David Goldenberg - Derivatives Markets

DERIVATIVES MARKETS

Derivatives Markets is a thorough and well-presented textbook that offers readers an introduction to derivatives instruments, with a gentle introduction to mathematical finance, and provides a working knowledge of derivatives to a wide spectrum of market participants.

This new and accessible book provides a lucid, down-to-earth, theoretically rigorous but applied introduction to derivatives. Many insights have been discovered since the seminal work in the 1970s and the text provides a bridge to these insights, and incorporates them. It develops the skill sets needed to both understand and intelligently use derivatives. These skill sets are developed, in part, by using concept checks that test the readers understanding of the material as it is presented.

The text discusses some fairly sophisticated topics not usually discussed in introductory derivatives texts; for example, real-world electronic market trading platforms such as CMEs Globex. On the theory side, there is a much-needed and detailed discussion of what risk-neutral valuation really means in the context of the dynamics of the hedge portfolio.

The text is a balanced, logical presentation of the major derivatives classes including forward and futures contracts in . The material is unified by providing a modern conceptual framework and exploiting the no-arbitrage relationships between the different derivatives classes.

Some of the elements explained in detail in the text are:

Hedging, Basis Risk, Spreading, and Spread Basis Risk.

Financial Futures Contracts, their Underlying Instruments, Hedging and Speculating.

OTC Markets and Swaps.

Option Strategies: Hedging and Speculating.

Risk-Neutral Valuation and the Binomial Option Pricing Model.

Equivalent Martingale Measures: A Modern Approach to Option Pricing.

Option Pricing in Continuous Time: From Bachelier to Black-Scholes and Beyond.

Professor Goldenbergs clear and concise explanations, running concept checks, and end-of-chapter problems guide the reader through the derivatives markets, developing the readers skill sets needed in order to incorporate and manage derivatives in a corporate or risk management setting. This textbook is for students, both undergraduate and postgraduate, as well as for those with an interest in how and why these markets work and thrive.

David H. Goldenberg is an independent researcher in New York, USA.

DERIVATIVES MARKETS

David H. Goldenberg

First published 2016
by Routledge

2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN

by Routledge

711 Third Avenue, New York, NY 10017

Routledge is an imprint of the Taylor & Francis Group, an informa business

2016 David H. Goldenberg

The right of David H. Goldenberg to be identified as author of this work has been asserted by him in accordance with the Copyright, Designs and Patent Act 1988.

All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.

Every effort has been made to contact copyright holders for their permission to reprint material in this book. The publishers would be grateful to hear from any copyright holder who is not here acknowledged and will undertake to rectify any errors or omissions in future editions of this book.

Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe.

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging in Publication Data

Goldenberg, David Harold, 1949

Derivatives markets / David H. Goldenberg.

1. Derivative securities. I. Title.

HG6024.A3G645 2015

332.6457dc23

2015000492

ISBN: 978-0-415-59901-6 (hbk)
ISBN: 978-1-315-689241 (ebk)

Typeset in Bembo and Univers

by Florence Production Ltd, Stoodleigh, Devon, UK

Additional materials are available on the companion website at www.routledge.com/products/9780415599016

CONTENTS

PART 1
Forward Contracts and Futures Contracts

PART 2
Trading Structures Based on Forward Contracts

PART 3
Options

DETAILED CONTENTS

PART 1
Forward Contracts and Futures Contracts

PART 2
Trading Structures Based on Forward Contracts

PART 3
Options

Derivatives Markets offers readers a modern introduction to derivatives instruments and it provides the tools needed in order to develop a working knowledge of derivatives. The idea of this text is to present a down-to-earth, yet theoretically rigorous and applied introduction to derivatives. It also presents a gentle introduction to mathematical finance, which is needed in order to understand modern (post-1970s) developments.

In order to understand the approach of this text, a brief discussion of the history of derivatives is useful. Many insights about derivatives have been discovered since the seminal work in the 1970s, and the text provides a bridge to and incorporates those insights. It develops the skill sets needed both to understand and intelligently use derivatives. These skill sets are developed, in part, by using concept checks that test the readers understanding of the material as it is presented.

The text discusses some fairly sophisticated topics, not usually discussed in introductory derivatives texts; for example, real-world electronic market trading platforms such as CMEs Globex, an understanding of which is needed in order to understand other worldwide electronic trading systems. On the theory side, a detailed discussion of what risk-neutral valuation really means in the context of the dynamics of the hedge portfolio is provided for the simplest option pricing model.

A balanced, logical presentation of the major derivatives classes is given. This includes: Forward and futures contracts in . The material is unified by providing a modern conceptual framework and exploiting the no-arbitrage relationships between the different derivatives classes.

The goals of the text are to guide the reader through the derivatives markets; to develop the readers skill sets needed in order to incorporate and manage derivatives in a corporate or risk management setting; and to provide a solid foundation for further study. This textbook is for students, both undergraduate and graduate, as well as for those with an interest in how and why these markets work and thrive.

TO THE STUDENT

Concept checks and end-of-chapter exercises are an integral part of this text. I suggest that you do the concept checks as you go along. Selected solutions have been presented at the end of the chapters. Solutions to the other concept checks can be attempted through discussion with your colleagues, and/or with the help of the instructor.

Another feature of the text is its emphasis on the quote mechanism. Frequent references to the Internet are made so that you can see the world of data that underlies derivatives markets. Most of the websites are fairly stable and therefore should be valid when you read this text. Keep in mind, though, that the Internet changes rapidly. These websites will be updated on the textbooks website (see below).