List of Tables 1 2.1 Salient features of Centuries on Derivatives. 14 2 2.2 Effect of Stock and Index Futures on Cash Stock Market 17 4 2.3 Effect of Stock and Index Options on Cash StockMarket 17 4 2.4 Chronological Study showing percentages of derivative 25 users 5 2.5 Summary of Equity Derivatives related literature 41 6 2.6 Summary of literature related to Foreign Exchange 43 Derivatives 7 2.7 Summary of literature related to Derivatives in General. 45 8 4.1 Currency wise access to onshore forward market by nonresidents 55 9 4.2 Currency wise notional amounts outstanding in the OTC 57 Derivatives market from 2000 to 2006. 10 4.3 Interest rates combination to two firms 57 11 4.4 Calculation of QSD for the Swap deal 58 12 4.5 Calculation of the net gain to the Bank 59 13 4.6 Interest rates offered to two firms 60 14 4.7 Calculation of QSD for the Swap deal 61 15 4.8 Calculation of the net gain to the Bank for currency 61 Swap 16 4.9 Inflows and outflows from Currency Swap 63 17 4.10 Interest rates offered at different maturity periods 65 18 4.11 Calculation of the Fixed agreed upon rate for interest 66 rate swap contract 19 4.12 Distinction between futures and forwards 67 20 4.13 The contract specifications for S & P Nifty Futures 71 21 4.14 Calculation of arbitrage profit from nifty futures in bearish trend 74 xvi
22 4.15 Calculation of arbitrage profit form nifty futures in 74 bullish trend 23 4.16 Calculations for Weighted beta of portfolio 77 24 4.17 Calculation of Total Market Value 77 25 4.18 Calculations of net gain from beta hedging 78 26 4.19 Pay off and interest rate calculations for with and 81 without FRA contract 27 4.20 LIBOR rates are available for various terms of maturity 84 28 4.21 Year wise trading of interest rate futures at NSE 85 29 4.22 Value of portfolio at expiration time T 102 30 4.23 Example-1 of (Conversion) arbitrage for non- put-call 105 parity situation 31 4.24 Example-2 of (Reverse Conversion) arbitrage for non- 105 put-call parity situation 32 4.25 Call and Put Option Greek valuation formula 117 33 4.26 The effective cost of borrowing with and without opting 119 for call option for different LIBOR 34 4.27 The effective return on lending with and without opting 121 for Put option for different LIBOR 35 4.28 LIBOR for different value dates maturity 123 36 4.29 Calculations of net cash flows with and without interest 123 rate cap 37 4.30 Calculation of net cash flows with and without collar 125 38 4.31 Effective cost of loan with and without collar 125 (annualized) 39 4.32 Term structure of interest rates 126 40 4.33 Calculation of fixed rate for three-year swap 127 41 4.34 The payoff from FRC and Range forward contract at 129 different exchange rates 42 4.35 The contract value for FRC and Range forward contract 131 for different exchange rates 43 4.36 The contract value of FRC and Participating Forward 133 Contract for different exchange rates 44 5.1 Various option strategies 138 45 5.2 Example of Strangle Strategy 140 46 5.3 Calculation of Payoff from Strangle Strategy 141 xvii
47 5.4 Example of Strip Strategy 142 48 5.5 Calculation of Payoff from Strip Strategy 142 49 5.6 Example of Strap Strategy 143 50 5.7 Calculation of Payoff from Strap Strategy 143 51 5.8 Example of Bullish Vertical Spread using Call Strategy 144 52 5.9 Calculation of Payoff from Bullish Vertical Spread 144 using Call 53 5.10 Example of Bearish Vertical Spread using Call Strategy 145 54 5.11 Calculation of Payoff from Bearish Vertical Spread 145 using Call 55 5.12 Example of Long Butterfly Spread Strategy 146 56 5.13 Calculation of Payoff from Long Butterfly Spread 147 Strategy 57 5.14 Example of Ratio Spread Strategy Using Call 147 58 5.15 Calculation of Payoff from Ratio Spread Strategy Using 149 Call 59 5.16 Example of Box Strategy 150 60 5.17 Calculation of Payoff from Box Strategy 150 61 5.18 Example Bullish Calendar Spread 151 62 5.19 Calculation of Payoff from Bullish Calendar Spread 151 63 6.1 Transactions of derivatives entered into by P & G at 157 different dates 64 6.2 Summary:1 of cases loss from derivatives 162 65 6.3 Summary:2 of cases loss from derivatives 163 66 6.4 Contract Specifications for Currency Futures at NSE 171 67 6.5 RBI Reference Exchange rates for INR/$ and INR/ for 172 different dates 68 7.1 Trading of OTC forex Derivatives (in %) 184 xviii
Sr. No. Table 69 7.2 Trading of Equity Linked OTC Derivatives (in %) 184 70 7.3 Trading of Equity Derivatives (in %) at NSE between 2001-02 and 2008-09 71 7.4 Trading of Equity Derivatives (in %) at NSE between 2006-07 and 2008-09 72 7.5 Division of OTC Derivatives Traded between Dec. 2004 and June 2008 (in%) 73 7.6 Division of Exchange Traded Derivatives between Dec. 1993 and Sept., 2008 (in %) in World 74 8.1 Reasons for not Using Derivatives 191 75 8.2 Distribution of various objectives for using Derivatives 192 76 8.3 Frequency distribution for using derivatives for arbitrage 192 77 8.4 Frequency distribution for using derivatives for Speculation 193 78 8.5 Frequency distribution for using derivatives for Hedging 193 79 8.6 Use of derivatives for hedging less than one year 193 80 8.7 Use of derivatives for hedging more than one year 194 81 8.8 Various Concern for use of derivatives 195 82 8.9 Degree of Concern for Credit risk for use of derivatives 195 83 8.10 Degree of Concern for Market risk for use of derivatives 195 84 8.11 Degree of Concern for Liquidity risk for use of derivatives 196 85 8.12 Degree of Concern for Lack of Knowledge for use of 196 derivatives 86 8.13 Proportion invested in Various Equity Derivatives Instruments 198 87 8.14 Investors using Software for swap pricing 200 88 8.15 Investors using Software for Option pricing 200 89 8.16 Preference of investors for using software for Futures 200 pricing 90 8.17 Reasons for not using Derivatives by Equity Investors 202 91 8.18 Frequency distribution for various objectives of Derivatives 202 92 8.19 Calculation of Chi-square for testing relationship of 203 frequency with objective of using derivatives 93 8.20 Statistics for using derivatives with various objectives 203 184 184 185 185 xix
Sr. No. Table. 94 8.21 Statistics for Concerns for various risks in trading with derivatives by investors 95 8.22 Statistics for division of investment among various equity derivatives tools being used by investors 96 8.23 Cross tabulation for testing hypothesis 206 97 8.24 Chi square Calculation 206 98 8.25 Spearman s rho Calculations using SPSS 207 99 8.26 Percentages invested in Stock Derivatives 207 100 8.27 Measures of Association (Eta) 208 101 8.28 Cross tabulation (Using Software for Option pricing * Using software for Futures Pricing) 102 8.29 Chi-Square Tests using SPSS 208 103 8.30 Symmetric Measures ( Phi and Cramer s V) 209 104 8.31 Correlations between purposes of using derivatives 211 105 8.32 Correlations between timings of hedging 211 106 8.33 Cross tabulation for frequency of valuing derivatives 212 and using documented policy for derivatives 107 8.34 Chi-Square Tests using SPSS 213 108 8.35 Symmetric Measures (Phi and Cramer s V) 213 109 8.36 Ranks for various applications of Derivatives 213 110 8.37 Test Statistics using SPSS 214 111 8.38 Statistics for Hedging Horizon 214 112 8.39 Ranks for Hedging Horizon 214 113 8.40 Test Statistics for Chi-square using SPSS 214 114 8.41 Descriptive Statistics for altering time or size of 215 derivatives position with market wide changes 115 8.42 Ranks for responses to market wide factors change 215 116 8.43 Test Statistics for Friedman Test using SPSS 215 117 8.44 Statistics for One-Sample Kolmogorov-Smirnov Test 216 using SPSS 118 8.45 Descriptive statistics for Friedman Test :( K related 216 samples) using SPSS 119 8.46 Mean Ranks for not using Derivatives (using SPSS) 217 120 8.47 Test Statistics for Friedman Test using SPSS 217 121 9.1 Summary of Results of Hypotheses Testing 227 204 205 208 xx