Handbook of corporate equity derivatives and equity capital markets

446 Pages·2011·18.401 MB·English

by  Ramirez, Juan

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Handbook of Corporate Equity
Derivatives and Equity Capital Markets
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ForothertitlesintheWileyFinanceseries
pleaseseewww.wiley.com/finance
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Handbook of Corporate Equity
Derivatives and Equity Capital Markets
Juan Ramirez
A John Wiley and Sons, Ltd., Publication
iii
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Thiseditionfirstpublished2011
©2011JohnWiley&Sons,Ltd
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LibraryofCongressCataloging-in-PublicationData
Ramirez,Juan,1961–
Handbookofcorporateequityderivativesandequitycapitalmarkets/JuanRamirez.
p.cm.—(TheWileyfinanceseries)
Includesbibliographicalreferencesandindex.
ISBN978-1-119-97590-8
1.Derivativesecurities—UnitedStates. 2.Options(Finance)—UnitedStates. I.Title.
HG6024.U6R362011
332.63(cid:2)2—dc22
2011016272
AcataloguerecordforthisbookisavailablefromtheBritishLibrary.
ISBN978-1-119-97590-8(hardback) ISBN978-1-119-97855-8(ebk)
ISBN978-1-119-95077-6(ebk) ISBN978-1-119-95078-3(ebk)
Setin10/12ptTimesbyAptaraInc.,NewDelhi,India
PrintedinGreatBritainbyAntonyRoweLtd,Chippenham,Wiltshire
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TomywifeMartaandourchildren,Borja,MartucaandDavid
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Contents
Preface xvii
AbouttheAuthor xix
1 MainStrategicEquityDerivativeInstruments 1
1.1 EquityForwards 1
1.1.1 EquityForwards 1
1.1.2 ExampleofaCash-settledEquityForwardonaStock 2
1.1.3 ExampleofaPhysicallySettledEquityForwardonaStock 3
1.1.4 CalculatingtheForwardPriceofaStock 4
1.2 EquitySwaps 6
1.2.1 TotalReturnEquitySwaps 6
1.2.2 PriceReturnEquitySwaps 7
1.2.3 CaseStudy:PhysicallySettledTotalReturnEquitySwapon
DeutscheTelekom 7
1.2.4 CaseStudy:Cash-settledTotalReturnEquitySwapon
DeutscheTelekom 12
1.2.5 DeterminationoftheInitialPrice 15
1.2.6 DeterminationoftheSettlementPrice 16
1.2.7 EquityNotionalResets 17
1.2.8 CaseStudy:TotalReturnEquitySwaponEuroStoxx50 17
1.2.9 CompoEquitySwaps 21
1.2.10 QuantoEquitySwaps 23
1.2.11 UsesofEquitySwaps 25
1.3 StockLendingandBorrowing 26
1.3.1 StockLendingandBorrowing 26
1.3.2 StockLending/BorrowingTransactionFlows 27
1.3.3 CounterpartyCreditRisk 28
1.3.4 AdvantagesofStockLendingandBorrowing 29
1.3.5 DrawbacksofStockLendingandBorrowing 29
1.4 CallandPutOptions 30
1.4.1 CallOptions 30
1.4.2 PutOptions 33
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viii Contents
1.4.3 Europeanvs.AmericanStyle 36
1.4.4 TimeValuevs.IntrinsicValue 36
1.4.5 In,AtorOut-of-the-money 37
1.4.6 VariablesthatInfluenceanOptionPrice 38
1.4.7 HistoricalVolatilityvs.ImpliedVolatility 40
1.4.8 Put–CallParity 41
1.4.9 Options’Sensitivities,the“Greeks” 42
1.4.10 DeltaHedging 44
1.4.11 OffsettingDividendRisk 45
1.4.12 AdjustmentstoOptionTermsDuetoOtherCorporateActions 46
1.4.13 VolatilitySmile 47
1.4.14 ImpliedVolatilityTermStructure 48
1.4.15 CompositeandQuantoOptions 49
1.5 DividendSwaps 50
1.5.1 DividendSwaps 50
1.5.2 ApplicationsofDividendSwaps 50
1.5.3 Risks 52
1.5.4 MainDatesinaDividendDistribution 52
1.5.5 CaseStudy:Single-stockDividendSwap 52
1.5.6 CaseStudy:IndexDividendSwap 56
1.5.7 PricingImpliedDividends 58
1.6 VarianceSwapsandVolatilitySwaps 58
1.6.1 VarianceSwapsProductDescription 59
1.6.2 CalculationoftheRealizedVolatilityandthe
RealizedVariance 61
1.6.3 VolatilitySwapsProductDescription 62
1.6.4 VolatilitySwapsvs.VarianceSwaps 63
1.6.5 ApplicationsofVarianceandVolatilitySwaps 63
2 EquityCapitalMarketsProducts 65
2.1 MainEquityCapitalMarketsProducts 65
2.1.1 CapitalIncreaseProducts 65
2.1.2 SecondaryPlacementProducts 66
2.1.3 Equity-linkedProducts 66
2.2 InitialPublicOfferings 66
2.2.1 ProductDescription 66
2.2.2 BenefitsofGoingPublic 67
2.2.3 DrawbacksofGoingPublic 67
2.2.4 TheIPOProcess 68
2.2.5 Phase1:PreparationoftheCompany 68
2.2.6 Phase2:PreparationoftheOffering 69
2.2.7 Phase3:MarketingoftheOffering 75
2.2.8 Phase4:PlacementoftheOffering 77
2.2.9 KeySuccessFactorsAffectinganIPO 80
2.2.10 KeyRiskFactorsAffectinganIPO 81
2.2.11 CaseStudy:Visa’sIPO 82
2.3 CaseStudy:Google’sDutchAuctionIPO 85