Derivatives Essentials: An Introduction to Forwards, Futures, Options and Swaps

353 Pages·2016·5.95 MB·English

by  Aron Gottesman

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Derivatives
Essentials
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Derivatives
Essentials
An Introduction to Forwards,
Futures, Options, and Swaps
ARON GOTTESMAN
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Copyright©2016byAronGottesman.Allrightsreserved.
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LibraryofCongressCataloging-in-PublicationData
Names:Gottesman,AronA.,author.
Title:Derivativesessentials:Anintroductiontoforwards,futures,optionsandswaps/
AronGottesman.
Description:Hoboken:Wiley,2016.|Series:Wileyfinance|Includesindex.
Identifiers:LCCN2016014397(print)|LCCN2016016290(ebook)|
ISBN9781119163497(hardback)|ISBN9781119163572(ePDF)|
ISBN9781119163565(ePub)
Subjects:LCSH:Derivativesecurities.
Classification:LCCHG6024.A3G682016(print)|LCCHG6024.A3(ebook)|
DDC332.64/57—dc23
LCrecordavailableathttps://lccn.loc.gov/2016014397
CoverImage:©hywards/Shutterstock
Coverdesign:Wiley
PrintedintheUnitedStatesofAmerica
10987654321
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For my wife Ronit and our children
Libby, Yakov, Raphi, Tzipora, and Kayla
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Contents
Preface xiii
Acknowledgements xvii
AbouttheAuthor xix
PART ONE
IntroductiontoForwards,Futures,andOptions
CHAPTER1
ForwardsandFutures 3
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1.1 Forwardcontractcharacteristics 3
1.2 Longforwardpayoff 6
1.3 LongforwardP&L 8
1.4 Shortforwardpayoff 9
1.5 ShortforwardP&L 10
1.6 LongforwardP&Ldiagram 12
1.7 ShortforwardP&Ldiagram 13
1.8 Forwardsarezero-sumgames 15
1.9 Counterpartycreditrisk 17
1.10 Futurescontracts 19
CHAPTER2
CallOptions 22
2.1 Calloptioncharacteristics 22
2.2 Longcallpayoff 25
2.3 LongcallP&L 27
2.4 Shortcallpayoff 29
2.5 ShortcallP&L 30
2.6 LongcallP&Ldiagram 32
2.7 ShortcallP&Ldiagram 33
2.8 Calloptionsarezero-sumgames 35
2.9 Calloptionmoneyness 37
vii
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viii CONTENTS
2.10 Exercisingacalloptionearly 38
2.11 Comparisonofcalloptionsandforwards/futures 40
CHAPTER3
PutOptions 44
3.1 Putoptioncharacteristics 44
3.2 Longputpayoff 47
3.3 LongputP&L 49
3.4 Shortputpayoff 50
3.5 ShortputP&L 52
3.6 LongputP&Ldiagram 53
3.7 ShortputP&Ldiagram 55
3.8 Putoptionsarezero-sumgames 57
3.9 Putoptionmoneyness 58
3.10 Exercisingaputoptionearly 59
3.11 Comparisonofputoptions,calloptions,and
forwards/futures 60
PART TWO
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PricingandValuation
CHAPTER4
UsefulQuantitativeConcepts 65
4.1 Compoundingconventions 66
4.2 Calculatingfuturevalueandpresentvalue 68
4.3 Identifyingcontinuouslycompoundedinterestrates 71
4.4 Volatilityandhistoricalstandarddeviation 72
4.5 Interpretationofstandarddeviation 77
4.6 Annualizedstandarddeviation 80
4.7 Thestandardnormalcumulativedistributionfunction 81
4.8 Thez-score 83
CHAPTER5
IntroductiontoPricingandValuation 86
5.1 Theconceptsofpriceandvalueofaforwardcontract 87
5.2 Theconceptsofpriceandvalueofanoption 88
5.3 Comparisonofpriceandvalueconceptsforforwards
andoptions 90
5.4 Forwardvalue 91
5.5 Forwardprice 92
5.6 Optionvalue:TheBlack-Scholesmodel 94
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