All about Derivatives: The Easy Way to Get Started
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Everything you need to know about derivatives—what they are, how they work, and how they can enhance profits and control market riskFinancial derivatives, from standard put and call options to more complex strategies and combinations, are among the most versatile, powerful, and valuable tools available to investors. All About Derivatives introduces you to the many different types of derivatives, providing simple explanations and easy-to-follow methods for using each.This straightforward, up-to-date examination covers all aspects of derivative contracts, explains techniques for pricing and trading them, shows how to use each to hedge risk or increase profits, and more. Avoiding complicated formulas and theories to focus on the information you need, it shows anyone—from individual investors to corporate risk managers—how derivatives work, how they fit into the larger world of investing, and why they can be the ideal trading vehicle for improving the financial performance of yourself or your organization.Whatever your level of investing expertise, from beginner to veteran, All About Derivatives will give you the information you need to know: Contracts—forwards, futures, swaps, options, and credit derivatives Terms—volatility, arbitrage, the greeks, and many more Key mechanics—storage, settlement, valuation, and payoff Pricing methods and mathematics for determining fair value Hedging strategies for managing different types of risk Leverage—why it can be your best friend or worst enemy And more Michael Durbin is a veteran business systems analyst and project manager specializing in financial derivative trading systems. His projects include high-performance systems for Bank of America, Bank One, and a leading global hedge fund.
AcknowledgementsixConventionsxiIntroductionxiiiChapter 1Derivatives in a Nutshell1Chapter 2The Forward Contract15Chapter 3The Futures Contract25Chapter 4The Swap Contract31Chapter 5The Option Contract39Chapter 6Credit Contracts61Chapter 7Using Derivatives to Manage Risk73Chapter 8Pricing Forwards and Futures87Chapter 9Pricing Swaps111Chapter 10Pricing Options125Chapter 11Hedging a Derivatives Position173Postscript: Good Things and Bad Things193Appendix AAll About Interest199Appendix BSwap Conventions217Appendix CAdvanced Binomial Option Pricing229Bibliography239Index241
