Risk management, speculation, and derivative securities:
Gespeichert in:
| 1. Verfasser: | |
|---|---|
| Format: | Buch |
| Sprache: | English |
| Veröffentlicht: |
Amsterdam [u.a.]
Acad. Press
2002
|
| Schlagworte: | |
| Online-Zugang: | Inhaltsverzeichnis |
| Beschreibung: | XX, 601 S. graph. Darst. |
| ISBN: | 0125588224 |
Internformat
MARC
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Datensatz im Suchindex
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| adam_text | CONTENTS
Preface xv
Acknowlegments xix
PART I
Derivative Securities, Risk Management,
and Speculation
1 Derivative Securities
I. Definitions and Other Basic Concepts 3
A. What are Derivative Securities? 3
B. Some Definitions 6
C. Futures Versus Forward Contracts: Basic Issues 11
D. The Exchange 14
E. The Futures Contract 16
E Margins 19
G. OTC Versus Exchange Trading: Policy Issues 22
II. History of Derivatives 25
A. The Development of U.S. Derivative Markets 32
B. A Canadian Perspective 37
C. The U.S. Experience with Options 40
III. Recent Derivatives Debacles 46
A. The Hunt Silver Manipulation (1979 1980) 47
B. Portfolio Insurance and the Stock Market Crash of October 1987 52
C. Metallgesellschaft AG and Rolling Stack Hedges (1993) 58
D. Index Option Straddles and the Collapse of Barings Bank (1995) 60
vii
viji Contents
E. The Collapse of Long Term Capital Management (1998) 64
E Lessons from the Recent Derivatives Debacles 67
IV Characteristics of Users of Derivative Securities 70
A. Sources of Information 70
B. Available Information on Derivative Usage by
Financial Firms 71
C. The Wharton Survey of Nonfmancial Derivative Users 74
D. Other Surveys and Studies 76
V. Regulations, Exchanges, and Available Contracts 79
A. Information on the Internet 79
B. Regulations 80
C. The U.S. Exchanges, the OTC, and Foreign Markets 85
D. Available Contracts 90
E. Specifically on Options 91
VI. Questions 96
VII. Suggestions for Essay Topics 97
2 Risk Management Concepts
I. Profit Functions and Expected Utility Maximization 99
A. The Wealth Process 103
B. The Expected Utility Function 106
C. Expected Utility and Moment Preference 109
D. A Stylized Risk Management Decision Problem 111
II. Measuring Risk and Exposure 116
A. Risk and Uncertainty 116
B. Types of Risks to be Managed 120
C. What is Value at Risk? 122
D. VaR for the One Asset Case 124
E. Value at Risk, Normality, and Options 126
III. Risk Management and Speculation 129
A. What is Risk Management? 129
B. Hedgers Versus Speculators: The Cargill Corn Case 132
C. Speculation and Manipulation 135
IV. Strategic Risk Management 139
A. What is Strategic Risk Management? 139
B. Arguments Against the Use of Derivatives in Corporate Risk
Management 142
C. Arguments in Favor of Using Derivatives in Corporate Risk
Management 148
D. A Simple Guide to Designing a Risk Management
Philsosphy 151
E. Measuring Corporate Economic Currency Exposure 156
E Natural Hedging of Corporate Currency Exposure 158
G. Purchasing Power Parity Arguments 161
Contents ix
3 Speculative Trading Strategies
I. Speculative Efficiency? 165
A. The Study of Speculation 165
B. Theories of Pure Speculative Efficiency 166
C. Convenience Yield and the Supply of Storage 169
D. The Theory of Normal Backwardation 171
II. Basic Speculative Trading Strategies 176
A. Trading Naked 176
B. Basics of Spread Trading 177
C. Tailing the Spread 181
III. Basis Relationships 191
A. Types of Basis 191
IV Speculation and Hedge Funds 200
A. What is a Hedge Fund? 200
B. History of Hedge Funds 205
C. Regulation of Hedge Funds 207
D. Hedge Funds and Speculation 209
V Questions 210
PART II
Futures and Forward Contracts
4 Arbitrage and the Basis
I. The Cash and Carry Arbitrage 213
A. Cash and Carry Arbitrage: The Case of Gold 213
B. Factors Impacting the Basis: Generalized Cash and Carry
Arbitrage Conditions 220
C. The Term Structure of Futures Prices 223
II. Covered Interest Arbitrage 224
A. Early Forward Exchange Markets 224
B. Covered Interest Arbitrage 226
C. Forward Forward Arbitrage and Swap Arbitrage 240
D. Designing Speculative Trading Strategies 243
E. Long Term Forward Exchange Rates 245
III. When Issued Arbitrage 251
A. The When Issued Market for Government of Canada
Treasury Bills 251
B. The When Issued Cash and Carry Arbitrage 254
IV. Stock Index Arbitrage 257
V. Questions 260
X Contents
5 The Mechanics of Spread Trading
I. Butterflies, Tandems, Turtles, and Stereos 263
A. Butterflies 263
B. Tandems and Stereos 265
C. Turtles and Stereos 267
II. Metal Turtles 269
A. Trade Triggers 271
B. Calculating the Tail and Hedge Ratio: Golden Turtle 272
C. Silver Turtle 274
D. Copper Turtle 274
III. TED Tandems and Currency Tandems 276
A. The TED Spread 276
B. The Cash and Carry Arbitrages for Money Market Futures 279
C. TED Spread and TED Tandem Trading Strategies 282
D. Currency Tandem 284
IV. Synthesizing Foreign Interest Rates 286
V Questions 290
6 Risk Management: Hedging and Diversification
I. Transactions Hedging and Optimal Hedging 293
A. Risk Management Objectives 293
B. Price Risk Versus Basis Risk 296
C. Transaction Hedging Example: Issuing Commercial Paper 299
D. Transaction Hedging: Using a Eurodollar Futures Strip Hedge 302
E. Transactions Hedging: Using a Eurodollar Futures
Stack Hedge 304
F Choosing Between a Strip Hedge and a Stack Hedge 305
G. Multivariate Optimal Hedge Ratio Estimation 309
H. Optimal Hedge Ratios for Different Utility Functions 314
I. Determining the Dynamic Hedge Ratio 321
J. The Farmer s Hedging Problem 325
II. Currency Hedging for International Activities 329
A. Transaction Hedging Example: Managing Currency Exposure 329
B. When is Hedging Foreign Assets Effective? 333
C. The Optimal Hedge Ratio for a Single Foreign Asset 338
D. Optimal Hedge Ratio for the Domestic/Foreign Portfolio 342
III. Mean Variance Analysis and Optimal International
Diversification 343
A. Benefits of International Diversification 343
B. The Markowitz Model 346
C. Criticism of Mean Variance Portfolio Analysis 348
D. Eun and Resnick (1994) 350
E. The CAPM and International Diversification 357
Contents Xi
IV. Currency Swaps and Fully Hedged Borrowing 360
A. History of Currency Swap Trading 360
B. The Mechanics of Swap Trading 362
C. Fully Hedged Borrowings and Currency Swaps 369
V Questions 373
PART III
Options Contracts
7 Option Concepts
I. Basic Option Properties 375
A. Some Distribution Free Properties of Options 375
B. Expiration Date Profit Diagrams 382
C. Evaluation of Different Positions 383
D. Hedging with Options and Hedging for Options 389
E. Do Replicated Positions Differ? 391
II. Put Call Parity 393
A. European Put Call Parity without Dividends 393
B. European Put Call Parity with Dividends 396
C. European Put Call Parity for Options on Forward and
Futures Contracts 398
D. American Put Call Parity 401
E. Using Put Call Parity to Estimate the Early Exercise Premium 402
III. Spread Trades and Strategies 404
A. Straddles, Straps, and Strangles 404
B. Vertical and Horizontal Spreads 406
C. Butterflies, Sandwiches, and Other Trades 409
D. Caps, Floors, and Collars 411
IV. Real Options, Insurance, and the Demand for Put Options 412
A. Real Options 412
B. Insurance and Option Pricing 414
C. Skewness Preference and the Demand for Put Options 415
D. The Farmer s Terminal Wealth Function 417
E. Mean Variance Skewness and the Optimal Demand for Put Options 420
V. Questions 422
8 Option Valuation
I. Mathematical Background 425
A. Stochastic Processes: Basic Definitions 425
B. Types of Diffusions 428
C. The Chapman Kolmogorov Equations 433
Xii Contents
D. Univariate Ito s Lemma 434
E. Multivariate Ito s Lemma 436
II. Deriving the Black Scholes Option Pricing Formula 438
A. Deriving the Formula 438
B. Interpreting the Formula 444
C. Implied Volatility 445
III. Solving the Black Scholes PDE 451
A. Possible Methods of Solving Black Scholes 451
B. The Original Black Scholes Solution 453
C. Risk Neutral Valuation 457
IV Extending the Black Scholes Model 459
A. Incorporating Dividends 459
B. Options on Futures and Forward Contracts 462
C. American Options 464
D. Option Valuation with Alternative Diffusion Processes 467
V Foreign Currency Options 474
A. The Currency Options Pricing Formula 474
B. Put Call Parity and Early Exercise for Currency Options 477
C. Empirical Studies of Currency Options 479
VI. Questions 480
9 Application of Option Valuation Techniques
I. Portfolio Management: Delta, Theta, and Gamma 483
A. Basic Definitions 483
B. Delta 485
C. Gamma 488
D. Theta 492
E. Rho and Vega 495
E Verifying the Black Scholes Solution 497
II. Hedge Portfolios, Spread Trades, and Other Strategies 499
A. Riskless Hedge Portfolios 499
B. Delta Plus Gamma Hedge Portfolios 503
C. Vertical Spreads and Butterflies 505
D. Straddles, Straps, and Strangles 508
III. Portfolio Insurance 511
A. The History of Portfolio Insurance 511
B. Properties of Insured Portfolios 513
C. Types of Portfolio Insurance 514
D. Insuring Portfolios with Foreign Assets 523
IV Optimal Stopping and Perpetual Options 524
A. Perpetual Options 524
B. Stopping Rules 525
C. Pricing Perpetual Options 526
V. Questions 528
Contents xiii
Appendix I: Basic Mathematics and Statistics
I. Notation for Present Value Calculation 529
II. Taylor Series Expansion 530
III. Restrictions on the Taylor Series Coefficients of
the Expected Utility Function 532
IV The Prakash et al. (1996) Claim 533
V. Relationship of Continuous Time and Discrete Interest Rates 535
VI. Background on Statistical Concepts 535
Appendix II: Money Market Calculations
I. Fixed Income Calculations 541
Appendix III: Mathematics for Option Valuation
I. Results for Probability Distributions and Densities 545
II. Greeks for Black Scholes Call Options 547
A. Delta 547
B. Gamma 547
C. Theta 547
D. Vega 548
III. Greeks for the Bachelier Call Option 548
A. Delta 548
B. Gamma 548
C. Theta 548
References
I. General Background and Introductory Texts on
Derivative Securities 549
II. General Books on Financial Futures 550
HI. General Books on International Financial Management 550
IV. General Books on Investments 551
V. Journals and Magazines 551
A. Journals Dedicated to Derivatives 551
B. Journals with Derivatives Content 551
C. Important Magazines and Newspapers 552
VI. References 552
Index 583
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