Student's Solutions Manual and Study Guide for Fundamentals of Futures and Options Markets : Pearson New International Edition

Updated and revised to reflect the most current information, this introduction to futures and options markets is ideal for those with a limited background in mathematics. Based on Hull's Options, Futures and Other Derivatives, one of the best-selling books on Wall Street, this book presents an accessible overview of the topic without the use of calculus. Packed with numerical samples and accounts of real-life situations, the Fifth Edition effectively guides readers through the material while providing them with a host of tangible examples. For professionals with a career in futures and options markets, financial engineering and/or risk management. Cover......Page 1 Title Page......Page 2 Copyright Page......Page 3 Contents in Brief......Page 5 Contents......Page 6 Preface......Page 14 1.1 Futures Contracts......Page 18 1.2 History of Futures Markets......Page 19 1.3 The Over-the-Counter Market......Page 21 1.4 Forward Contracts......Page 23 1.5 Options......Page 24 1.6 History of Options Markets......Page 27 1.8 Hedgers......Page 28 1.9 Speculators......Page 31 1.10 Arbitrageurs......Page 34 Summary......Page 35 Practice Questions......Page 37 Further Questions......Page 39 2.1 Opening and Closing Futures Positions......Page 41 2.2 Speci?cation of a Futures Contract......Page 42 2.3 Convergence of Futures Price to Spot Price......Page 45 2.4 The Operation of Margin Accounts......Page 46 2.5 OTC Markets......Page 49 2.6 Market Quotes......Page 53 2.7 Delivery......Page 54 2.8 Types of Trader and Types of Order......Page 55 2.9 Regulation......Page 56 2.10 Accounting and Tax......Page 57 2.11 Forward vs. Futures Contracts......Page 59 Summary......Page 61 Quiz......Page 62 Practice Questions......Page 63 Further Questions......Page 64 3.1 Basic Principles......Page 66 3.2 Arguments for and Against Hedging......Page 69 3.3 Basis Risk......Page 72 3.4 Cross Hedging......Page 76 3.5 Stock Index Futures......Page 80 3.6 Stack and Roll......Page 86 Summary......Page 87 Further Reading......Page 88 Quiz......Page 89 Practice Questions......Page 90 Further Questions......Page 91 Appendix: Review of Key Concepts in Statistics and the CAPM......Page 93 4.1 Types of Rates......Page 98 4.2 Measuring Interest Rates......Page 100 4.3 Zero Rates......Page 102 4.4 Bond Pricing......Page 103 4.5 Determining Treasury Zero Rates......Page 105 4.6 Forward Rates......Page 107 4.7 Forward Rate Agreements......Page 109 4.8 Theories of the Term Structure of Interest Rates......Page 111 Summary......Page 114 Quiz......Page 115 Practice Questions......Page 116 Further Questions......Page 117 Appendix: Exponential and Logarithmic Functions......Page 119 5.1 Investment Assets vs. Consumption Assets......Page 121 5.2 Short Selling......Page 122 5.3 Assumptions and Notation......Page 123 5.4 Forward Price for an Investment Asset......Page 124 5.5 Known Income......Page 127 5.7 Valuing Forward Contracts......Page 129 5.9 Futures Prices of Stock Indices......Page 132 5.10 Forward and Futures Contracts on Currencies......Page 134 5.11 Futures on Commodities......Page 138 5.13 Delivery Options......Page 141 5.14 Futures Prices and the Expected Spot Prices......Page 142 Summary......Page 144 Further Reading......Page 145 Practice Questions......Page 146 Further Questions......Page 148 6.1 Day Count and Quotation Conventions......Page 150 6.2 Treasury Bond Futures......Page 153 6.3 Eurodollar Futures......Page 158 6.4 Duration......Page 161 6.5 Duration-Based Hedging Strategies Using Futures......Page 166 Summary......Page 170 Quiz......Page 171 Practice Questions......Page 172 Further Questions......Page 173 7.1 Mechanics of Interest Rate Swaps......Page 175 7.2 Day Count Issues......Page 181 7.4 The Comparative-Advantage Argument......Page 182 7.6 Overnight Indexed Swaps......Page 186 7.8 Estimating the Zero Curve for Discounting......Page 188 7.9 Forward Rates......Page 191 7.10 Valuation in Terms of Bonds......Page 192 7.12 Fixed-for-Fixed Currency Swaps......Page 195 7.13 Valuation of Fixed-for-Fixed Currency Swaps......Page 199 7.14 Other Currency Swaps......Page 200 7.15 Credit Risk......Page 202 7.16 Other Types of Swap......Page 205 Summary......Page 206 Further Reading......Page 207 Quiz......Page 208 Practice Questions......Page 209 Further Questions......Page 210 8.1 Securitization......Page 212 8.2 The U.S. Housing Market......Page 216 8.3 What Went Wrong?......Page 220 8.4 The Aftermath......Page 222 Summary......Page 223 Further Reading......Page 224 Further Questions......Page 225 9.1 Types of Option......Page 227 9.2 Option Positions......Page 230 9.3 Underlying Assets......Page 232 9.4 Speci?cation of Stock Options......Page 233 9.5 Trading......Page 237 9.6 Commissions......Page 238 9.7 Margin Requirements......Page 239 9.8 The Options Clearing Corporation......Page 241 9.10 Taxation......Page 242 9.11 Warrants, Employee Stock Options, and Convertibles......Page 243 9.12 Over-the-Counter Options Markets......Page 244 Further Reading......Page 245 Practice Questions......Page 246 Further Questions......Page 247 10.1 Factors Affecting Option Prices......Page 249 10.3 Upper and Lower Bounds for Option Prices......Page 253 10.4 Put–Call Parity......Page 257 10.5 Calls on a Non-Dividend-Paying Stock......Page 261 10.6 Puts on a Non-Dividend-Paying Stock......Page 262 10.7 Effect of Dividends......Page 265 Summary......Page 266 Quiz......Page 267 Practice Questions......Page 268 Further Questions......Page 269 11.1 Principal-Protected Notes......Page 271 11.2 Strategies Involving a Single Option and a Stock......Page 273 11.3 Spreads......Page 275 11.4 Combinations......Page 283 Summary......Page 286 Quiz......Page 287 Further Questions......Page 288 12.1 A One-Step Binomial Model and a No-Arbitrage Argument......Page 290 12.2 Risk-Neutral Valuation......Page 294 12.3 Two-Step Binomial Trees......Page 296 12.4 A Put Example......Page 299 12.5 American Options......Page 300 12.6 Delta......Page 301 12.7 Determining u and d......Page 302 12.8 Increasing the Number of Time Steps......Page 303 12.10 Options on Other Assets......Page 304 Quiz......Page 309 Practice Questions......Page 310 Further Questions......Page 311 Appendix: Derivation of the Black–Scholes–Merton Option Pricing Formula from Binomial Tree......Page 313 Chapter 13: Valuing Stock Options: The Black–Scholes–Merton Model......Page 315 13.1 AssumptionsaboutHowStockPricesEvolve......Page 316 13.2 Expected Return......Page 319 13.3 Volatility......Page 320 13.4 Estimating Volatility from Historical Data......Page 321 13.5 Assumptions Underlying Black–Scholes–Merton......Page 323 13.6 The Key No-Arbitrage Argument......Page 324 13.7 The Black–Scholes–Merton Pricing Formulas......Page 326 13.8 Risk-Neutral Valuation......Page 328 13.9 Implied Volatilities......Page 329 13.10 Dividends......Page 331 Summary......Page 333 Further Reading......Page 334 Practice Questions......Page 335 Further Questions......Page 337 Appendix: The Early Exercise of American Call Options on Dividend-Paying Stocks......Page 338 14.1 Contractual Arrangements......Page 340 14.2 Do Options Align the Interests of Shareholders and Managers?......Page 342 14.3 AccountingIssues......Page 343 14.4 Valuation......Page 345 14.5 Backdating Scandals......Page 346 Further Reading......Page 348 Practice Questions......Page 349 Further Questions......Page 350 15.1 Options on Stock Indices......Page 351 15.2 Currency Options......Page 354 15.3 Options on Stocks Paying Known Dividend Yields......Page 356 15.4 Valuation of European Stock Index Options......Page 358 15.5 Valuation of European Currency Options......Page 361 15.6 American Options......Page 362 Summary......Page 363 Quiz......Page 364 Practice Questions......Page 365 Further Questions......Page 366 16.1 Nature of Futures Options......Page 367 16.2 Reasons for the Popularity of Futures Options......Page 369 16.4 Put–Call Parity......Page 370 16.6 Valuation of Futures Options Using Binomial Trees......Page 372 16.9 Using Black’s Model Instead of Black–Scholes–Merton......Page 375 16.11 Futures-Style Options......Page 377 Summary......Page 378 Practice Questions......Page 379 Further Questions......Page 381 17.1 Illustration......Page 382 17.3 A Stop-Loss Strategy......Page 383 17.4 Delta Hedging......Page 385 17.5 Theta......Page 392 17.6 Gamma......Page 394 17.7 Relationship Between Delta, Theta, and Gamma......Page 397 17.8 Vega......Page 398 17.9 Rho......Page 400 17.11 Scenario Analysis......Page 401 17.12 Extension of Formulas......Page 403 17.13 Creating Options Synthetically for Portfolio Insurance......Page 405 17.14 Stock Market Volatility......Page 407 Summary......Page 408 Quiz......Page 409 Practice Questions......Page 410 Further Questions......Page 412 18.1 The Binomial Model for a Non-Dividend-Paying Stock......Page 413 18.2 Using the Binomial Tree for Options on Indices, Currencies, and Futures Contracts......Page 420 18.3 The Binomial Model for a Dividend-Paying Stock......Page 423 18.4 Extensions of the Basic Tree Approach......Page 427 18.6 Monte Carlo Simulation......Page 429 Summary......Page 431 Quiz......Page 432 Practice Questions......Page 433 Further Questions......Page 434 19.1 Foreign Currency Options......Page 435 19.2 Equity Options......Page 438 19.3 The Volatility Term Structure and Volatility Surfaces......Page 440 19.4 When a Single Large Jump Is Anticipated......Page 442 Summary......Page 443 Further Reading......Page 444 Practice Questions......Page 445 Further Questions......Page 446 Appendix: Why the Put Volatility Smile is the Same as the Call Volatility Smile......Page 448 20.1 The VaR Measure......Page 450 20.2 Historical Simulation......Page 453 20.3 Model-Building Approach......Page 457 20.4 Generalization of Linear Model......Page 460 20.5 Quadratic Model......Page 465 20.6 Estimating Volatilities and Correlations......Page 467 20.8 Stress Testing and Back Testing......Page 473 Summary......Page 474 Further Reading......Page 475 Practice Questions......Page 476 Further Questions......Page 478 21.1 Exchange-Traded Interest Rate Options......Page 480 21.3 Black’s Model......Page 482 21.4 European Bond Options......Page 484 21.5 Interest Rate Caps......Page 486 21.6 European Swap Options......Page 492 21.7 Term Structure Models......Page 495 Summary......Page 496 Quiz......Page 497 Practice Questions......Page 498 Further Questions......Page 499 22.1 Exotic Options......Page 500 22.2 Agency Mortgage-Backed Securities......Page 507 22.3 Nonstandard Swaps......Page 508 Summary......Page 515 Quiz......Page 516 Practice Questions......Page 517 Further Questions......Page 518 Chapter 23: Credit Derivatives......Page 520 23.1 Credit Default Swaps......Page 521 23.2 Valuation of Credit Default Swaps......Page 525 23.3 Total Return Swaps......Page 529 23.5 Credit Indices......Page 531 23.6 The Use of Fixed Coupons......Page 532 23.7 Collateralized Debt Obligations......Page 533 Further Reading......Page 536 Practice Questions......Page 537 Further Questions......Page 538 24.1 Weather Derivatives......Page 539 24.2 Energy Derivatives......Page 540 24.3 Insurance Derivatives......Page 543 Summary......Page 544 Quiz......Page 545 Further Question......Page 546 25.1 Lessons for All Users of Derivatives......Page 547 25.2 Lessons for Financial Institutions......Page 551 25.3 Lessons for Non?nancial Corporations......Page 556 Further Reading......Page 558 Answers to Quiz Questions......Page 559 Glossary of Terms......Page 583 Deriva Gem Software......Page 601 Major Exchanges Trading Futures and Options......Page 606 Table for N(x) When x 0......Page 608 Index......Page 610

Directed primarily toward undergraduate finance students, this text also provides practical content to current and aspiring industry professionals.

Based on Hull's Options, Futures and Other Derivatives, Fundamentals of Futures and Options Markets presents an accessible overview of the topic without the use of calculus. Packed with numerical examples and accounts of real-life situations, this text effectively guides readers through the material while helping them prepare for the working world.

NOTE: This is the standalone book, if you want the Book/Solutions Manual and Study Guide order the ISBN below:

0133418804 / 9780133418804 of Futures and Options Markets & Student's Solutions Manual and Study Guide Package

Package consists of:

0132993341 / 9780132993340 Fundamentals of Futures and Options Markets

013299514X / 9780132995146 Student's Solutions Manual and Study Guide for Fundamentals of Futures and Options Markets

Updated and revised to reflect the most current information, this introduction to futures and options markets is ideal for those with a limited background in mathematics.Based on Hull's__Options, Futures and Other Derivatives,__one of the best-selling books on Wall Street, this book presents an accessible overview of the topic**without the use of calculus.**Packed with numerical samples and accounts of real-life situations, the Fifth Edition effectively guides readers through the material while providing them with a host of tangible examples.For professionals with a career in futures and options markets, financial engineering and/or risk management. For undergraduate courses in derivatives, options and futures, financial engineering, financial mathematics, and risk management. A reader-friendly book with an abundance of numerical and real-life examples. Based on Hull's Options, Futures and Other Derivatives, Fundamentals of Futures and Options Markets presents an accessible and student-friendly overview of the topic without the use of calculus. Packed with numerical examples and accounts of real-life situations, this text effectively guides students through the material while helping them prepare for the working world.