By Michael Durbin
<h4>EVERYTHING you must find out about DERIVATIVES</h4>
All approximately Derivatives, moment version, provides the advanced topic of economic derivatives with a readability and coherence you won’t locate in different books. utilizing real-world examples and straightforward language, it lucidly illustrates what derivatives are and why they're so robust. This moment variation of All approximately Derivatives offers a rock-solid origin on: * the commonest contracts to be had to you in today's industry * Key thoughts akin to rate of hold, cost, valuation, and payoff * confirmed tools for setting up reasonable worth * How leverage can paintings for you--and opposed to you * some of the by-product contracts traded this day, together with forwards, futures, swaps, and concepts * Pricing tools and arithmetic for deciding on reasonable price * Hedging ideas for dealing with and decreasing kinds of danger
INCLUDES A BRAND-NEW bankruptcy at the function DERIVATIVES performed within the 2008 monetary MELTDOWN
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Additional info for All About Derivatives (2nd Edition) (All About Series)
DAILY SETTLEMENT At the end of every trading day, all outstanding futures positions are valued or marked to market by the exchange. “Marking to market” is just another way of saying “calculating current value” based on a new futures price, the number of contracts in the position, and whether they are long or short. These “MTMs” or “marks” determine each party’s payoff. Parties with a positive payoff (gain) get some money that same day. Those with a negative payoff (loss) get a bill. Losing parties don’t always have to pay their entire bill.
S. S. Treasury bond with face value at maturity of $100,000 All About Derivatives 26 Q Q Minneapolis Grain Exchange (MGEX) Contract: Hard red spring wheat futures Underlier: 5,000 bushels of No. 5 percent protein Hong Kong Exchange (HKEx) Contract: Hang Seng Index futures Underlier: Weighted average stock price of 33 stocks traded on the Stock Exchange of Hong Kong As with any securities exchange, you don’t just call a futures exchange directly and place an order. Rather, an exchange has clearing members entitled to actually execute trades.
So instead of swapping a ﬁxed-rate payment for a ﬂoating-rate payment, we swap a payment based on one rate index for that on another index. Say we borrow money from Citibank at its prime rate but would prefer to pay at LIBOR. We can execute a pay-LIBOR, receive-prime swap with the same notional and payment schedule as our loan. Then every period, we effectively pay LIBOR on the swap and use the proceeds from the swap to pay our loan. The term basis comes from the idea of basis risk. Basis risk here refers to the idea that two price streams—think two rate indexes, say prime and LIBOR—may or may not move in unison.
All About Derivatives (2nd Edition) (All About Series) by Michael Durbin