Protective Put Strategy Covered Call Strategy Hedging Strategy for Portfolio Covering Long Position with Index

x Futures: Strategy of No Profit No Loss Protecting Short Position with Index Futures Delta Hedging - Hedging by Using Hedge Ratio Static Delta Hedging Dynamic Delta Hedging Solved Example Key Terms Chapter Highlights Chapter End Questions Multiple Choice Questions Theoretical (Descriptive) Questions ' Numerical (Practical) Questions Answers to Chapter End Questions

72 73 74 74 75 75 77 77 77 84 84 85 85 86 86 87

CHAPTER FIVE: STRATEGIES USING DERIVATIVES: COMBINATION AND SPREAD

Stock Market Trends Strategies in Different Market Trends Strategies Using Options Transactions Combination Spread Strategy for Sideways Movement of Market Strips - Strategy for More Probability of Downtrend Compared to Uptrend Straps - Strategy for More Probability of Uptrend Compared to Downtrend The Win-Win Strategy - Straddle and Strangle Strategy When Market is Likely to be Range Bound Butterfly Spread - Low Cost Limited Gain Strategy for Range Bound Movement Condor Spread - Low Cost Limited Gain Strategy for Range Bound Movement Collars - Low Cost Assured Limited Gain Strategy in Range Bound Market Strategy of Making Gain from Time Gap in Market Movement - Calendar Spread A No Profit No Loss Strategy - Tunnel (Zero Sum Game) Solved Examples Key Terms Chapter Highlights Chapter End Questions Multiple Choice Questions Theoretical (Descriptive) Questions Numerical (Practical) Questions Answers to Chapter End Questions

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88 90 91 91 91 91 91 93 94 98 98 101 104 106 108 109 111 111 112 112 113 113 114

CHAPTER SIX: VALUATION OF OPTION

Options Price (Premium) Calculation Binomial Model of calculating Option Price (one step and two step binomial) Justification for Theoretical Price of Option (zero cashflow portfolio) Black Scholes Model Solved Examples Key Terms Chapter Highlights Chapter End Questions Multiple Choice Questions . Theory (Descriptive) Questions

115
115 115 126 128 130 132 132 133 133 134

 Numerical (Practical) Questions Answers to Chapter End Questions

134 135

CHAPTER SEVEN: VALUATION OF FUTURES

The Cost of Carry Model The Arbitrage Process Price of Futures Contract When Dividend is Expected till the Maturity Time Cost of Futures Contract When Transaction Cost Exists Time Decay and Price of Futures Value Date and Price of Futures Contract Solved Examples Key Terms Chapter Highlights Chapter End Questions Multiple Choice Questions Theory (Descriptive) Questions Numerical (Practical) Questions Answers to Chapter End Questions

136
136 138 141 143 144 145 145 148 148 149 149 150 150 151

CHAPTER EIGHT: THE GREEKS OF OPTION

The Greeks of Option and Systematic Risk Factors Covered Position vs. Naked Position Portfolio of Derivatives and Mechanism of Stop Loss Delta Calculation of Delta Delta Hedging Static Delta Hedging Dynamic Delta Hedging Theta 160 Gamma 163 Vega and Rho Solved Examples Key Terms Chapter Highlights Chapter End Questions Multiple Choice Questions Theoretical (Descriptive) Questions Numerical Questions Answers to Chapter End Questions

153
154 154 154 157 157 159 159 159

163 163 168 168 169 169 170 170 171

CHAPTER NINE: INTEREST RATE DERIVATIVES: AN OVERVIEW

Term Structure of Interest Rate and Yield Theories of Term-Structure of Interest Rate Loan and Deposit Portfolio Interest Rate Derivatives Caps - Interest Rate Caps Compound Option Floors - Interest Rate Floors Forward Rate Agreement (FRA) - Interest Rate Forward Zero Coupon Derivatives Multi-period Option

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172 176 177 177 178 180 182 184

Caption SWAP Swaption Key Terms Chapter Highlights Chapter End Questions Multiple Choice Questions Descriptive (Theory) Questions Numerical (Practical) Questions Answers to Chapter End Questions

186 186 189 193 193 194 194 195 195 196

CHAPTER TEN: CURRENCY DERIVATIVES

Currency Market - Foreign Exchange Market Foreign Exchange Market Foreign Exchange Rate Foreign Exchange Terminology OTC Market for Currency and Currency Derivatives in India Currency Derivatives (Futures) Market in India Exchange Traded Currency Futures Pricing Currency Futures - Cost of Carry Model Traders in Currency Futures Market Hedger Speculator Arbitrageur Solved Examples Hedging Strategies Using Currency Futures Hedging Strategies Using Currency Option Key Terms Chapter Highlights Chapter End Questions Multiple Choice Questions Theory (Descriptive) Questions Numerical (Practical) Questions Answers to Chapter End Questions

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203 203 204 205 206 206 207 207 209 209 210 210 211 211 213 217 219 219 219 221 221 222

CHAPTER ELEVEN: COMMODITY DERIVATIVES

OTC Traded Commodity Derivatives Exchange Traded Commodity Derivatives Genesis of Commodity Derivatives Hedging Speculation Arbitrage Commodity Derivatives Trading in India National Commodity & Derivatives Exchangeof India Ltd. (NCDEX) The Membership The Contracts The Commodities Trading Mechanism The Margin System Margin System in Commodity Derivatives Clearing Settlement Dhaanya - Agricultural Commodity Index of NCDEX Pricing Commodity Derivatives

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224 224 224 224 224 225 225 226 226 226 227 228 228 228 229 229 230 230

 Pricing Commodity Futures - The Cost of Carry Model Pricing Commodity Option - Binomial Model Solved Examples Key Terms Chapter Highlights Chapter End Questions Multiple Choice Questions Theory (Descriptive) Questions Numerical (Practical) Questions Answers to Chapter End Questions

231 233 237 239 239 240 240 240 241 242

CHAPTER TWELVE: PARADIGM SHIFT IN DERIVATIVES MARKET - WEATHER, ENERGY AND CREDIT DERIVATIVES
Weather Derivatives Weather Measurement as Underlying Asset Structure of Weather Derivatives Conventional Option Exotic Option Futures on Weather - Weather Futures Forward on Weather - Weather Forward Carbon Credit - Weather Derivatives Kyoto Protocol and Origin of Carbon Credit Trading Emission Trading an Underlying for Weather Derivatives Carbon Credit as Underlying for Derivatives Energy Derivatives Energy Option Energy Futures Energy Forward Credit Derivatives Solved Examples Key Terms Chapter Highlights Chapter End Questions Multiple Choice Questions Theory (Descriptive) Questions Numerical (Practical) Questions Answers to Chapter End Questions Glossary Question Bank Answer to Question Bank Appendix - Tables Index

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243 244 244 245 245 246 246 247 247 247 248 248 248 249 249 250 251 253 253 254 254 255 255 256 257 265 271 213 279