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A short course of lectures
«Derivative Markets»

BibliographyForward marketsEquity / share warrants (retail options)Coupon swap: transforming a liabilityExample of equity / share swapConvertible bondsForward-forwardsOrganisational structure of futures marketsCoupon swap: transforming an assetExampleOptions on derivatives: futuresAn exampleHedging basics and jargonThe modelDefinitionOther futuresOptions on equity / share indicesForward interest rate contracts Hedging with currency futuresEquity / share swaps Allocation of resourcesComparative advantage currency swapForwards in the foreign exchange market Expiry dateOptions on foreign exchange (wholesale)ArbitrageursParticipants in the futures marketStandardised contract between two partiesForward market: definitionDefinitionDelta hedgingHedging with share index futuresForwards in the share / equity marketMarket efficiencyCall option: buy (long call) at expiryBasisHedging using the 3-month JIBAR futureAn exampleSecurities that underlie reposMotivation for reposDerivative markets: forwardsVariations on the themeOrganisational structure of swap marketInterest ratesMarket priceBuyer and sellerOther modelsRisk free rateSpot market: definitionEconomic significance of futures marketsBlack-Scholes modelCarbon credit derivativesCallable and puttable bonds (bonds with embedded options)SecuritisationPut option: buy (long put) at expiryBond warrants (retail options)Options on foreign exchange (retail: warrants)Learning outcomesThe basics of options Options on specific bondsShort-term interest rate futuresRedeemable preference sharesLearning outcomesBasis tradingEquity / share index futuresLearning outcomesCommodity swapsEquity / share warrants (call options)Listed swapsPayoff profiles BibliographyFinancial instrumentsFloorsBinomial modelCapsBibliographyOrganisational structure of option marketsCash settlement versus physical settlementForeign exchange swapsNew product developmentDebt marketBond warrants (call options)Options on debt market instrumentsEnergy derivativesCompetitionStandardised quantityOptions on specific money market instrumentsIndividual equity / share futuresStrangleExample of black-scholes option pricingOption specificationsIntrinsic valueFutures on other derivativesOpen interestDefinitionsOutright forwards Spread tradingOptions on specific equitiesListed repurchase agreementsCurrency swaps Clearing houseMathematics of the repurchase agreement marketSimple currency swapInstitutions involved in the repo marketFutures market contractsCredit derivatives BibliographyIntrinsic value and time valueHedgersPublic welfareTime optionsFreight (or shipping) derivativesOptions on commoditiesExample twoIndividual bond futuresCurrency futuresFunctions/uses of the forward foreign exchange marketOptions on derivatives: swapsShare / equity marketExampleThe derivative marketsSpot (current) price of underlying asset and exercise priceLearning outcomesStandardised qualityExotic optionsFair value pricing of specific futuresSpot financial markets Types of repurchase agreementsLearning outcomesThe financial system in briefExample oneExample of credit default swapAssetClosing remarksForwards in the debt marketsCoupon swap: comparative advantageUltimate lenders and borrowersRepurchase agreements Risk management by a futures exchangeBibliographyDerivative markets: optionsDescriptionWeather derivativesPriceTime to expirationLearning outcomesSpeculatorsExample: OTC marketTypes of futures contractsCaps and floors Repos and the banking sectorCapital formationStraddlePricing of futures (fair value versus trading price)Futures trading price versus spot pricePricingVariations on the themeFinancial intermediariesThe GreeksCommodity futuresPrice discoveryDerivative markets: swapsForward rate agreements Option strategiesOutputOptions on bond indicesTerminologyForwards on derivativesOptions on foreign exchange Motivation for interest rate swapsMargining and marking to marketHedging with futuresForeign exchange marketOrganisational structure of forward marketsOther derivativesVolatilityVariations on the themeMarket liquidityOptions on equity / share market instrumentsTime valueCall option: sell (write) (short call) at expiryOption valuation/pricingDerivative markets: futuresDividendsPut option: sell (write) (short put) at expiryPayoff with futures (risk profile)Interest rate swapsBibliographyInvestorsDeliveryFutures definedContextPrimary and secondary marketsForwards in the commodities market
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