Derivatives

Options and futures are among the most important tools in today's financial world. While the book focuses on the contracts traded on derivatives exchange - options and futures - we will also scrutinize the OTC-markets and exotic deals. Due to its didactic overall set-up, this book serves as both, a manual for practitioners and a classical textbook for students.

Options and futures are among the most important tools in todays financial world. While the book focuses on the contracts traded on derivatives exchange, options and futures, we will also scrutinize the OTC-markets and exotic deals. Due to its didactic overall set-up, this book serves as both a manual for practitioners and a classical textbook for students. The book is written in co-operation with Eurex by academic orientated investment banking professionals. It is applicable to either the finance student or the business person.

1; Preface; 6
2; Authors; 8
3; Introductory Note; 10
4; List of Abbreviations; 12
5; Contents; 14
6; 1 How derivative exchanges and markets are structured; 22
6. 1; 1. 1 A history of derivative exchanges; 22
6. 2; 1. 2 What are derivatives? ; 23
6. 3; 1. 3 Standardized derivatives trading Why is it common? ; 25
6. 4; 1. 4 What functions do derivative exchanges fulfill? ; 27
6. 5; 1. 5 Who are the market participants at derivative exchanges? ; 28
6. 6; 1. 6 How are derivative exchanges organized? ; 29
6. 7; 1. 7 Understanding derivative exchanges and markets what do we need to know? ; 30
6. 8; 1. 8 Bursa Mater et Magistra : How can reasonable trading behaviour at derivatives exchange be described? ; 33
7; 2 Set-up and structure of derivatives exchanges the Eurex case study; 36
7. 1; 2. 1 How do electronic exchanges work? ; 36
7. 2; 2. 2 What is the market-maker principle? ; 37
7. 3; 2. 3 How is trading carried out at Eurex? ; 38
7. 4; 2. 4 What products can be traded at Eurex? ; 40
7. 5; 2. 5 What does the term clearing mean? ; 41
7. 6; 2. 6 What categories of order specifications exist? ; 42
7. 7; 2. 7 What expiration dates are used by Eurex? ; 45
8; 3 Options Conditional derivatives; 46
8. 1; 3. 1 What are options and how do call options and put options differ? ; 46
8. 2; 3. 2 What types of options do exist? ; 48
8. 3; 3. 3 Options trading; 49
8. 4; 3. 4 What are weekly options? ; 51
8. 5; 3. 5 What are Low-Exercise-Price Options? ; 51
8. 6; 3. 6 Closing out a derivative position; 52
8. 7; 3. 7 Roll-over; 53
9; 4 The pricing of options; 54
9. 1; 4. 1 How are option prices determined in theory? ; 54
9. 2; 4. 2 What value drivers influence option prices? ; 57
9. 3; 4. 3 What do the so-called Greeks mean? ; 61
9. 4; 4. 4 What is the put-call parity all about? ; 65
9. 5; 4. 5 How are option prices determined under the Black-Scholes model? ; 66
9. 6; 4. 6 How are option prices determined under the Binominal model? ; 67
9. 7; 4. 7 Tradable option prices; 70
10; 5 Strategies involving options; 72
10. 1; 5. 1 What are the four basic options trading strategies all about? ; 72
10. 2; 5. 2 How to hedge with options; 80
10. 3; 5. 3 What option combinations are common? ; 81
10. 4; 5. 4 How to set up a strategy for options trading; 89
10. 5; 5. 5 What is the significance of market opinion? ; 90
11; 6 Futures unconditional derivative instruments; 92
11. 1; 6. 1 What are futures? ; 92
11. 2; 6. 2 Futures markets; 93
11. 3; 6. 3 Futures trading; 94
11. 4; 6. 4 Index-based futures; 95
11. 5; 6. 5 Interest-rate futures; 97
11. 6; 6. 6 Foreign-currency futures; 99
11. 7; 6. 7 Commodity futures; 100
11. 8; 6. 8 Single-Stock futures; 101
11. 9; 6. 9 The market for futures trading; 101
12; 7 Pricing of futures; 104
12. 1; 7. 1 Future pricing how is it done? ; 104
12. 2; 7. 2 Pricing of interest rate futures; 105
12. 3; 7. 3 What is a CTD bond? ; 107
12. 4; 7. 4 What does final settlement mean? ; 108
12. 5; 7. 5 What are common maturity dates for futures? ; 108
13; 8 Strategies involving futures; 110
14; 9 Options on futures, synthetic structures and combinations; 122
14. 1; 9. 1 What are options on futures? ; 122
14. 2; 9. 2 How are options on futures set up and structured? ; 123
14. 3; 9. 3 What is the future-style method? ; 123
14. 4; 9. 4 What strategies do investors pursue with options on futures? ; 124
14. 5; 9. 5 What is a synthetic derivatives market position? ; 126
14. 6; 9. 6 What combination and linkage deals are used in business practice? ; 127
14. 7; 9. 7 What are possible motives for combination or linkage deals? ; 128
15; 10 Foreign currency derivatives; 130
15. 1; 10. 1 A history of foreign currency trading; 130
15. 2; 10. 2 Some basic information on foreign exchange trading; 130
15. 3; 10. 3 What are foreign currency derivatives? ; 135
15. 4; 10. 4 What are currency options? ; 138
15. 5; 10. 5 What are currency futures? ; 139
16; 11 Commodity futures trading; 142
16. 1; 11. 1 Commodity futures vs. spot transactions; 142
16. 2; 11. 2 Which commodities are eligible for futures trading? ; 146
16. 3; 11. 3 Executing commodity futures contracts; 147
16. 4; 11. 4 Future developments and outlook; 148
17; 12 Pricing and influencing factors in commodity futures trading; 150
17. 1; 12. 1 How