Derivatives: Valuation and Risk Management

By David A. Dubofsky; Thomas W. Miller Jr. | Go to book overview

Index
Note: Page numbers followed by f, t, or n indicate figures, tables, and notes respectively.
Accounting for derivatives, 40–42
risk, 23
Add-on yield, 275
American Stock Exchange, 397
address, 386
options trading, 385, 616
stock options trading, 388
American-style options, 14, 110–13, 374, 375, 450–56, 499–503, 541, 542–46
Amex Market Value Index, 193
Amortizing swaps, 313, 338
Annuity swap, 316
Anticipatory hedge, 167, 217
Approximation formulas for cumulative normal distribution, 549n
Arbitrage, 378
capital and opportunities, 116n
cash-and-carry, 89, 97, 102, 199, 235
defined, 87, 443, 461
Eurodollar futures contracts, 278–82
forward foreign exchange contracts, 62
forward prices, 87
implied volatility estimate, 535
no-arbitrage models, 619
profits, 87
restrictions on
assumptions, 443–44
for calls, 446–56
notation for, 444–46
for puts, 456–62
reverse cash-and-carry, 89, 199
riskless hedging, 573
Treasury bond futures, 240–42
See also Program trading
Arbitrage table, 378
Arbitrageurs, 3, 154–55, 207
Around the money options, 391
Arrears reset swaps, 321n
Arrears swaps, 321n
Asian options, 629 Ask, 92, 93, 388
Asset allocation, 254–58
Asset-or-nothing (aon) options, 623
Associated persons (APs), 155
As you like it options, 625
At-market swaps, 312
At the money, 14, 376, 414
Average options, 629
Average price options, 629
Back testing, 613
Balance sheet exposure to risk, 79
Bankruptcy, 33–35
Barrier options, 626–28
Basic positions, 418–19
Basis, 134–37, 168–69
defined, 160n
strong vs. weak, 186n
Basis point value (BPV) method, 252–54, 261n, 267
Basis risk, 168–70, 178, 221n
Basis swap, 313
Bearish time spread, 587
Bermuda options, 622
Bernard's Act, 20n
Beta, 210, 217, 397, 408n
Bid, 92, 93, 388
Bid-ask bounce, 208
Bid-ask quotes, 4
Bid-ask spreads
market makers, 389
prices, effects of on theoretical prices, 92, 93, 202, 411, 436, 444
single-price, 378
Bilateral netting agreements, 14
Binary options, 622–23
Binomial option pricing model (BOPM), 384, 461, 475
American calls, 543
Black-Scholes option pricing model, related, 531–32
calls on dividend-paying stocks American calls on stocks paying given dollar dividend amounts, 499–503
European calls on constant dividend-yielding stocks, 493–97
European calls on stocks paying given dollar dividend amounts, 497–98
calls on non-dividend-paying stocks assumptions, 477–78
multiperiod, 489–93
one-period model, 478–81
risk neutrality, 481–82
two-period model, 482–89
drawbacks, 521
dynamic replication, 509–13, 513
preparation for using, 475–77
put pricing, 493–509
recursive single-period approach, 499, 505
Black-Scholes option pricing model (BSOPM), 382–84, 420, 475, 491, 521
applications, 438n
assumptions, 521–22
binomial option pricing model, 531–32
comparative statics, 565–69 debt instrument options, 617–18
estimating volatility, 532–38
European put prices, 527–31
European-style options, 539
Greeks, 565–70
interest rate options, 617–18
intuitive look at, 526–27
jumps, 538, 559
lognormal returns, 522–23, 558–59
numerical example, 523–26
stochastic volatility, 538
Bolsa de Mercadorias & Futuros (BM&F, Brazil), 9
Bond Buyer Municipal Bond Index, 258
Bond equivalent yield, 271–72
Box spreads, 469–70
long box spread, 470
short box spread, 470
Brokers, 392–93
Brownian motion and returns
distribution, 422–23, 558–59
Bullish time spread, 587

-637-

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