Recommended sequence 1

Recommended sequence 2

Translator's order

order

Brief introduction of the author

Brief introduction of translator

Chapter 1 Introduction 1

1. 1 exchange market 1

1.2 OTC market 2

1.3 Forward Contract 4

1.4 futures contract 5

1.5 option contract 6

1.6 Trader Type 8

1.7 Hedging 8

1.8 Speculator 9

1.9 arbitrator 1 1

1. 10 damage 12

Summary 13

Recommended reading 13

Exercise 13

Homework problem 15

Chapter II Operation Mechanism of Futures Market 16

2. 1 background knowledge 16

2.2 provisions of futures contract 17

2.3 characteristics of futures price converging to spot price 19

2.4 Operation of deposit 20

2.5 OTC market 22

2.6 market quotation 24

2.7 Delivery 26

2.8 Types of Dealers and Trading Orders 27

2.9 System 28

2. 10 accounting and taxation 29

2. 1 1 comparison of forward and futures contracts 30

Summary 3 1

Recommended reading 32

Exercise 32

Question 33

Chapter III Futures Hedging Strategy 35

3. 1 Basic principles 35

3.2 Support and Opposition to Hedging 37

3.3 Basis Risk 39

3.4 Cross Hedging 4 1

3.5 Stock index futures 43

3.6 Rolling forward to hedge 48

Summary 49

Recommended reading 50

Exercise 50

Problem 5 1

Appendix 3a Capital Asset Pricing Model 53

Chapter IV Interest Rate 54

4. 1 interest rate type 54

4.2 Measurement of interest rate 56

4.3 Zero interest rate 57

4.4 Bond Pricing 58

4.5 Determination of zero interest rate of national debt 59

4.6 Forward interest rate 60

4.7 Forward interest rate contract 62

4.8 Term 63

4.9 Curvature 66

4. 10 term structure theory of interest rate 66

Summary 68

Recommended reading 69

Exercise 69

Question 70

Chapter V Determination of Forward and Futures Prices

5. 1 investment assets and consumption assets 72

5.2 Short selling 72

5.3 Assumptions and symbols 73

5.4 Forward price of investment assets 74

5.5 Assets providing known intermediate income 76

5.6 When the rate of return is known, 77

5.7 Pricing of Forward Contracts 78

5.8 Are the forward and futures prices equal? 79

5.9 Stock index futures price 80

5. 10 currency forward and futures contracts 8 1

5. 1 1 commodity futures 83

5. 12 Holding cost 85

5. 13 delivery options 86

5. 14 futures price and expected spot price 86

Summary 88

Recommended reading 88

Exercise 88

Homework problem 90

Chapter VI Interest Rate Futures 9 1

6. 1 day calculation and quotation exercise 9 1

6.2 US Treasury futures 93

6.3 Eurodollar futures 96

6.4 Use futures for hedging based on duration 100

6.5 Asset-liability portfolio hedging 10 1

Summary 10 1

Recommended reading 102

Exercise 102

Exercise 103 Chapter 7 Overpass 105

7. 1 swap contract mechanism 105

7.2-day survey practice 109

7.3 Confirmation Letter 1 10

7.4 View of Comparative Advantage 1 10

7.5 Essence of swap interest rate 1 13

7.6 Determine the zero interest rate of libor swap 1 13.

7.7 Interest rate swap pricing 1 14

7.8 overnight index swap 1 16

7.9 Currency swap 1 17

7. 10 currency swap pricing 1 19

7. 1 1 credit risk 12 1

7. 12 Other types of interchanges 122

Summary 124

Recommended reading 124

Exercise 125

Homework problem 126

Chapter VIII Securitization and the Credit Crisis in 2007 128

8. 1 securitization 128

8.2 American housing market 130

8.3 The crux of the problem 133

8.4 Consequences of the crisis 135

Summary 136

Recommended reading 136

Exercise 137

Homework problem 137

Chapter IX Option Market Mechanism 138

9. 1 option type 138

9.2 Option Location 139

9.3 The basic asset is 140.

9.4 Characteristics of stock options 14 1

9.5 Transaction 144

9.6 Commission 144

9.7 Deposit 145

9.8 options clearing company 146

9.9 Regulatory Rules 147

9. 10 tax 147

9. 1 1 warrants, employee stock options and convertible securities 148

9. 12 OTC market 149

Summary 149

Recommended reading 149

Exercise 150

Operation problem 15 1

Chapter 10 The nature of stock options 152

10. 1 Factors affecting the option price

10.2 assumptions and symbols 155

10.3 upper and lower limit of option price 155

10.4 bearish bullish parity relation 157

10.5 early exercise option: call option for non-dividend stocks 160.

10.6 early exercise option: put option for non-dividend stocks 16 1.

10.7 Effect of dividends on options 162

Summary 163

Recommended reading 164

Exercise 164

Homework problem 165

Chapter 1 1 Options Trading Strategy 166

1 1. 1 principal-guaranteed bonds 166

1 1.2 strategy includes single option and stock 167.

1 1.3 price difference 168

1 1.4 combination strategy 174

1 1.5 combination with other income forms 176

Summary 177

Recommended reading 177

Exercise 177

Homework problem 178

Chapter 12 Binary Tree 180

12. 1 one-step binary tree model and arbitrage-free method 180

12.2 risk-neutral pricing 183

12.3 two-step binary tree 184

12.4 example of put option 186

12.5 American options 186

12.6delta 187

12.7 choose u and d to make the binary tree match the volatility 188.

12.8 binary tree formula 189

12.9 increases the time step of binary tree 190.

12. 10 Use derivative software 190.

12. 1 1 other basic asset options 190

Summary 193

Recommended reading 193

Exercise 194

Homework problem 194

Appendix 12a deduces the Black Scholes Merton option pricing formula 195 from the binary tree model.

Chapter 13 wiener process and ITO lemma 198

13. 1 Markov property 198

13.2 continuous-time random variable 199

13.3 describes the process of stock price 202.

13.4 parameter 204

13.5 related flow 205

13.6 Ito Lemma 205

Properties of Lognormal Distribution 206

Abstract 207

Recommended reading 208

Exercise 208

Question 209

Appendix 13a Derivation of Ito Lemma 209

Chapter 14 Blake-Scholes-Merton model211

Lognormal distribution of stock price14.1211

14.2 yield distribution 2 13

14.3 expected rate of return 2 13

14.4 Volatility 2 14

14.5 Black Concept Scholesmerton Differential Equation 2 17

14.6 derivation of Blake Scholes Merton differential equation 2 18

14.7 risk-neutral pricing 220

14.8 black scholes Merton pricing formula 22 1

14.9 cumulative normal distribution function 222

14. 10 warrants and employee stock options 223

14. 1 1 implied volatility 225

14. 12 dividend 226

Summary 228

Recommended reading 229

Exercise 230

Operation problem 23 1

Appendix 14a Proof of Blake Scholes Merton Formula 232

Chapter 15 employee stock options 235

15. 1 contract design 235

Will the 15.2 option promote the interests of shareholders and managers?

15.3 accounting issues 237

15.4 Pricing 238

15.5 date backdating scandal 24 1

Summary 242

Recommended reading 242

Exercise 243

Question 244

Chapter 16 Stock index options and currency options 245

16. 1 stock index option 245

16.2 currency option 247

16.3 Stock options with continuous dividends 248

16.4 European stock index option pricing 250

16.5 currency option pricing 252

American option 253

Summary 253

Recommended reading 254

Exercise 254

Question 255

Chapter 17 futures options 257

17. 1 characteristics of futures options 257

17.2 reasons why futures options are widely used 259

17.3 European spot options and European futures options 259

17.4 put option parity relation 260

17.5 lower limit of futures options 260

17.6 Pricing futures options with binary tree 26 1

17.7 the drift rate of futures prices in a risk-neutral world 262

17.8 futures option pricing black model 263

17.9 American futures options and American spot options 265

17. 10 futures option 265

Summary 266

Recommended reading 266

Exercise 266

Question 267

Chapter 18 Greek value 269

18. 1 sample solution 269

18.2 open position and insurance position 269

18.3 stop-loss trading strategy 270

18.4delta hedging 27 1

18.5theta276

18.6 gamma277

18.7 Relationship between δ, θ and γ 280

18.8 vegetarian 280

18.9rho282

18. 10 the reality of hedging 282

18. 1 1 scene analysis 283

Generalization of the formula18.12.366439.000000000005

18. 13 portfolio insurance 285

18. 14 Stock market fluctuation 287

Summary 287

Recommended reading 288

Exercise 288

Question 290

Appendix 18a Taylor series expansion and hedging parameters 29 1

Chapter 19 Fluctuating smile 292

19. 1 Why does volatility have the same smile on call options and put options?

19.2 currency option 293

19.3 stock options 295

19.4 describe other methods of volatility smile 296

19.5 volatility term structure and volatility surface 297

19.6 Greek value 298

19.7 function of model 298

19.8 when the price is expected to rise sharply, 298

Summary 299

Recommended reading 300

Exercise 300

Operation problem 30 1

Appendix 19a Determination of Implicit Risk Neutral Distribution by Volatility Smile 302

Chapter 20 Basic numerical methods 304

20. 1 binary tree 304

20.2 Use binary tree to price stock index, currency and futures option 3 10.

20.3 Binary Tree Model of Dividend Stock 3 1 1

20.4 Other methods of building a tree 3 15

20.5 dependence of parameters on time 3 16

20.6 Monte Carlo simulation method 3 17

20.7 Variance Reduction Procedure 322

20.8 finite difference method 324

Summary 33 1

Recommended reading 332

Exercise 332

Question 334

Chapter 265438 +0 Value at Risk 335

2 1. 1var measurement 335

2 1.2 historical simulation method 337

2 1.3 model construction method 340

2 1.4 linear model 34 1

2 1.5 quadratic model 345

2 1.6 Monte Carlo simulation 346

2 1.7 comparison of different methods 347

2 1.8 pressure test and retrospective test 347

2 1.9 principal component analysis method 348

Summary 350

Recommended reading 35 1

Exercise 35 1

Question 352

Chapter 22 Estimating volatility and correlation coefficient 354

22. 1 estimated volatility 354

22.2 Exponentially weighted moving average model 355

22.3garch( 1, 1) model 356

22.4 Model Selection 358

22.5 Maximum Likelihood Estimation Method 358

22.6 garch( 1, 1) model is used to predict volatility 362.

22.7 correlation coefficient 364

22.8 Example of Applying ewma to Four Exponents 366

Summary 367

Recommended reading 368

Exercise 368

Homework problem 369

Chapter 23 Credit Risk 37 1

23. 1 credit rating 37 1

23.2 Historical Default Probability 37 1

23.3 recovery rate 373

23.4 Estimation of Default Probability Based on Bond Price 373

23.5 Comparison of Default Probability 375

23.6 Using stock price to estimate default probability 377

23.7 Credit Risk in Derivatives Trading 379

23.8 Credit risk mitigation 38 1

23.9 Default Correlation 383

23. 10 credit var385

Summary 387

Recommended reading 387

Exercise 388

Homework problem 389

Chapter XXIV Credit Derivatives 39 1

24. 1 credit default swap 392

24.2 Pricing of Credit Default Swaps 394

24.3 Credit Index 397

24.4 Use of fixed coupon 398

24.5 Credit Default Swaps Forward Contracts and Options 399

24.6 A basket of credit default swaps 399

24.7 Total income swap 399

24.8 Debt-backed bonds 400

24.9 the role of correlation coefficient in a basket of credit default swaps and cdo 402

24. Pricing of10 composite cdo 402

24. 1 1 other models 407

Abstract 408

Recommended reading 409

Exercise 409

Problem 4 10

Chapter 25 Special Options 4 1 1

25. 1 combination option 4 1 1

25.2 nonstandard American option 4 12

25.3 Gap Option 4 12

25.4 Forward Start Option 4 13

25.5 Ratchet Option 4 13

25.6 compound option 4 13

25.7 Selector Option 4 14

25.8 Obstacle Option 4 14

25.9 Binary Option 4 17

25. 10 look back option 4 17

25. 1 1 Call Option 4 19

Asian option 4 19

25. 13 asset exchange option 420

25. 14 Options involving multiple assets 42 1

25. 15 volatility and variance swap 422

25. 16 static option copy 424

Abstract 426

Recommended reading 426

Exercise 427

Homework problem 428

Chapter 26 Re-discussion of Models and Numerical Algorithms 430

26. 1 Black Scholes Merton's Alternative Model 430

26.2 Random Fluctuation Model 434

26.3ivf model 436

26.4 Convertible bonds 436

26.5 Correlation path derivative 438

26.6 Obstacle Option 44 1

26.7 Options related to two related assets 444

26.8 Monte Carlo Simulation and American Option 445

Summary 448

Recommended reading 449

Exercise 449

Operation problem 45 1

Chapter 27 Martingale and measure 452

27. 1 risk market price 452

27.2 Multi-state variables 455

27.3 martingale 456

27.4 Other options of appraisal unit 457

27.5 Multiple independent factors 460

27.6 Improved Black Model 460

27.7 Asset Exchange Option 46 1

27.8 valuation unit conversion 462

Summary 463

Recommended reading 463

Exercise 463

Homework problem

Chapter 28 Interest Rate Derivatives: Standard Market Model 466

28. 1 bond option 466

28.2 interest rate ceiling and floor 469

28.3 European interest rate swap options 474

28.4 Promotion

28.5 Hedging of interest rate derivatives 477

Summary 478

Recommended reading 478

Exercise 478

Homework problem 480

Chapter 29 Curvature, Time and quanto Adjustment 48 1

29. 1 Curvature adjustment 48 1

29.2 time adjustment 483

29.3 Quantum 485

Summary 487

Recommended reading 487

Exercise 488

Homework problem

Appendix 29a Proof of Curvature Adjustment Formula 489

Chapter 30 Interest Rate Derivatives: Short-term Interest Rate Model 49 1

30. 1 background 49 1

30.2 equilibrium model 492

30.3 No arbitrage model 496

30.4 bond options 499

30.5 Volatility Structure 500

30.6 interest rate tree 50 1

30.7 Process of Building a Tree 502

30.8 Revision 5 10

30.9 Use single factor model to hedge 5 1 1

Summary 5 1 1

Recommended reading 5 1 1

Exercise 5 12

Problem 5 13

Chapter 365438 +0 interest rate derivatives: hjm and lmm models 5 15

3 1. 1 heath, Jaro Ff and Morton model 5 15

3 1.2 London Interbank Offered Rate Market Model 5 17

3 1.3 Federal agency mortgage securities 524

Abstract 526

Recommended reading 527

Exercise 527

Homework problem 528

Chapter 32 Talk about exchange again 529

32. Variant of1standard transaction 529

32.2 Composite Interchange 530

32.3 Currency Swap 53 1

32.4 More complex interchange 532

32.5 Equity swap 534

32.6 Swaps with embedded options 535

32.7 Other Interchange 537

Abstract 538

Recommended reading 538

Exercise 538

Homework problem 539

Chapter 33 Energy and commodity derivatives 540

33. 1 agricultural products 540

33.2 Metal 54 1

33.3 Energy products 54 1

33.4 Commodity price model 542

33.5 Climate derivatives 547

33.6 Insurance derivatives 547

33.7 climate and insurance derivatives pricing 548

33.8 How can energy producers avoid risks 549

Summary 549

Recommended reading 550

Exercise 550

Operation problem 55 1

Chapter 34 Real options 552

34. 1 capital investment assessment 552

34.2 Promote risk-neutral pricing 553

34.3 Estimated risk market price 554

34.4 Business Assessment 555

34.5 Option Pricing in Investment Opportunities 556

Summary 560

Recommended reading 560

Exercise 56 1

Operation problem 56 1

Chapter 35 Major Financial Losses and Reference 562

35. 1 Define risk limit 564

35.2 Lessons from financial institutions 565

35.3 Lessons from non-financial institutions 569

Summary 570

Recommended reading 570 Vocabulary 57 1

Appendix aderivagem software 586

Appendix b major options futures exchanges in the world 590

The value of n(x) in appendix cx≤0 is 59 1.

The value of n(x) in appendix dx≥0 592