Global Derivatives: a Strategic Risk Management Perspective

Cover......Page 1
Global Derivatives......Page 2
Contents......Page 6
List of figures......Page 11
List of tables......Page 17
Preface......Page 18
About the author......Page 24
Publisher’s acknowledgments......Page 25
Part I Global markets and strategic risk exposures......Page 26
  The globalization of markets......Page 28
  International trade and balance of payment......Page 29
  Capital flows in the global economic system......Page 33
  The international financial system......Page 34
  Global credit intermediation......Page 36
  Credit intermediation, interest rates and the role of financial institutions......Page 39
  Term structure of interest rates (yields, zero-coupon, and forward rates)......Page 43
  Liquidity......Page 52
  Credit risk and required return......Page 53
  The foreign exchange market......Page 58
  Foreign exchange rates......Page 59
  Purchasing power parity......Page 60
  Interest rate parity......Page 61
  Summary......Page 64
  Exercises......Page 65
  Objectives......Page 69
  Valuing financial assets and commercial cash flow streams......Page 70
  Financial and commercial cash flow exposures......Page 80
  Measuring interest rate gaps......Page 83
  Interest rate sensitivity and the concept of duration......Page 86
  Duration and interest rate risk......Page 89
  Measuring foreign exchange rate gaps......Page 91
  Portfolio optimization......Page 93
  An integrative risk management perspective......Page 97
  Modern risk management perspectives......Page 103
  Summary......Page 106
  Exercises......Page 107
  Credit intermediation and risk-transfer......Page 111
  Financial innovation and the effects of risk-transfer......Page 120
  Risk-transfer and financing mechanisms......Page 126
  Insurance and reinsurance......Page 130
  Financial derivatives markets......Page 136
  Regulatory and accounting issues......Page 143
  Summary......Page 145
  Questions......Page 146
  Exercises......Page 147
Part II Exchange traded and OTC derivatives......Page 150
  The futures contract......Page 152
  Opening and closing transactions......Page 153
  Role of the clearinghouse......Page 154
  Market participants......Page 160
  Types of futures contracts......Page 162
  Commodity futures......Page 163
  Energy futures......Page 164
  Financial futures......Page 165
  Currency futures......Page 166
  Interest rate and bond futures......Page 169
  Stock index futures......Page 174
  Insurance futures......Page 175
  Option contracts and options on futures......Page 176
  Stock options......Page 177
  Options on futures contracts......Page 186
  Options on interest rate and bond futures......Page 187
  Options on stock index futures......Page 188
  Summary......Page 190
  Exercises......Page 191
  Forward agreements......Page 194
  Currency options......Page 201
  Option pricing......Page 205
  Profitability patterns......Page 218
  Option price sensitivity......Page 222
  Product developments......Page 227
  Double option products......Page 228
  Interest rate option agreements......Page 231
  Summary......Page 236
  Exercises......Page 237
  Objectives......Page 239
  Interest rate swap agreements......Page 240
  Currency swap agreements......Page 245
  Interest rate swap quotes......Page 251
  Currency and interest rate swap structures......Page 254
  Credit derivatives......Page 261
  Risk swaps......Page 265
  Summary......Page 269
  Questions......Page 270
  Exercises......Page 271
Part III Hedging with financial derivatives......Page 274
  Hedging with financial futures......Page 276
  Price relationships......Page 289
  Currency hedging......Page 293
  Hedging interest rate gaps......Page 299
  Hedging currency gaps......Page 302
  Managing interest rate risk......Page 306
  Summary......Page 309
  Questions......Page 310
  Exercises......Page 311
  Hedging interest rate risk......Page 313
  Hedging currency risk......Page 318
  Double option strategies......Page 325
  Ratio spreads......Page 329
  Portfolio hedge......Page 341
  Using options to establish a delta hedge......Page 344
  Summary......Page 347
  Exercises......Page 348
  Hedging with interest rate and currency swaps......Page 351
  Hedging with credit derivatives......Page 367
  Hedging with risk swaps......Page 372
  Alternative risk transfer......Page 374
  Hybrid instruments......Page 375
  Summary......Page 376
  Questions......Page 377
  Exercises......Page 378
Part IV Strategic risk management......Page 380
  Objectives......Page 382
  The importance of a risk management focus......Page 383
  Risk and risk factors......Page 389
  Other types of risk......Page 395
  Dealing with the risks......Page 400
  An integrative perspective on strategic risk......Page 402
  Real option structures......Page 406
  Summary......Page 417
  Exercises......Page 418
  Objectives......Page 422
  Getting to grips with uncertainty......Page 423
  Risk awareness......Page 436
  Risk management culture......Page 437
  Risk management as quality control......Page 438
  Strategizing through real options......Page 440
  Risk in the strategic management process......Page 447
  Questions......Page 450
  Exercises......Page 451
Glossary......Page 453
Index......Page 466