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Praise for Essays in Derivatives
"This is the first book that anyone interested in derivatives should read. Don Chance shows his mastery of the subject through his ability to turn a complex area into something readable and useful. This is also the first book on derivatives that made me laugh out loud . . . and meant to do so. If nothing else, read it just to find out how the Book of Genesis is connected to derivatives history. Thank you, Don, for your years of work that led to this book."
—David R. Koenig, Past Chair, Board of Directors,
Professional Risk Managers' International Association
"Professor Chance's Essays in Derivatives is a brilliantly conceived and executed book. I particularly like the very wide breadth of technical coverage gained through seventy-three essays that provide the essence of what is needed for practice. The essays are short and clearly written, but maintain satisfying depth."
—Dennis W. McLeavey, CFA, DBA, Head of Education,
EMEA, CFA Institute
"This is a great collection of interesting and entertaining essays that takes the topic of derivatives far beyond the models and textbooks. I believe that both quants and managerial types will enjoy Don's unique perspective and insights."
—Moshe A. Milevsky, PhD, Finance Professor, York University,
and Executive Director, The IFID Centre
"As the derivatives market becomes increasingly diverse and complicated, Chance has combined in one source a broad-reaching epic that is a must-read for all investment professionals."
—Bud Haslett, CFA, FRM, Director of Option Analytics,
Miller Tabak + Co., LLC
"Don Chance possesses an unusual combination of sound technical insight and outstanding expositional skill. Essays on Derivatives provides the reader with a solid foundation in the subject while dispelling much of the gratuitous complexity that so often surrounds it. The book requires some diligent attention and perseverance, but it is accessible to curious non-specialists with only a minimum of mathematical training. I recommend it to any business generalist seeking a deeper understanding of this important topic. "
—David M. Rowe, EVP for Risk Management at SunGard and long-time columnist for Risk magazine
Preface To The New Edition.
Preface To The First Edition.
Section One. Derivatives And Their Markets.
Essay 1. The Structure Of Derivative Markets.
Essay 2. A Brief History Of Derivatives.
Essay 3. Why Derivatives?
Essay 4. Forward Contracts And Futures Contracts.
Essay 5. Options.
Essay 6. Swaps.
Essay 7. Types Of Risks.
Section Two. The Basic Instruments.
Essay 8. Interest Rate Derivatives: FRAs And Options.
Essay 9. Interest Rate Derivatives: Swaps.
Essay 10. Currency Swaps.
Essay 11. Structured Notes.
Essay 12. Securitized Instruments.
Essay 13. Equity Swaps.
Essay 14. Equity-Linked Debt.
Essay 15. Commodity Swaps.
Essay 16. American Versus European Options.
Essay 17. Swaptions.
Essay 18. Credit Derivatives.
Essay 19. Volatility Derivatives.
Essay 20. Weather And Environmental Derivatives.
Section Three. Derivative Pricing.
Essay 21. Forward And Futures Pricing.
Essay 22. Put-Call Parity For European Options On Assets.
Essay 23. Put-Call Parity For American Options On Assets.
Essay 24. Call Options As Insurance And Margin.
Essay 25. A Nontechnical Introduction To Brownian Motion.
Essay 26. Building A Model Of Brownian Motion In The Stock Market.
Essay 27. Option Pricing: The Black-Scholes-Merton Model.
Essay 28. Option Pricing: The Binomial Model.
Essay 29. Option Pricing: Numerical Methods.
Essay 30. Dynamic Option Replication.
Essay 31. Risk-Neutral Pricing Of Derivatives: I.
Essay 32. Risk-Neutral Pricing Of Derivatives: II.
Essay 33. It's All Greek To Me.
Essay 34. Implied Volatility.
Essay 35. American Call Option Pricing.
Essay 36. American Put Option Pricing.
Essay 37. Swap Pricing.
Section Four. Derivative Strategies.
Essay 38. Asset Allocation With Derivatives.
Essay 39. Protective Puts And Portfolio Insurance.
Essay 40. Misconceptions About Covered Call Writing.
Essay 41. Hedge Funds And Other Privately Managed Accounts.
Essay 42. Spreads, Collars, And Prepaid Forwards.
Essay 43. Box Spreads.
Section Five. Exotic Instruments.
Essay 44. Barrier Options.
Essay 45. Straddles And Chooser Options.
Essay 46. Compound And Installment Options.
Essay 47. Digital Options.
Essay 48. Geographic Options.
Essay 49. Multi-Asset Options.
Essay 50. Range Forwards And Break Forwards.
Essay 51. Lookback Options.
Essay 52. Deferred Start And Contingent Premium Options.
Section Six. Fixed Income Securities And Derivatives.
Essay 53. Duration.
Essay 54. Limitations Of Duration And The Concept Of Convexity.
Essay 55. The Term Structure Of Interest Rates.
Essay 56. Theories Of The Term Structure: I.
Essay 57. Theories Of The Term Structure: II.
Essay 58. Simple Models Of The Term Structure: Vasicek And Cox-Ingersoll-Ross.
Essay 59. No-Arbitrage Models Of The Term Structure: Ho-Lee And Heath-Jarrow-Morton.
Essay 60. Tree Pricing Of Bond And Interest Rate Derivatives: I.
Essay 61. Tree Pricing Of Bonds And Interest Rate Derivatives: II.
Essay 62. Tree Pricing Of Bonds And Interest Rate Derivatives: III.
Essay 63. Tree Pricing Of Bonds And Interest Rate Derivatives: IV.
Essay 64. Tree Pricing Of Bonds And Interest Rate Derivatives: V.
Section Seven. Other Topics And Issues.
Essay 65. Stock Options.
Essay 66.Value At Risk.
Essay 67. Stock As An Option .
Essay 68. The Credit Risk Of Derivatives.
Essay 69. Operational Risk.
Essay 70. Risk Management In An Organization.
Essay 71. Accounting And Disclosure Of Derivatives.
Essay 72. Worst Practices In Derivatives.
Essay 73. Best Practices In Derivatives.
Answers To End-Of-Essay Questions.