VIII. ANALYSIS OF DERIVATIVES
К оглавлению1 2 3 4 5 6 7 8 9 10 11A. Derivative Markets and Instruments
1. Purposes of derivative markets
a. Price discovery
b. Speculation
c. Hedging
2. Elementary pricing principles
a. Arbitrage and risk neutral pricing
b. Fair value
c. Storage and carrying costs
3. Sources of risk (e.g., interest rates, equity prices, commodity prices, exchange rates,
credit, model, operational, legal, accounting, tax, regulatory, settlement, liquidity,
systemic, other)
B. Forward Markets and Instruments
1. Structure of global forward markets
2. Basic definitions of forward contracts
3. Credit risk in forward contracting
4. Types and characteristics of forward contracts
a. Equity
b. Interest rate (forward rate agreements (FRA))
c. Commodity
d. Currency
e. Other (e.g., power, weather)
5. Valuing forward contracts
a. Contract value at expiration
b. Contract value at initiation
c. Contract value during its life
d. Pricing a generic forward contract
e. Pricing an FRA
f. Pricing a foreign currency forward: interest rate parity
6. Forward contract strategies
a. Hedging long exposure
b. Hedging short exposure
c. Speculating
C. Futures Markets
1. Structure of global futures markets (e.g., exchanges, trading, margin, clearinghouse,
settlement, electronic markets)
2. Contract types and characteristics
a. Interest rate futures
b. Equity futures
c. Foreign exchange futures
d. Commodity futures
3. Valuing futures contracts
a. Price convergence at expiration
b. Value of a contract today
c. Value of a contract during its life
d. The cost of carry pricing model
(1) The general case
(2) Interest rate futures
(3) Equity futures
(4) Foreign exchange futures
e. Backwardation/contango
f. Convenience yield
g. The basis and spreads
h. Futures prices and expectations
i. Futures prices and forward prices
4. Applications of futures
a. Hedging long positions
b. Hedging short positions
c. Cross-hedging
d. Calculating the optimal hedge ratio
e. Arbitrage and synthetic instruments using futures
f. Equitizing cash
g. Asset allocation
h. Portfolio insurance and dynamic hedging
D. Options Markets
1. Structure of global options markets (e.g., exchange-listed, over-the-counter,
electronic)
2. Basic definitions and characteristics of options contracts
a. Call vs. put
b. Exercise price
c. Expiration
d. Exercise style (American vs. European)
e. Moneyness
f. Standardization vs. customization
3. Underlying instruments
a. Bonds
(1) Caps
(2) Floors
(3) Collars
b. Stocks
c. Commodities
d. Futures
e. Currencies
(1) Individual currency options
(2) Currency baskets
f. Other (i.e., synthetics, power, weather)
4. Option Trading
a. Exchange-traded market making
b. Brokerage
c. Over-the-counter dealers
d. Settlement and exercise
5. Valuing options
a. Minimum values
b. Maximum values
c. Expiration/exercise values
d. Lower bounds (adjusted exercise value)
e. Time value effect
f. Effect of exercise price
g. Early exercise of American options
h. Effect of interest rates
i. Effect of volatility
j. Put-call parity
k. Put-call-forward parity
l. Effect of dividends on option prices
6. Option pricing (valuation) models
a. Binomial model
(1) One-period binomial model
(a) Construction of a risk-free portfolio
(b) Binomial pricing formula
(c) Executing an arbitrage
(2) Multiperiod binomial model
(a) Dynamic construction of a risk-free portfolio
(b) Multiperiod pricing formula
(c) Executing an arbitrage
(d) Limiting cases
b. Black-Scholes model
(1) Lognormal distribution as the underlying structure
(2) Constructing and dynamically adjusting a risk-free portfolio
(3) Solving the Black-Scholes formula
(4) Sensitivity of the formula to inputs
(a) Stock price: delta and gamma
(b) Exercise price
(c) Risk-free rate: rho
(d) Time to expiration: theta
(e) Volatility: vega
(f) Dividends: dividend rho
(5) Incorporating dividends into the formula
7. Managing an option portfolio
a. Delta hedging
b. Gamma hedging
c. Vega hedging
d. Dynamic portfolio insurance
8. Option trading strategies
a. Basic long and short call transactions
b. Basic long and short put transactions
c. Covered calls
d. Protective puts
e. Synthetic puts and calls
f. Spreads
(1) Butterfly
(2) Bull
(3) Bear
g. Interest rate risk management strategies
(1) Caps
(2) Floors
(3) Collars
h. Put-call combinations
(1) Straddles
(2) Straps and strips
E. Swaps Markets
1. Structure of global swaps markets
2. Basic definitions of swaps
3. Types and characteristics of swaps
a. Currency
b. Interest rate
c. Equity
d. Commodity
e. Other (e.g., power, weather)
4. Valuing swaps
a. Payments at settlement dates and payment conventions
b. Valuation
(1) At initiation
(2) During its life
(3) As a series of forward contracts
(4) As a combination of bonds
(5) Valuing interest rate swaps
(6) Valuing currency swaps
(7) Valuing equity swaps
5. Swap strategies
a. Currency swaps
(1) Converting a loan in one currency to a loan in another
(2) Synthesizing a dual currency bond
(3) Converting foreign cash receipts into domestic cash receipts
b. Interest rate swaps
(1) Converting a fixed-rate loan to a floating-rate loan and vice versa
(2) Adjusting the duration of a fixed-income portfolio
(3) Synthesizing structured notes
c. Equity swaps
(1) Executing asset class changes
(2) Diversifying a concentrated portfolio
(3) Achieving international diversification
(4) Reducing an insider’s exposure to the company’s stock
d. Commodity swaps
(1) Hedging future revenues or costs
(2) Reducing the credit risk on a loan
6. Managing swap credit risk
a. Identifying types of credit risk
b. Measuring swap credit risk
c. Credit enhancements
(1) Netting
(2) Limiting exposure
(3) Collateral
(4) Marking to market
7. Forward swaps and swaptions
a. Basic definitions
b. Payoffs
c. Valuation and replication
d. Applications
(1) In anticipation of a future swap
(2) Termination a swap
(3) Speculating
(4) Converting callable to non-callable debt
(5) Converting putable to non-putable debt
A. Derivative Markets and Instruments
1. Purposes of derivative markets
a. Price discovery
b. Speculation
c. Hedging
2. Elementary pricing principles
a. Arbitrage and risk neutral pricing
b. Fair value
c. Storage and carrying costs
3. Sources of risk (e.g., interest rates, equity prices, commodity prices, exchange rates,
credit, model, operational, legal, accounting, tax, regulatory, settlement, liquidity,
systemic, other)
B. Forward Markets and Instruments
1. Structure of global forward markets
2. Basic definitions of forward contracts
3. Credit risk in forward contracting
4. Types and characteristics of forward contracts
a. Equity
b. Interest rate (forward rate agreements (FRA))
c. Commodity
d. Currency
e. Other (e.g., power, weather)
5. Valuing forward contracts
a. Contract value at expiration
b. Contract value at initiation
c. Contract value during its life
d. Pricing a generic forward contract
e. Pricing an FRA
f. Pricing a foreign currency forward: interest rate parity
6. Forward contract strategies
a. Hedging long exposure
b. Hedging short exposure
c. Speculating
C. Futures Markets
1. Structure of global futures markets (e.g., exchanges, trading, margin, clearinghouse,
settlement, electronic markets)
2. Contract types and characteristics
a. Interest rate futures
b. Equity futures
c. Foreign exchange futures
d. Commodity futures
3. Valuing futures contracts
a. Price convergence at expiration
b. Value of a contract today
c. Value of a contract during its life
d. The cost of carry pricing model
(1) The general case
(2) Interest rate futures
(3) Equity futures
(4) Foreign exchange futures
e. Backwardation/contango
f. Convenience yield
g. The basis and spreads
h. Futures prices and expectations
i. Futures prices and forward prices
4. Applications of futures
a. Hedging long positions
b. Hedging short positions
c. Cross-hedging
d. Calculating the optimal hedge ratio
e. Arbitrage and synthetic instruments using futures
f. Equitizing cash
g. Asset allocation
h. Portfolio insurance and dynamic hedging
D. Options Markets
1. Structure of global options markets (e.g., exchange-listed, over-the-counter,
electronic)
2. Basic definitions and characteristics of options contracts
a. Call vs. put
b. Exercise price
c. Expiration
d. Exercise style (American vs. European)
e. Moneyness
f. Standardization vs. customization
3. Underlying instruments
a. Bonds
(1) Caps
(2) Floors
(3) Collars
b. Stocks
c. Commodities
d. Futures
e. Currencies
(1) Individual currency options
(2) Currency baskets
f. Other (i.e., synthetics, power, weather)
4. Option Trading
a. Exchange-traded market making
b. Brokerage
c. Over-the-counter dealers
d. Settlement and exercise
5. Valuing options
a. Minimum values
b. Maximum values
c. Expiration/exercise values
d. Lower bounds (adjusted exercise value)
e. Time value effect
f. Effect of exercise price
g. Early exercise of American options
h. Effect of interest rates
i. Effect of volatility
j. Put-call parity
k. Put-call-forward parity
l. Effect of dividends on option prices
6. Option pricing (valuation) models
a. Binomial model
(1) One-period binomial model
(a) Construction of a risk-free portfolio
(b) Binomial pricing formula
(c) Executing an arbitrage
(2) Multiperiod binomial model
(a) Dynamic construction of a risk-free portfolio
(b) Multiperiod pricing formula
(c) Executing an arbitrage
(d) Limiting cases
b. Black-Scholes model
(1) Lognormal distribution as the underlying structure
(2) Constructing and dynamically adjusting a risk-free portfolio
(3) Solving the Black-Scholes formula
(4) Sensitivity of the formula to inputs
(a) Stock price: delta and gamma
(b) Exercise price
(c) Risk-free rate: rho
(d) Time to expiration: theta
(e) Volatility: vega
(f) Dividends: dividend rho
(5) Incorporating dividends into the formula
7. Managing an option portfolio
a. Delta hedging
b. Gamma hedging
c. Vega hedging
d. Dynamic portfolio insurance
8. Option trading strategies
a. Basic long and short call transactions
b. Basic long and short put transactions
c. Covered calls
d. Protective puts
e. Synthetic puts and calls
f. Spreads
(1) Butterfly
(2) Bull
(3) Bear
g. Interest rate risk management strategies
(1) Caps
(2) Floors
(3) Collars
h. Put-call combinations
(1) Straddles
(2) Straps and strips
E. Swaps Markets
1. Structure of global swaps markets
2. Basic definitions of swaps
3. Types and characteristics of swaps
a. Currency
b. Interest rate
c. Equity
d. Commodity
e. Other (e.g., power, weather)
4. Valuing swaps
a. Payments at settlement dates and payment conventions
b. Valuation
(1) At initiation
(2) During its life
(3) As a series of forward contracts
(4) As a combination of bonds
(5) Valuing interest rate swaps
(6) Valuing currency swaps
(7) Valuing equity swaps
5. Swap strategies
a. Currency swaps
(1) Converting a loan in one currency to a loan in another
(2) Synthesizing a dual currency bond
(3) Converting foreign cash receipts into domestic cash receipts
b. Interest rate swaps
(1) Converting a fixed-rate loan to a floating-rate loan and vice versa
(2) Adjusting the duration of a fixed-income portfolio
(3) Synthesizing structured notes
c. Equity swaps
(1) Executing asset class changes
(2) Diversifying a concentrated portfolio
(3) Achieving international diversification
(4) Reducing an insider’s exposure to the company’s stock
d. Commodity swaps
(1) Hedging future revenues or costs
(2) Reducing the credit risk on a loan
6. Managing swap credit risk
a. Identifying types of credit risk
b. Measuring swap credit risk
c. Credit enhancements
(1) Netting
(2) Limiting exposure
(3) Collateral
(4) Marking to market
7. Forward swaps and swaptions
a. Basic definitions
b. Payoffs
c. Valuation and replication
d. Applications
(1) In anticipation of a future swap
(2) Termination a swap
(3) Speculating
(4) Converting callable to non-callable debt
(5) Converting putable to non-putable debt