Market Risk Analysis, Volume III, Pricing, Hedging and Trading Financial Instruments

List of Tables.

List of Examples.

Foreword.

Preface to Volume III.

III.1 Bonds and Swaps.

III.1.1 Introduction.

III.1.2 Interest Rates.

III.1.3 Categorization of Bonds.

III.1.4 Characteristics of Bonds and Interest Rates.

III.1.5 Duration and Convexity.

III.1.6 Bonds with Semi-Annual and Floating Coupons.

III.1.7 Forward Rate Agreements and Interest Rate Swaps.

III.1.8 Present Value of Basis Point.

III.1.9 Yield Curve Fitting.

III.1.10 Convertible Bonds.

III.1.10.1 Characteristics of Convertible Bonds.

III.1.10.2 Survey of Pricing Models for Convertible Bonds.

III.1.11 Summary and Conclusions.

III.2 Futures and Forwards.

III.2.1 Introduction.

III.2.2 Characteristics of Futures and Forwards.

III.2.3 Theoretical Relationships between Spot, Forward and Futures.

III.2.4 The Basis.

III.2.5 Hedging with Forwards and Futures.

III.2.6 Hedging in Practice.

III.2.7 Using Futures for Short Term Hedging.

III.2.8 Summary and Conclusions.

III.3 Options.

III.3.1 Introduction.

III.3.2 Foundations.

III.3.3 Characteristics of Vanilla Options.

III.3.4 Hedging Options.

III.3.5 Trading Options.

III.3.6 The Black–Scholes–Merton Model.

III.3.7 The Black–Scholes–Merton Greeks.

III.3.8 Interest Rate Options.

III.3.9 Pricing Exotic Options.

III.3.10 Summary and Conclusions.

III.4 Volatility.

III.4.1 Introduction.

III.4.2 Implied Volatility.

III.4.3 Local Volatility.

III.4.4 Modelling the Dynamics of Implied Volatility.

III.4.5 Stochastic Volatility Models.

III.4.6 Scale Invariance and Hedging.

III.4.7 Trading Volatility.

III.4.8 Summary and Conclusion.

III.5 Portfolio Mapping.

III.5.1 Introduction.

III.5.2 Risk Factors and Risk Factor Sensitivities.

III.5.3 Cash Flow Mapping.

III.5.4 Applications of Cash Flow Mapping to Market Risk Management.

III.5.5 Mapping an Options Portfolio to Price Risk Factors.

III.5.6 Mapping Implied Volatility.

III.5.7 Case Study: Volatility Risk in FTSE 100 Options.

III.5.8 Summary and Conclusions.

References.

Index.