Derivatives:

Principles and

Practice

Rangarajan K. Sundaram

Stern Institution of Organization

New York College or university

New York, NY 10012

Sanjiv R. Das

Leavey School of Organization

Santa Clara University

Santa Clara, CALIFORNIA 95053

I actually McGraw-Hill

We Irwin

Contents

3. almost 8 Futures Rates 72

a few. 9 Physical exercises 74

Appendix 3A Increasing Frequency seventy nine

Appendix 3B Forward and Futures Rates with

Regular Interest Rates 81

Appendix 3C Rolling Above Futures Contracts 83

Writer Biographies xv

Preface xvi

Acknowledgments xxi

Chapter 1

Introduction

1 ) 1

1 . 2

1 ) 3

1 ) 4

1 ) 5

1 . 6

1

Chapter 5

Forward and Futures Contracts 5

Choices 9 Trades 10

Employing Derivatives: A few Comments

The Structure with this Book 18

Exercises 12-15

Pricing Forwards and Options contracts II: Building

on the Footings 85

eleven

PART A SINGLE

Futures and Forwards

Part 2

Futures and options Markets

17

19

installment payments on your 1 Introduction 19

2 . 2 The Changing Confront of Futures and options Markets nineteen

2 . three or more The Functioning of Options contracts Exchanges twenty one

2 . four The Standardization of Futures Contracts 30

2 . a few Closing Away Positions 34

2 . six Margin Requirements and Arrears Risk thirty eight

2 . six Case Studies in Futures Markets 39

2 . eight Exercises 53

Appendix 2A Futures Trading and ALL OF US Regulation:

A Brief History 57

Section 3

Charges Forwards and Futures My spouse and i: The Basic

Theory 60

3. 1

several. 2

several. 3

three or more. 4

Advantages 60

Costs Forwards by Replication 61

Examples 63

Forward Pricing on Currencies and Related

Assets 66

3. a few Forward-Rate Negotiating 69

three or more. 6 Principle Check 69

3. 7 The Marked-to-Market Value of the Forward

Deal 70

viii

4. 1 Introduction eighty-five

4. a couple of From Theory to Actuality 85

four. 3 The Implied Repo Rate fifth there’s 89

4. four Transactions Costs 92

5. 5 Forward Prices and Future Place Prices ninety two

4. 6th Index Accommodement 93

4. 7 Physical exercises 97

Appendix 4A Forward Prices with Convenience

Brings 100

Part 5

Hedge with Futures and options and Forwards

101

five. 1

5. 2

your five. 3

5. 4

five. 5

your five. 6

your five. 7

your five. 8

your five. 9

5. 10

Introduction 101

A Guide to the Main Benefits 103

The Cash Flow from a Hedged Position 104

The Case of No Basis Risk one zero five

The Minimum-Variance Hedge Rate 106

Good examples 109

Implementation 111

Further more Issues in Implementation 112

Index Options contracts and Changing Equity Risk 114

Fixed-Income Futures and Duration-Based

Hedge 115

five. 11 Exercises 115

Appendix 5A Derivation of the Ideal Tailed

Hedge Ratio h** 120

Part 6

Interest-Rate Forwards and Futures

6. 1

6. 2

6th. 3

6th. 4

Advantages 122

Eurodollars and Libor Rates 122

Forward-Rate Deals 123

Eurodollar Futures 129

122

Contents ix

six. 5 Treasury Bond Futures and options 136

six. 6 Treasury Note Futures 139

6th. 7 Treasury Bill Futures and options 139

six. 8 Duration-Based Hedging 150

6. being unfaithful Exercises 143

Appendix 6A Deriving the Arbitrage-Free

FRA Rate 147

Appendix 6B PVBP-Based Hedging Using

Eurodollar Futures 148

Appendix 6C Calculating the Conversion

Element 149

Appendix 6D Period as a Awareness

Measure 150

Appendix 6E The Duration of a Futures

Contract 151

Chapter being unfaithful

No-Arbitrage Limitations on Choice

Prices 196

PART TWO

10. one particular

10. a couple of

10. a few

10. 5

10. your five

Options

153

Chapter six

Options Marketplaces

9. five

9. 6th

9. 7

9. eight

Introduction 196

Motivating Examples 196

Mention and Other Preliminaries 198

Maximum and Lowest Prices for

Options 199

The Insurance Benefit of an Option 204

Choice Prices and Contract Variables 205

Numerical Examples 208

Exercises 210

Chapter 15

Early Work out and Put-Call Parity 213

Introduction 213

A Decomposition of Alternative Prices 213

The Optimality of Early on Exercise 216

Put-Call Parity. 220

Physical exercises 226

155

7. you

7. a couple of

7. several

7. some

7. 5

Introduction 155

Definitions and Terminology one hundred fifty five

Options while Financial Insurance 156

Undressed Option Positions 158

Choices as Thoughts about Market Way

and Volatility 162

7. 6 Exercises 165

Appendix 7A Options Markets 167

Chapter almost 8

Options: Payoffs and Trading

Strategies 171

8. you

8. a couple of

9. 1

9. 2

9. three or more

9. 4

Introduction 171

Trading Strategies I actually: Covered Calls and

Defensive...