Derivatives Markets: Pearson New International Edition

Series
Pearson
Author
Robert L. McDonald  
Publisher
Pearson
Cover
Softcover
Edition
3
Language
English
Total pages
904
Pub.-date
July 2013
ISBN13
9781292021256
ISBN
129202125X
Related Titles


Product detail

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9781292021256
Derivatives Markets: Pearson New International Edition
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Description

For courses in options, futures, and derivatives.

To be financially literate in today’s market, business students must have a solid understanding of derivatives concepts and instruments and the uses of those instruments in corporations.  The Third Edition has an accessible mathematical presentation, and more importantly, helps students gain intuition by linking theories and concepts together with an engaging narrative that emphasizes the core economic principles underlying the pricing and uses of derivatives.


The third edition has been updated to include new data and examples throughout.

Features

For courses in options, futures, and derivatives.

To be financially literate in today’s market, business students must have a solid understanding of derivatives concepts and instruments and the uses of those instruments in corporations.  The Third Edition has an accessible mathematical presentation, and more importantly, helps students gain intuition by linking theories and concepts together with an engaging narrative that emphasizes the core economic principles underlying the pricing and uses of derivatives.



  • Concrete Applications complement the pricing discussions. Chapters on financial engineering, corporate applications, and real options all address practical problems.
  • An emphasis on core economic principles helps students develop a deeper, more intuitive understanding of derivatives markets and instruments.  For example, the idea that options are a form of insurance is presented at the outset.
  • Integrated treatment of forward contracts and options. The initial chapters cover both forwards and options, illustrating how they are used and incorporating an extended example of hedging by gold-mining and gold-buying firms. This approach helps to unify option pricing; in particular, it makes it clear that the formula for pricing stock options is the same as the formula for pricing currency options.
  • Formulas are motivated, placed in context, and explained intuitively. The goal is to help students build intuition about pricing models through their applications so they can know when a price does not make sense and why. The author provides the student with a framework for thinking about commonality among various derivative instruments.
  • The Theme of Applied Computation is emphasized.  Using the pre-programmed Excel spreadsheets that are packaged with the book, students can become more comfortable and fluent with pricing models and their use in spreadsheets, even before they understand the precise mathematical underpinnings.
    NEW FEATURES

    The third edition has been updated to include new data and examples throughout.

     

    Boxed material has been updated to include current topics including:

    James Carville on derivatives; prediction markets; Bernie Madoff; hedging and Southwest Airlines; Forbidden Futures; tanker-based arbitrage; LIBOR during the financial crisis; repo during the financial crisis; Islamic finance; the Bank Capital debate; Google and compensation options; Warren Buffet’s written put options; Hedging the PBGC’s liabilities; black swans; standardizing CDS; Government credit guarantees; structured finance and the financial crisis; Abacus and Magnetar; and more.

     

    New chapter 22. This new chapter emphasizes the economic underpinnings of option pricing and explains more general variations on risk-neutral pricing. A discussion of Warren Buffett’s criticism of the Black-Scholes put pricing formula is included, as well as coverage of portfolio theory, martingale pricing and implications.

     

    An extensive revision of the fixed income chapter including discussion of the taxonomy of fixed income models, the Hull-White model, and the LIBOR market model.

     

    Updated references to the financial crisis and subsequent regulatory changes throughout.

     

    Increased coverage of logistics of trading, including clearinghouses, and measures of market size including the OTC market.

     

    Updated discussion on the calculation and interpretation of hedge ratios.

     

    Revamped introductory discussion of commodities, including the differences between commodities and financial assets, and commodities terminology.

     

    Expanded discussion of hedging jet fuel with other oil-related products.

     

    Discussion of synthetic commodities and commodity indices.

     

    Expanded discussion of implied volatility, including risk reversals.

     

    Revamped and tightened discussion of structures.

     

    New discussion of reverse convertible bonds.

     

    New discussion of tranching.

     

    Expanded discussion of efficient Monte Carlo valuation.

     

    New discussion of correlated processes.

     

    Revised discussion of quanto pricing.

     

    Enhanced discussion of pricing models and implied volatility.

     

    Updated discussion of the credit default swaps during the financial crisis.

     

    New discussion of CDO-squareds.

  • New to this Edition

     

    The third edition has been updated to include new data and examples throughout.

     

    Boxed material has been updated to include current topics including:

    James Carville on derivatives; prediction markets; Bernie Madoff; hedging and Southwest Airlines; Forbidden Futures; tanker-based arbitrage; LIBOR during the financial crisis; repo during the financial crisis; Islamic finance; the Bank Capital debate; Google and compensation options; Warren Buffet’s written put options; Hedging the PBGC’s liabilities; black swans; standardizing CDS; Government credit guarantees; structured finance and the financial crisis; Abacus and Magnetar; and more.

     

    New chapter 22. This new chapter emphasizes the economic underpinnings of option pricing and explains more general variations on risk-neutral pricing. A discussion of Warren Buffett’s criticism of the Black-Scholes put pricing formula is included, as well as coverage of portfolio theory, martingale pricing and implications.

     

    An extensive revision of the fixed income chapter including discussion of the taxonomy of fixed income models, the Hull-White model, and the LIBOR market model.

     

    Updated references to the financial crisis and subsequent regulatory changes throughout.

     

    Increased coverage of logistics of trading, including clearinghouses, and measures of market size including the OTC market.

     

    Updated discussion on the calculation and interpretation of hedge ratios.

     

    Revamped introductory discussion of commodities, including the differences between commodities and financial assets, and commodities terminology.

     

    Expanded discussion of hedging jet fuel with other oil-related products.

     

    Discussion of synthetic commodities and commodity indices.

     

    Expanded discussion of implied volatility, including risk reversals.

     

    Revamped and tightened discussion of structures.

     

    New discussion of reverse convertible bonds.

     

    New discussion of tranching.

     

    Expanded discussion of efficient Monte Carlo valuation.

     

    New discussion of correlated processes.

     

    Revised discussion of quanto pricing.

     

    Enhanced discussion of pricing models and implied volatility.

     

    Updated discussion of the credit default swaps during the financial crisis.

     

    New discussion of CDO-squareds.

    Table of Contents

      Preface
      Chapter 1 Introduction to Derivatives
      PART ONE   INSURANCE, HEDGING, AND SIMPLE STRATEGIES
      Chapter 2 An Introduction to Forwards and Options
      Chapter 3 Insurance, Collars, and Other Strategies
      Chapter 4 Introduction to Risk Management
      PART TWO   FORWARDS, FUTURES, AND SWAPS
      Chapter 5 Financial Forwards and Futures
      Chapter 6 Commodity Forwards and Futures
      Chapter 7 Interest Rate Forwards and Futures
      Chapter 8 Swaps
      PART THREE   OPTIONS
      Chapter 9 Parity and Other Option Relationships
      Chapter 10   Binomial Option Pricing: Basic Concepts
      Chapter 11   Binomial Option Pricing: Selected Topics
      Chapter 12   The Black-Scholes Formula
      Chapter 13   Market-Making and Delta-Hedging
      Chapter 14   Exotic Options: I
      PART FOUR   FINANCIAL ENGINEERING AND APPLICATIONS
      Chapter 15   Financial Engineering and Security Design
      Chapter 16   Corporate Applications
      Chapter 17   Real Options
      PART FIVE   ADVANCED PRICING THEORY AND APPLICATIONS
      Chapter 18   The Lognormal Distribution
      Chapter 19   Monte Carlo Valuation
      Chapter 20   Brownian Motion and Ito's Lemma
      Chapter 21   The Black-Scholes-Merton Equation
      Chapter 22   Risk-Neutral and Martingale Pricing
      Chapter 23   Exotic Options: II
      Chapter 24   Volatility
      Chapter 25   Interest Rate and Bond Derivatives
      Chapter 26   Value at Risk
      Chapter 27   Credit Risk

      Appendixes
      App. A   The Greek Alphabet
      App. B   Continuous Compounding
      App. C   Jensen's Inequality
      App. D   An Introduction to Visual Basic for Applications
      Glossary
      References
      Index