CONTENTS -- Dedication -- Foreword by Edward C. Prescott -- Foreword by Harry M. Markowitz -- Foreword by James J. Heckman -- Foreword by George M. Constantinides -- About the Author -- PART I. FINANCIAL MARKETS AND FINANCIAL INSTRUMENTS: BASIC CONCEPTS AND STRATEGIES -- CHAPTER 1. FINANCIAL MARKETS, FINANCIAL INSTRUMENTS, AND FINANCIAL CRISIS -- Chapter Outline -- Introduction -- 1.1. Trading Characteristics of Commodity Contracts: The Case of Oil -- 1.1.1. Fixed prices -- 1.1.2. Floating prices -- 1.1.3. Exchange of futures for Physical (EFP) -- 1.2. Description of Markets and Instruments: The Case of the International PetroleumExchange -- 1.3. Characteristics of Crude Oils and Properties of Petroleum Products -- 1.3.1. Specific features of some oil contracts -- 1.3.2. Description of Markets and Trading Instruments: The BrentMarket -- 1.4. Description of Markets and Trading Instruments: The Case of Cocoa -- 1.4.1. How do the futures and physicals market work? -- 1.4.2. Arbitrage -- 1.4.3. How is the ICCO price for cocoa beans calculated? -- 1.4.4. Information on how prices are affected by changing economic factors? -- 1.4.5. Cocoa varieties -- 1.4.6. Commodities - Market participants: The case of cocoa, coffee, and white sugar -- 1.5. Trading Characteristics of Options: The Case of Equity Options -- 1.5.1. Options on equity indices -- 1.5.2. Options on index futures -- 1.5.3. Index options markets around the world -- 1.5.4. Stock Index Markets and the underlying indices in Europe -- 1.6. Trading Characteristics of Options: The Case of Options on Currency Forwards and Futures -- 1.7. Trading Characteristics of Options: The Case of Bonds and Bond Options Markets -- 1.7.1. The specific features of classic interest rate instruments -- 1.7.2. The specific features of mortgage-backed securities.

1.7.3. The specific features of interest rate futures, options, bond options, and swaps -- 1.8. Simple and Complex Financial Instruments -- 1.9. The Reasons of Financial Innovations -- 1.10. Derivatives Markets in the World: Stock Options, Index Options, Interest Rate and Commodity Options and Futures Markets -- 1.10.1. Global overview -- 1.10.2. The main indexes around the world: a historical perspective -- Summary -- Questions -- Exercises -- Appendix -- References -- CHAPTER 2. RISK MANAGEMENT, DERIVATIVES MARKETS AND TRADING STRATEGIES -- Chapter Outline -- Introduction -- 2.1. Introduction to Commodity Markets: The Case of Oil -- 2.1.1. Oil futures markets -- 2.1.2. Oil futures exchanges -- 2.1.3. Delivery procedures -- 2.1.4. The long-term oil market -- 2.2. Pricing Models -- 2.2.1. The pricing of forward and futures oil contracts -- 2.2.1.1. Relationship to physical market -- 2.2.1.2. Term structure of prices -- 2.2.2. Pricing swaps -- 2.2.3. The pricing of forward and futures commodity contracts: General principles -- 2.2.3.1. Forward prices and futures prices: Some definitions -- 2.2.3.2. Futures contracts on commodities -- 2.2.3.3. Futures contracts on a security with no income -- 2.2.3.4. Futures contracts on a security with a known income -- 2.2.3.5. Futures contracts on foreign currencies -- 2.2.3.6. Futures contracts on a security with a discrete income -- 2.2.3.7. Valuation of interest rate futures contracts -- 2.2.3.8. The pricing of future bond contracts -- 2.3. Trading Motives: Hedging, Speculation, and Arbitrage -- 2.3.1. Hedging using futures markets -- 2.3.1.1. Hedging: The case of cocoa -- 2.3.1.2. Hedging: The case of oil -- 2.3.1.3. Hedging: The case of petroleum products futures contracts -- 2.3.1.4. The use of futures contracts by petroleum products marketers, jobbers, consumers, and refiners.

2.3.2. Speculation using futures markets -- 2.3.3. Arbitrage and spreads in futures markets -- 2.4. The Main Bounds on Option Prices -- 2.4.1. Boundary conditions for call options -- 2.4.2. Boundary conditions for put options -- 2.4.3. Some relationships between call options -- 2.4.4. Some relationships between put options -- 2.4.5. Other properties -- 2.5. Simple Trading Strategies for Options and their Underlying Assets -- 2.5.1. Trading the underlying assets -- 2.5.2. Buying and selling calls -- 2.5.3. Buying and selling puts -- 2.6. Some Option Combinations -- 2.6.1. The straddle -- 2.6.2. The strangle -- 2.7. Option Spreads -- 2.7.1. Bull and bear spreads with call options -- 2.7.2. Bull and bear spreads with put options -- 2.7.3. Box spread -- 2.7.3.1. Definitions and examples -- 2.7.3.2. Trading a box spread -- 2.8. Butterfly Strategies -- 2.8.1. Butterfly spread with calls -- 2.8.2. Butterfly spread with puts -- 2.9. Condor Strategies -- 2.9.1. Condor strategy with calls -- 2.9.2. Condor strategy with puts -- 2.10. Ratio Spreads -- 2.11. Some Combinations of Options with Bonds and Stocks -- 2.11.1. Covered call: short a call and hold the underlying asset -- 2.11.2. Portfolio insurance -- 2.11.3. Mimicking portfolios and synthetic instruments -- 2.11.3.1. Mimicking the underlying asset -- 2.11.3.2. Synthetic underlying asset: Long call plus a short put and bonds -- 2.11.3.3. The synthetic put: put-call parity relationship -- 2.12. Conversions and Reversals -- 2.13. Case study: Selling Calls (Without Holding the Stocks/as an Alternative to Short Selling Stocks/the Idea of Selling Calls is Also an Alternative to Buying Puts) -- 2.13.1. Data and assumptions -- 2.13.1.1. Selling calls (without holding the stock) -- 2.13.1.2. Comparing the strategy of selling calls (with a short portfolio of stocks): the extreme case.

2.13.1.3. Selling calls (holding the stock) -- 2.13.2. Leverage in selling call options (without holding the stocks) -- 2.13.2.1. Selling Call options (without holding the stocks) -- 2.13.2.2. Leverage in selling Call options (without holding the stocks): The extreme case -- 2.13.2.3. Selling calls using leverage (and holding the stock) -- 2.13.3. Short sale of the stocks without options -- 2.14. Buying Calls on EMA -- 2.14.1. Buying a call as an alternative to buying the stock: (also as an alternative to short sell put options) -- 2.14.1.1. Data and assumptions -- 2.14.1.2. Pattern of risk and return -- 2.14.2. Compare buying calls (as an alternative to portfolio of stocks) -- 2.14.2.1. Risk return in options -- 2.14.3. Example by changing volatility to 20% -- 2.14.3.1. Data and assumptions: -- 2.14.3.2. Compare buying calls (as an alternative to portfolio of stocks.) -- 2.14.3.3. Leverage in buying call options (without selling the underlying) -- Summary -- Questions -- Case Study: Comparisons Between put and Call Options -- 1. Buying Puts and Selling Puts Naked -- 1.1. Buying puts -- 1.2. Selling puts -- 2. Buying and Selling Calls -- 2.1. Buying calls -- 2.2. Selling a call -- 3. Strategy of Buying a Put and Hedge and Selling a Put and Hedge -- 3.1. Strategy of selling put and hedge: sell delta units of the underlying -- 3.2. Strategy of buy put and hedge: buy delta units of the underlying -- 4. Strategy of Buy Call, Sell Put, and Buy Call, Sell Put and Hedge -- 5. Strategy of Buy Call, Sell Put: Equivalent to Holding the Underlying -- 6. Strategy of Buy Call, Sell Put and Hedge: Reduces Pro.ts and Reduces Losses -- References -- CHAPTER 3. TRADING OPTIONS AND THEIR UNDERLYING ASSET: RISK MANAGEMENT IN DISCRETE TIME -- Chapter Outline -- Introduction -- 3.1. Basic Strategies and Synthetic Positions -- 3.1.1. Options and synthetic positions.

3.1.2. Long or short the underlying asset -- 3.1.3. Long a call -- 3.1.4. Short call -- 3.1.5. Long a put -- 3.1.6. Short a put -- 3.2. Combined Strategies -- 3.2.1. Long a straddle -- 3.2.2. Short a straddle -- 3.2.3. Long a strangle -- 3.2.4. Short a strangle -- 3.2.5. Long a tunnel -- 3.2.6. Short a tunnel -- 3.2.7. Long a call bull spread -- 3.2.8. Long a put bull spread -- 3.2.9. Long a call bear spread -- 3.2.10. Selling a put bear spread -- 3.2.11. Long a butterfly -- 3.2.12. Short a butterfly -- 3.2.13. Long a condor -- 3.2.14. Short a condor -- 3.3. How Traders Use Option Pricing Models: Parameter Estimation -- 3.3.1. Estimation of model parameters -- 3.3.1.1. Historical volatility -- 3.3.1.2. Implied volatilities and option pricing models -- 3.3.2. Trading and Greek letters -- 3.4. Summary -- Case Studies -- Exercises -- Questions -- References -- PART II. PRICING DERIVATIVES AND THEIR UNDERLYING ASSETS IN A DISCRETE-TIME SETTING -- CHAPTER 4. OPTION PRICING: THE DISCRETETIME APPROACH FOR STOCK OPTIONS -- Chapter Outline -- Introduction -- 4.1. The CRRModel for Equity Options -- 4.1.1. The mono-periodic model -- 4.1.2. The multiperiodic model -- 4.1.3. Applications and examples -- 4.1.3.1. Applications of the CRR model within two periods -- 4.1.3.2. Other applications of the binomial model of CRR for two periods -- 4.1.3.3. Applications of the binomial model of CRR for three periods -- 4.1.3.4. Examples with five periods -- 4.2. The Binomial Model and the Distributions to the Underlying Assets -- 4.2.1. The Put-Call parity in the presence of several cash-distributions -- 4.2.2. Early exercise of American stock options -- 4.2.3. The model -- 4.2.4. Simulations for a small number of periods -- 4.2.5. Simulations in the presence of two dividend dates -- 4.2.6. Simulations for different periods and several dividends: The general case -- Summary.

Questions.