Structure of Derivative Markets 5
2.1. Exchange-Traded Derivatives Markets 6
2.2. Over-the-Counter Derivatives Markets 8
3. Types of Derivatives: Introduction, Forward Contracts 10
3.1. Forward Commitments 10
4. Types of Derivatives: Futures 14
5. Types of Derivatives: Swaps 18
6. Contingent Claims: Options 22
6.1. Options 22
7. Contingent Claims: Credit Derivatives 30
8. Types of Derivatives: Asset-Backed Securities and Hybrids 33
8.1. Hybrids 35
9. Derivatives Underlyings 36
9.1. Equities 36
9.2. Fixed-Income Instruments and Interest Rates 36
9.3. Currencies 37
9.4. Commodities 37
9.5. Credit 37
9.6. Other 37
10. The Purposes and Benefits of Derivatives 39
10.1. Risk Allocation, Transfer, and Management 40
10.2. Information Discovery 41
10.3. Operational Advantages 41
10.4. Market Efficiency 42
11. Criticisms and Misuses of Derivatives 42
11.1. Speculation and Gambling 43
11.2. Destabilization and Systemic Risk 43
12. Elementary Principles of Derivative Pricing 45
12.1. Storage 46
12.2. Arbitrage 47
Summary 52
Problems 54
Chapter 2 Basics of Derivative Pricing and Valuation 61
Learning Outcomes 61
1. Introduction 62
2. Basic Derivative Concepts, Pricing the Underlying 62
2.1. Basic Derivative Concepts 62
2.2. Pricing the Underlying 64
3. The Principle of Arbitrage 68
3.1. The (In)Frequency of Arbitrage Opportunities 69
3.2. Arbitrage and Derivatives 69
3.3. Arbitrage and Replication 70
3.4. Risk Aversion, Risk Neutrality, and Arbitrage-Free Pricing 71
3.5. Limits to Arbitrage 72
4. Pricing and Valuation of Forward Contracts: Pricing vs. Valuation; Expiration; Initiation 74
4.1. Pricing and Valuation of Forward Commitments 75
5. Pricing and Valuation of Forward Contracts: Between Initiation and Expiration; Forward Rate Agreements 79
5.1. A Word about Forward Contracts on Interest Rates 80
6. Pricing and Valuation of Futures Contracts 82
7. Pricing and Valuation of Swap Contracts 84
8. Pricing and Valuation of Options 87
[...]opean Option Pricing 88
9. Lower Limits for Prices of European Options 94
10. Put-Call Parity, Put-Call-Forward Parity 97
10.1. Put-Call-Forward Parity 101
11. Binomial Valuation of Options 103
12. American Option Pricing 107
Summary 110
Problems 111
Chapter 3 Pricing and Valuation of Forward Commitments 117
Learning Outcomes 117
1. Introduction to Pricing and Valuation of Forward Commitments 117
1.1. Principles of Arbitrage-Free Pricing and Valuation of Forward Commitments 118
1.2. Pricing and Valuing Generic Forward and Futures Contracts 119
2. Carry Arbitrage 124
2.1. Carry Arbitrage Model When There Are No Underlying Cash Flows 124
2.2. Carry Arbitrage Model When Underlying Has Cash Flows 131
3. Pricing Equity Forwards and Futures 135
3.1. Equity Forward and Futures Contracts 135
3.2. Interest Rate Forward and Futures Contracts 138
4. Pricing Fixed-Income Forward and Futures Contracts 147
4.1. Comparing Forward and Futures Contracts 153
5. Pricing and Valuing Swap Contracts 154
5.1. Interest Rate Swap Contracts 156
6. Pricing and Valuing Currency Swap Contracts 163
7. Pricing and Valuing Equity Swap Contracts 171
Summary 176
Problems 179
Chapter 4 Valuation of Contingent Claims 187
Learning Outcomes 187
1. Introduction and Principles of a No- Arbitrage Approach to Valuation 188
1.1. Principles of a No- Arbitrage Approach to Valuation 188
2. Binomial Option Valuation Model 190
3. One- Period Binomial Model 192
4. Binomial Model: Two- Period (Call Options) 199
5. Binomial Model: Two- Period (Put Options) 203
6. Binomial Model: Two- Period (Role of Dividends & Comprehensive Example) 207
7. Interest Rate Options & Multiperiod Model 213
7.1. Multiperiod Model 215
8. Black-Scholes-Merton (BSM) Option Valuation Model, Introduction and Assumptions of the BSM Model 216
8.1. Introductory Material 216
8.2. Assumptions of the BSM Model 216
9. BSM Model: Components 218
10. BSM Model: Carry Benefits and Applications 222
11. Black Option Valuation Model and European Options on Futures 226
[...]opean Options on Futures 226
12. Interest Rate Options 228
13. Swaptions 232
14. Option Greeks and Implied Volatility: Delta 234
14.1. Delta 235
15. Gamma 238
16. Theta 241
17. Vega 242
18. Rho 243
19. Implied Volatility 244
Summary 247
Problems 249
Chapter 5 Credit Default Swaps 255
Learning Outcomes 255
1. Introduction 255
2. Basic Definitions and Concepts 255
2.1. Types of CDS 257
3. Important Features of CDS Markets and Instruments, Credit and Succession Events, and Settlement Proposals 258
3.1. Credit and Succession Events 260
3.2. Settlement Protocols 261
3.3. CDS Index Products 262
3.4. Market Characteristics 264
4. Basics of Valuation and Pricing 265
4.1. Basic Pricing Concepts 265
4.2. The Credit Curve and CDS Pricing Conventions 268
4.3. CDS Pricing Conventions 269
4.4. Valuation Changes in CDS during Their Lives 270
4.5. Monetizing Gains and Losses 271
5. Applications of CDS 272
5.1. Managing Credit Exposures 273
6. Valuation Differences and Basis Trading 277
Summary 279
Problems 280
Chapter 6 Introduction to Commodities and Commodity Derivatives 285
Learning Outcomes 285
1. Introduction 285
2. Commodity Sectors 286
2.1. Commodity Sectors 288
3. Life Cycle of Commodities 290
3.1. Energy 291
3.2. Industrial/Precious Metals 292
3.3. Livestock 294
3.4. Grains 295
3.5. Softs 295
4. Valuation of Commodities 296
5. Commodities Futures Markets: Participants 298
5.1. Futures Market Participants 298
6. Commodity Spot and Futures Pricing 302
7. Theories of Futures Returns 306
7.1. Theories of Futures Returns 306
8. Components of Futures Returns 313
9. Contango, Backwardation, and the Roll Return 317
10. Commodity Swaps 320
10.1. Total Return Swap 322
10.2. Basis Swap 323
10.3. Variance Swaps and Volatility Swaps 323
11. Commodity Indexes 324
11.1. S&p Gsci 327
11.2. Bloomberg Commodity Index 327
11.3. Deutsche Bank Liquid Commodity Index 327
11.4. Thomson Reuters/CoreCommodity CRB Index 327
11.5. Rogers International Commodity Index 328
11.6. Rebalancing Frequency 328
11.7. Commodity Index Summary 328
Summary 329
References 331
Problems 331
Chapter 7 Currency Management: An Introduction 339
Learning Outcomes 339
1. Introduction 340
2. Review of Foreign Exchange Concepts 340
2.1. Spot Markets 341
2.2. Forward Markets 343
2.3. FX Swap Markets 346
2.4. Currency Options 347
3. Currency Risk and Portfolio Risk and Return 347
3.1. Return Decomposition 347
3.2. Volatility Decomposition 350
4. Strategic Decisions in Currency Management: Overview 353
4.1. The Investment Policy Statement 354
4.2. The Portfolio Optimization Problem 354
4.3. Choice of Currency Exposures 356
5. Strategic Decisions in Currency Management: Spectrum of Currency Risk Management Strategies 359
5.1. Passive Hedging 359
5.2. Discretionary Hedging 359
5.3. Active Currency Management 360
5.4. Currency Overlay 360
6. Strategic Decisions in Currency Management: Formulating a Currency Management Program 363
7. Active Currency Management: Based on Economic Fundamentals, Technical Analysis, and the Carry Trade 365
7.1. Active Currency Management Based on Economic Fundamentals 365
7.2. Active Currency Management Based on Technical Analysis 367
7.3. Active Currency Management Based on the Carry Trade 368
8. Active Currency Management: Based on Volatility Trading 370
9. Currency Management Tools: Forward Contracts, FX Swaps, and Currency Options 375
9.1. Forward Contracts 376
9.2. Currency Options 383
10. Currency Management Strategies 385
10.1. Over- /Under- Hedging Using Forward Contracts 386
10.2. Protective Put Using OTM Options 387
10.3. Risk Reversal (or Collar) 387
10.4. Put Spread 388
10.5. Seagull Spread 388
10.6. Exotic Options 389
10.7. Section Summary 390
11. Hedging Multiple Foreign Currencies 393
...| Erscheinungsjahr: | 2021 |
|---|---|
| Fachbereich: | Betriebswirtschaft |
| Genre: | Wirtschaft |
| Rubrik: | Recht & Wirtschaft |
| Medium: | Buch |
| Inhalt: | 896 S. |
| ISBN-13: | 9781119850571 |
| ISBN-10: | 1119850576 |
| Sprache: | Englisch |
| Einband: | Gebunden |
| Autor: | Cfa Institute |
| Hersteller: | Wiley |
| Maße: | 257 x 191 x 53 mm |
| Von/Mit: | Cfa Institute |
| Erscheinungsdatum: | 24.11.2021 |
| Gewicht: | 1,746 kg |
Foreword xvii
Preface xix
Acknowledgments xxi
About the CFA Institute Investment Series xxiii
Chapter 1 Derivative Markets and Instruments 1
Learning Outcomes 1
1. Derivatives: Introduction, Definitions, and Uses 1
2. The Structure of Derivative Markets 5
2.1. Exchange-Traded Derivatives Markets 6
2.2. Over-the-Counter Derivatives Markets 8
3. Types of Derivatives: Introduction, Forward Contracts 10
3.1. Forward Commitments 10
4. Types of Derivatives: Futures 14
5. Types of Derivatives: Swaps 18
6. Contingent Claims: Options 22
6.1. Options 22
7. Contingent Claims: Credit Derivatives 30
8. Types of Derivatives: Asset-Backed Securities and Hybrids 33
8.1. Hybrids 35
9. Derivatives Underlyings 36
9.1. Equities 36
9.2. Fixed-Income Instruments and Interest Rates 36
9.3. Currencies 37
9.4. Commodities 37
9.5. Credit 37
9.6. Other 37
10. The Purposes and Benefits of Derivatives 39
10.1. Risk Allocation, Transfer, and Management 40
10.2. Information Discovery 41
10.3. Operational Advantages 41
10.4. Market Efficiency 42
11. Criticisms and Misuses of Derivatives 42
11.1. Speculation and Gambling 43
11.2. Destabilization and Systemic Risk 43
12. Elementary Principles of Derivative Pricing 45
12.1. Storage 46
12.2. Arbitrage 47
Summary 52
Problems 54
Chapter 2 Basics of Derivative Pricing and Valuation 61
Learning Outcomes 61
1. Introduction 62
2. Basic Derivative Concepts, Pricing the Underlying 62
2.1. Basic Derivative Concepts 62
2.2. Pricing the Underlying 64
3. The Principle of Arbitrage 68
3.1. The (In)Frequency of Arbitrage Opportunities 69
3.2. Arbitrage and Derivatives 69
3.3. Arbitrage and Replication 70
3.4. Risk Aversion, Risk Neutrality, and Arbitrage-Free Pricing 71
3.5. Limits to Arbitrage 72
4. Pricing and Valuation of Forward Contracts: Pricing vs. Valuation; Expiration; Initiation 74
4.1. Pricing and Valuation of Forward Commitments 75
5. Pricing and Valuation of Forward Contracts: Between Initiation and Expiration; Forward Rate Agreements 79
5.1. A Word about Forward Contracts on Interest Rates 80
6. Pricing and Valuation of Futures Contracts 82
7. Pricing and Valuation of Swap Contracts 84
8. Pricing and Valuation of Options 87
[...]opean Option Pricing 88
9. Lower Limits for Prices of European Options 94
10. Put-Call Parity, Put-Call-Forward Parity 97
10.1. Put-Call-Forward Parity 101
11. Binomial Valuation of Options 103
12. American Option Pricing 107
Summary 110
Problems 111
Chapter 3 Pricing and Valuation of Forward Commitments 117
Learning Outcomes 117
1. Introduction to Pricing and Valuation of Forward Commitments 117
1.1. Principles of Arbitrage-Free Pricing and Valuation of Forward Commitments 118
1.2. Pricing and Valuing Generic Forward and Futures Contracts 119
2. Carry Arbitrage 124
2.1. Carry Arbitrage Model When There Are No Underlying Cash Flows 124
2.2. Carry Arbitrage Model When Underlying Has Cash Flows 131
3. Pricing Equity Forwards and Futures 135
3.1. Equity Forward and Futures Contracts 135
3.2. Interest Rate Forward and Futures Contracts 138
4. Pricing Fixed-Income Forward and Futures Contracts 147
4.1. Comparing Forward and Futures Contracts 153
5. Pricing and Valuing Swap Contracts 154
5.1. Interest Rate Swap Contracts 156
6. Pricing and Valuing Currency Swap Contracts 163
7. Pricing and Valuing Equity Swap Contracts 171
Summary 176
Problems 179
Chapter 4 Valuation of Contingent Claims 187
Learning Outcomes 187
1. Introduction and Principles of a No- Arbitrage Approach to Valuation 188
1.1. Principles of a No- Arbitrage Approach to Valuation 188
2. Binomial Option Valuation Model 190
3. One- Period Binomial Model 192
4. Binomial Model: Two- Period (Call Options) 199
5. Binomial Model: Two- Period (Put Options) 203
6. Binomial Model: Two- Period (Role of Dividends & Comprehensive Example) 207
7. Interest Rate Options & Multiperiod Model 213
7.1. Multiperiod Model 215
8. Black-Scholes-Merton (BSM) Option Valuation Model, Introduction and Assumptions of the BSM Model 216
8.1. Introductory Material 216
8.2. Assumptions of the BSM Model 216
9. BSM Model: Components 218
10. BSM Model: Carry Benefits and Applications 222
11. Black Option Valuation Model and European Options on Futures 226
[...]opean Options on Futures 226
12. Interest Rate Options 228
13. Swaptions 232
14. Option Greeks and Implied Volatility: Delta 234
14.1. Delta 235
15. Gamma 238
16. Theta 241
17. Vega 242
18. Rho 243
19. Implied Volatility 244
Summary 247
Problems 249
Chapter 5 Credit Default Swaps 255
Learning Outcomes 255
1. Introduction 255
2. Basic Definitions and Concepts 255
2.1. Types of CDS 257
3. Important Features of CDS Markets and Instruments, Credit and Succession Events, and Settlement Proposals 258
3.1. Credit and Succession Events 260
3.2. Settlement Protocols 261
3.3. CDS Index Products 262
3.4. Market Characteristics 264
4. Basics of Valuation and Pricing 265
4.1. Basic Pricing Concepts 265
4.2. The Credit Curve and CDS Pricing Conventions 268
4.3. CDS Pricing Conventions 269
4.4. Valuation Changes in CDS during Their Lives 270
4.5. Monetizing Gains and Losses 271
5. Applications of CDS 272
5.1. Managing Credit Exposures 273
6. Valuation Differences and Basis Trading 277
Summary 279
Problems 280
Chapter 6 Introduction to Commodities and Commodity Derivatives 285
Learning Outcomes 285
1. Introduction 285
2. Commodity Sectors 286
2.1. Commodity Sectors 288
3. Life Cycle of Commodities 290
3.1. Energy 291
3.2. Industrial/Precious Metals 292
3.3. Livestock 294
3.4. Grains 295
3.5. Softs 295
4. Valuation of Commodities 296
5. Commodities Futures Markets: Participants 298
5.1. Futures Market Participants 298
6. Commodity Spot and Futures Pricing 302
7. Theories of Futures Returns 306
7.1. Theories of Futures Returns 306
8. Components of Futures Returns 313
9. Contango, Backwardation, and the Roll Return 317
10. Commodity Swaps 320
10.1. Total Return Swap 322
10.2. Basis Swap 323
10.3. Variance Swaps and Volatility Swaps 323
11. Commodity Indexes 324
11.1. S&p Gsci 327
11.2. Bloomberg Commodity Index 327
11.3. Deutsche Bank Liquid Commodity Index 327
11.4. Thomson Reuters/CoreCommodity CRB Index 327
11.5. Rogers International Commodity Index 328
11.6. Rebalancing Frequency 328
11.7. Commodity Index Summary 328
Summary 329
References 331
Problems 331
Chapter 7 Currency Management: An Introduction 339
Learning Outcomes 339
1. Introduction 340
2. Review of Foreign Exchange Concepts 340
2.1. Spot Markets 341
2.2. Forward Markets 343
2.3. FX Swap Markets 346
2.4. Currency Options 347
3. Currency Risk and Portfolio Risk and Return 347
3.1. Return Decomposition 347
3.2. Volatility Decomposition 350
4. Strategic Decisions in Currency Management: Overview 353
4.1. The Investment Policy Statement 354
4.2. The Portfolio Optimization Problem 354
4.3. Choice of Currency Exposures 356
5. Strategic Decisions in Currency Management: Spectrum of Currency Risk Management Strategies 359
5.1. Passive Hedging 359
5.2. Discretionary Hedging 359
5.3. Active Currency Management 360
5.4. Currency Overlay 360
6. Strategic Decisions in Currency Management: Formulating a Currency Management Program 363
7. Active Currency Management: Based on Economic Fundamentals, Technical Analysis, and the Carry Trade 365
7.1. Active Currency Management Based on Economic Fundamentals 365
7.2. Active Currency Management Based on Technical Analysis 367
7.3. Active Currency Management Based on the Carry Trade 368
8. Active Currency Management: Based on Volatility Trading 370
9. Currency Management Tools: Forward Contracts, FX Swaps, and Currency Options 375
9.1. Forward Contracts 376
9.2. Currency Options 383
10. Currency Management Strategies 385
10.1. Over- /Under- Hedging Using Forward Contracts 386
10.2. Protective Put Using OTM Options 387
10.3. Risk Reversal (or Collar) 387
10.4. Put Spread 388
10.5. Seagull Spread 388
10.6. Exotic Options 389
10.7. Section Summary 390
11. Hedging Multiple Foreign Currencies 393
...| Erscheinungsjahr: | 2021 |
|---|---|
| Fachbereich: | Betriebswirtschaft |
| Genre: | Wirtschaft |
| Rubrik: | Recht & Wirtschaft |
| Medium: | Buch |
| Inhalt: | 896 S. |
| ISBN-13: | 9781119850571 |
| ISBN-10: | 1119850576 |
| Sprache: | Englisch |
| Einband: | Gebunden |
| Autor: | Cfa Institute |
| Hersteller: | Wiley |
| Maße: | 257 x 191 x 53 mm |
| Von/Mit: | Cfa Institute |
| Erscheinungsdatum: | 24.11.2021 |
| Gewicht: | 1,746 kg |
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