Derivatives: Markets, Valuation, and Risk Management / Edition 1

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Derivatives markets continue to grow at a rapid rate, withthousands of new products or product variations being introducedevery year. In order to make sense of this dynamic environment youneed a firm understanding of derivative contract valuation and riskmanagement as well as the structure of the markets within whichthey trade.

Author Robert Whaley has more than twenty-five years ofexperience in the world of finance, and with this book he shareshis hard-won knowledge in the field of derivatives with you.Divided into ten information-packed parts, Derivatives will showyou how this financial tool can be used in practice to create riskmanagement, valuation, and investment solutions that areappropriate for a variety of market situations.

  • Part One provides a broad overview of derivative contracts andthe markets within which they trade
  • Part Two reviews the basic principles of security valuation andhelps prepare you for the upcoming discussion of derivativecontract valuation and risk measurement
  • Part Three focuses on the valuation of forward contracts andthe risk management strategies associated with them
  • Part Four focuses on the valuation of option contracts and therisk management strategies associated with them

With a general valuation/risk measurement framework in hand,you'll then be introduced to derivative contracts in specific assetcategories. The remaining parts (5–9) of this comprehensiveguide are arranged by the nature of the asset underlying thederivatives contract—stocks are discussed first, then stockindexes, currencies, interest rates or bonds, and finally,commodities. In each part, Whaley provides a flavor of the historyof each derivatives market. He also examines any contractidiosyncrasies that may affect valuation principles and exploresspecific risk management strategies/practices as they apply to themarkets for particular asset categories.

Derivatives can be used to manage the different types of risksfaced by individuals, corporations, and governments. But toeffectively implement them takes discipline. Filled with in-depthinsights, practical advice, and a companion website that featuresOPTVAL Excel add-ins and spreadsheets, Derivatives offers valuableguidance on applying this key financial tool to a variety ofreal-world situations.

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Product Details

  • ISBN-13: 9780471786320
  • Publisher: Wiley
  • Publication date: 9/29/2006
  • Series: Wiley Finance Series, #345
  • Edition description: BK&CD-ROM
  • Edition number: 1
  • Pages: 960
  • Product dimensions: 7.40 (w) x 10.04 (h) x 1.95 (d)

Meet the Author

Robert E. Whaley is the Valere Blair Potter Professor of Management at the Owen Graduate School of Management, Vanderbilt University. His current research interests are in the areas of market microstructure, valuation of exotic options, stock splits, and executive stock option valuation. Professor Whaley's research has been published in top academic and practitioner journals, and he is a frequent presenter at major conferences and seminars. He holds a number of editorial positions, including Associate Editor of the Journal of Futures Markets, Journal of Derivatives, Journal of Risk, Pacific-Basin Finance Journal, and Advances in Futures and Options Research.

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Table of Contents

Preface ix

Acknowledgments xxv

About the Author xxvii

PART ONE: Derivative Markets 1

CHAPTER 1: Derivative Contracts and Markets 3

PART TWO: Fundamentals of Valuation 49

CHAPTER 2: Assumptions and Interest Rate Mechanics 51

CHAPTER 3: Relation between Return and Risk 89

PART THREE: Forwards/Futures/Swap Valuation 119

CHAPTER 4: No-Arbitrage Price Relations: Forwards, Futures, Swaps 121

CHAPTER 5: Risk Management Strategies: Futures 143

PART FOUR: Option Valuation 173

CHAPTER 6: No-Arbitrage Price Relations: Options 175

CHAPTER 7: Valuing Standard Options Analytically 201

CHAPTER 8: Valuing Nonstandard Options Analytically 261

CHAPTER 9: Valuing Options Numerically 303

CHAPTER 10: Risk Management Strategies: Options 347

PART FIVE: Stock Derivatives 381

CHAPTER 11: Stock Products 383

CHAPTER 12: Corporate Securities 419

CHAPTER 13: Compensation Agreements 451

PART SIX: Stock Index Derivatives 467

CHAPTER 14: Stock Index Products: Futures and Options 469

CHAPTER 15: Stock Index Products: Strategy Based 517

PART SEVEN: Currency Derivatives 563

CHAPTER 16: Currency Products 565

PART EIGHT: Interest Rate Derivatives 601

CHAPTER 17: Interest Rate Products: Futures and Options 603

CHAPTER 18: Interest Rate Products: Swaps 637

CHAPTER 19: Credit Products 679

CHAPTER 20: Valuing Interest Rate Products Numerically 705

PART NINE: Commodity Derivatives 729

CHAPTER 21: Commodity Products 731

PART TEN: Lessons Learned 771

CHAPTER 22: Key Lessons 773


A. Elementary Statistics 779

B. Regression Analysis 821

C. Statistical Tables 861

D. Glossary 869


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