NINTH EDITION FUNDAMENTALS OF. John C. Hüll

Transcription

1 NINTH EDITION FUNDAMENTALS OF FUTURES AND OPTIONS MARKETS John C. Hüll Maple Financial Group Professor of Derivatives and Risk Management Joseph L. Rotman School of Management University of Toronto PEARSON Boston Columbus Indianapolis New York San Francisco Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Säo Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

2 Contents Preface xv Chapter 1: Introduction Futures Contracts History of Futures Markets The Over-the-Counter Market Forward Contracts Options History of Options Markets Types of Trader Hedgers Speculators Arbitrageurs Dangers Chapter 2: Futures Markets and Central Counterparties Opening and Closing Futures Positions Specification of a Futures Contract Convergence of Futures Price to Spot Price The Operation of Margin Accounts OTC Markets Market Quotes Delivery Types of Trader and Types of Order Regulation Accounting and Tax Forward vs. Futures Contracts vii

3 Contents Chapter 3: Hedging Strategie* Using Futures Basic Principles Arguments for and Against Hedging Basis Risk Gross Hedging Stock Index Futures Stack and Roll Appendix: Review of Key Concepts in Statistics and the CAPM 76 Chapter 4: Interest Rates Types of Rates Swap Rates The Risk-Free Rate Measuring Interest Rates Zero Rates Bond Pricing Determining Zero Rates Forward Rates Forward Rate Agreements Theories of the Term Structure of Interest Rates Appendix: Exponential and Logarithmic Functions 105 Chapter 5: Determination of Forward and Futures Prices Investment Assets vs. Consumption Assets Short Selling Assumptions and Notation Forward Price for an Investment Asset Known Income Known Yield Valuing Forward Contracts Are Forward Prices and Futures Prices Equal? Futures Prices of Stock Indices Forward and Futures Contracts on Currencies Futures on Commodities The Cost of Carry Delivery Options Futures Prices and Expected Spot Prices

4 ix Interest Rate Futures Day Count and Quotation Conventions Treasury Bond Futures Eurodollar Futures Duration Duration-Based Hedging Strategies Using Futures Swaps Mechanics of Interest Rate Swaps Day Count Issues Confirmations The Comparative-Advantage Argument Valuation of Interest Rate Swaps How the Value Changes through Time Fixed-for-Fixed Currency Swaps Valuation of Fixed-for-Fixed Currency Swaps Other Currency Swaps Credit Risk Credit Default Swaps Other Types of Swaps Securitization and the Credit Crisis of 2007 Securitization The U.S. Housing Market What Went Wrong? The Aftermath Mechanics of Options Markets Types of Option Option Positions Underlying Assets Specification of Stock Options , , ,

5 x Contents 9.5 Trading Commissions Margin Requirements The Options Clearing Corporation Regulation Taxation Warrants, Employee Stock Options, and Convertibles Over-the-Counter Options Markets Chapter 10: Properties of Stock Options Factors Affecting Option Prices Assumptions and Notation Upper and Lower Bounds for Option Prices Put-Call Parity Calls on a Non-Dividend-Paying Stock Puts on a Non-Dividend-Paying Stock Effect of Dividends Chapter 11: Trading Strategies Involving Options Principal-Protected Notes Strategies Involving a Single Option and a Stock Spreads Combinations Other Payoffs Chapter 12: Introduction to Binomial Trees A One-Step Binomial Model and a No-Arbitrage Argument Risk-Neutral Valuation Two-Step Binomial Trees A Put Example American Options Delta Determining u and d Increasing the Number of Time Steps Using DerivaGem 282

6 xi Options on Other Assets Appendix: Derivation of the Black Scholes- -Merton Option Pricing Formula from Binomial Tree Valuing Stock Options: The Black-Scholes-Merton Model Assumptions about How Stock Prices Evolve Expected Return Volatility Estimating Volatility from Historical Data Assumptions Underlying Black-Scholes-Merton The Key No-Arbitrage Argument The Black-Scholes-Merton Pricing Formulas Risk-Neutral Valuation Implied Volatilities Dividends Appendix: The Early Exercise of American Call Options on Dividend-Paying Stocks Employee Stock Options Contractual Arrangements Do Options Align the Interests of Shareholders and Managers? Accounting Issues Valuation Backdating Scandals Options on Stock Indices and Currencies Options on Stock Indices Currency Options Options on Stocks Paying Known Dividend Yields Valuation of European Stock Index Options Valuation of European Currency Options American Options ,327,328,

7 xjj Contents Chapter 16: Futures Options and Black s Model Nature of Futures Options Reasons for the Popularity of Futures Options European Spot and Futures Options Put-Call Parity Bounds for Futures Options A Futures Price as an Asset Providing a Yield Black's Model for Valuing Futures Options Using Black's Model Instead of Black-Scholes-Merton Valuation of Futures Options Using Binomial Trees American Futures Options vs. American Spot Options Futures-Style Options Chapter 17: The Greek Letters Illustration Naked and Covered Positions Greek Letter Calculation Delta Theta Gamma Relationship Between Delta, Theta, and Gamma Vega Rho The Realities of Hedging Scenario Analysis Extension of Formulas Creating Options Synthetically for Portfolio Insurance Stock Market Volatility Chapter 18: Binomial Trees in Practice The Binomial Model for a Non-Dividend-Paying Stock Using the Binomial Tree for Options on Indices, Currencies, and Futures Contracts The Binomial Model for a Dividend-Paying Stock Extensions of the Basic Tree Approach Alternative Procedure for Constructing Trees Monte Carlo Simulation 407

8 Contents xiii Chapter 19: Volatility Smiles Foreign Currency Options Equity Options The Volatility Term Structure and Volatility Surfaces When a Single Large Jump Is Anticipated Appendix: Why the Put Volatility Smile is the Same as the Call Volatility Smile 426 Chapter 20: Value at Risk and Expected Shortfall The VaR and ES Measures Historical Simulation Model-Building Approach Generalization of Linear Model Quadratic Model Estimating Volatilities and Correlations Comparison of Approaches Back Testing Chapter 21: Interest Rate Options Exchange-Traded Interest Rate Options Embedded Bond Options Black's Model European Bond Options Interest Rate Caps European Swap Options Term Structure Models Chapter 22: Exotic Options and Other Nonstandard Products Exotic Options Agency Mortgage-Backed Securities 484

9 xj v Contents 22.3 Nonstandard Swaps Chapter 23: Credit Derivatives Credit Default Swaps Valuation of Credit Default Swaps Total Return Swaps CDS Forwards and Options Credit Indices The Use of Fixed Coupons Collateralized Debt Obligations Chapter 24: Weather, Energy, and Insurance Derivatives Weather Derivatives Energy Derivatives Insurance Derivatives Further Question 522 Chapter 25: Derivatives Mishaps and What We Can Learn From Them Lessons for All Users of Derivatives Lessons for Financial Institutions Lessons for Nonfinancial Corporations Answers to Questions 535 Glossary of Terms 559 DerivaGem Software 577 Major Exchanges Trading Futures and Options 581 Table for N(x) When x < Table for N(x) When x^0 583 Index 585