Mastering Derivatives Markets: A Step-by-Step Guide to the Products, Applications and Risks

Cover
Mastering Derivatives Markets
The author
Contents
Author’s acknowledgements
Publisher’s acknowledgements
Foreword
Contributors
Background and Development of the Derivatives Markets
	Market background
	Introduction
	Key features
	Uses of derivatives
	Range of derivatives
	Increasing use of the Central Counterparty Model (CCP)
	Risk and benchmarking
	Market volume
	Users and uses of derivatives markets
	Straight Through Processing (STP)
Market Fundamentals
	Introduction
	How banks generate income
	Three key assumptions
	Role and use of LIBOR
	Day counts
	Financial maths
	Calculating forward rates
	Marking to market (MTM or M2M)
	Yield curves
	Quiz
Risk – a Primer
	Introduction
	Financial risks: market, credit, liquidity
	Operational risk
	More esoteric risks
Derivatives Fundamentals
	Range of derivatives
	What is a vanilla trade?
	Settlement
	Triggers
	Liquidity and credit risk
	Understanding the \'underlying’
	Benchmarks
	Fair value
	Dealing with derivatives
Basic Option Concepts
	Introduction
	Option pricing
	Option mechanics
Interest Rate Derivatives – Single Settlement Instruments
	Introduction
	Single settlement interest rate derivatives
	Financial futures contracts
	Forward rate agreements (FRAS)
	Interest rate options (IROS)
	Quiz
Interest Rate Derivatives – OTC Multiple Settlement Instruments
	Introduction
	Interest rate caps and floors
	Interest rate collars
	Interest rate swaps
	Quiz
Benchmarking in the OTC Derivatives Markets
	Financial benchmarking for derivatives
	Liquidity benchmarking for derivatives
	Operational risk measurements for derivatives
	Conclusion
Currency Derivatives
	Introduction
	Over the counter currency options
	Currency options: reduced premium strategies
	Simple exotic structures
	Currency swaps
	Exchange-traded instruments
	Quiz
The Impact of Electronic Trading on the FX Market
	The early years
	FX as part of a commodity portfolio
	First electronic dealing platforms
	Electronic market making
	Phases I and II
	Point and click vs algo traders
	The impact of the credit crisis on banks\' FX trading
	Phase III
Credit Derivatives
	Introduction
	What is credit risk?
	Styles of trading
	The first deals
	Range of credit derivatives
	Credit default swaps
Central Clearing and the OTC Market
	The basics
	Trade execution
	Risks and mitigation
	Getting trades into clearing
	The business case and benefits
	Predictions for market development
	Terminology
Equity Derivatives
	Introduction
	Background
	Single stocks or equity indices?
	Stock index futures
	Stock index options
	Single stock options
	Equity index swaps
Commodity Derivatives
	Introduction
	Exchange-traded energy derivatives
	Exchange-traded futures contracts
	Exchange-traded energy option contracts
	OTC or ‘off-exchange’ energy derivatives
	OTC option products
	OTC oil swaps
Carbon Derivatives and Environmental Products
	What are carbon markets?
	Volumes and value
	Overview of regulation
	Carbon instruments
	What drives carbon prices?
	Trading carbon: in practice
	Conclusion
Regulation in the Derivatives Markets
	Why regulate the derivatives markets?
	Who regulates the derivatives markets?
	Regulatory models and objectives
	Supervisory aims – equal access to markets
	Market integrity
	Market abuse and manipulation
	The role of market surveillance
	Efficient markets
	Continuing regulatory challenges
Glossary
Answers to Quizzes
Index