Derivatives and Risk Management / Janakiramanan, Sundaram.

Format:

Book

Author/Creator:

Janakiramanan, Sundaram, author.

Language:

English

Subjects (All):

Derivative securities--India.

Derivative securities.

Risk management--India.

Risk management.

Physical Description:

1 online resource (536 pages)

Edition:

1st edition

Place of Publication:

Pearson India, 2011.

System Details:

text file

Summary:

Derivatives and Risk Management provides readers with a thorough knowledge of the functions of derivatives and the many risks associated with their use. Besides discussing the particular derivative instruments available in India, the book concentrates on four types of derivatives—forward contracts, futures contracts, swap contracts and options contracts. It is targeted at postgraduate students of commerce, finance and management, and blends theory, problems and cases to introduce the basic concepts in a lucid, engaging manner. It will also be of use to fund managers, risk-management specialists, treasury managers, students taking the CFA examinations and anyone who wants to understand the derivatives market in India.

Contents:

Cover

About the Author

Contents

Preface

Chapter 1: Introduction

Learning Objectives

1.1 What Are Derivatives?

1.2 Derivatives Markets

1.3 Forward Contracts

1.4 Futures Contracts

1.5 Options Contracts

1.6 Swap Contracts

1.7 Uses of Derivatives

1.8 What is Risk?

1.8.1 Operating or Business Risk

1.8.2 Event Risk

1.8.3 Price Risk

1.9 Risk Management

1.10 A Brief History of Risk Management

1.11 Implications for Hedging

1.12 Upside and Downside Risks

1.13 Commodity Price Risk

1.13.1 Volatility

1.13.2 Liquidity

1.14 Interest Rate Risk

1.14.1 Deregulation and Interest Rate as a Tool for Developing Monetary Policy

1.14.2 Floating Rate Loans

1.14.3 Interest Rates and Inflation

1.14.4 Components of Interest Rate Risk

1.15 Currency Risk

1.16 Approaches to Risk Management

1.17 Risks in Derivatives Trading

Chapter Summary

Review Questions

Problems

Case Study

Chapter 2: The Derivatives Market in India

2.1 The International Derivatives Market

2.2 Derivatives in India

2.3 Operations of Derivatives Exchanges

2.4 The Trading System

2.4.1 Types of Orders

2.4.2 Order-matching Rules

2.4.3 Order Conditions

2.5 The Clearing and Settlement System

2.5.1 The Members of the Clearing House

2.5.2 The Clearing Mechanism

2.5.3 Margin and Margin Accounts

2.5.4 The Settlement System

2.5.5 Risk Management

2.6 The Trading Process

2.7 Online Trading

2.8 The OTC Derivatives Market

2.9 The Regulation of Derivatives Trading in India

Exhibit 2 .1: List of Contracts Available in Indian Exchanges

Chapter 3: Interest Rates

3.1 What Is Interest rate?

3.2 Simple and Compound Interest Rates

3.3 Future Value and Present Value.

3.3.1 Present Value

3.4 Effective Interest Rates for Different Compounding Periods

3.4.1 Present Value for Different Compounding Periods

3.4.2 Relation Between Rate Under Continuous Compounding and Rate Under Compounding for m Periods

3.5 Risk-free Interest Rate

3.5.1 Interest Rate Risk

3.5.2 Default Risk

3.5.3 Call Risk

3.5.4 Liquidity Risk

3.6 Risk-free Rates

3.6.1 Government Security

3.6.2 Interbank Rates

3.6.3 Repurchase Agreement Rate (Repo Rate)

3.7 Interest Rate Risk and Forward Rates

3.8 Term Structure of Interest Rates

3.8.1 Implied Forward Rates

3.8.2 Why Implied Forward Rates?

3.8.3 Calculating Implied Forward Rate from Coupon Bonds

Review questions

Chapter 4: Forward Contracts

4.1 What Is a Forward Contract?

4.2 The Purpose of Forward Contracts

4.3 Advantages of Forward Contracts

4.4 Problems with Forward Contracts

4.4.1 Parties with Matching Needs

4.4.2 Non-performance

4.4.3 Non-transferability

4.5 The Pricing of Commodity Forward Contracts

4.6 Currency Forward Contracts

4.6.1 The Operation of the Currency Forward Market

4.6.2 Characteristics of Currency Forward Contracts

4.6.3 The Pricing of Currency Forward Contracts

4.6.4 Covered Interest Arbitrage

4.6.5 Rolling Over Currency Forward Contracts

4.7 Interest Rate Forwards

4.7.1 Mechanics of FRAs

4.7.2 The FRA Payment Amount

4.7.3 An Alternative View of an FRA and the Settlement Amount

4.7.4 Uses of FRAs

4.8 Non-deliverable Forwards

Chapter 5: Futures Contracts

5.1 What Is a Futures Contract?

5.2 Futures Contracts Versus Forward Contracts

5.2.1 Negotiability

5.2.2 Standardization

5.2.3 Liquidity.

5.2.4 Performance

5.2.5 Cash Needs

5.2.6 Ability to Reduce Losses

5.3 Participants in Futures Markets

5.3.1 Hedgers

5.3.2 Speculators

5.3.3 Arbitragers

5.4 Specifications of Futures Contracts

5.4.1 The Underlying Asset

5.4.2 The Contract Size

5.4.3 Delivery Arrangements: Location

5.4.4 Delivery Arrangements: Alternative Grade

5.4.5 Delivery Month

5.4.6 Delivery Notification

5.4.7 Daily Price Movement Limits

5.4.8 Position Limits

5.5 Closing out the Positions

5.6 Arbitrage Between the Futures Market and the Spot Market

5.7 Performance of Contracts

5.8 The Clearinghouse

5.9 Margins and Marking-to-Market

5.10 Price Quotes

5.11 Settlement Price

5.12 Open Interest

5.13 The Pattern of Prices

5.14 The Relation Between Futures Price and Spot Price

5.15 Delivery

5.16 Cash Settlement

5.17 Types of Orders

5.17.1 Market Orders

5.17.2 Limit Orders

5.17.3 Stop Orders

5.17.4 Stop-Limit Orders

5.17.5 Other Orders

5.18 How to Trade in Futures?

5.19 Pricing of Futures Contracts

Chapter 6: Hedging Strategies Using Futures

6.1 The Principles of Hedging

6.2 Long Hedges

6.3 Short Hedges

6.4 Should Hedging Be Undertaken?

6.5 Risks in Hedging

6.6 Basis Risk

6.7 Factors Affecting Basis Risk

6.8 The Hedge Ratio

6.9 Static and Dynamic Hedging

6.10 Strip Hedges and Stack Rolling Hedges

6.11 Losses from Hedging Using Futures

Chapter 7: Single Stock Futures and Stock Index Futures

7.1 Single Stock Futures

7.2 What is a Stock Futures Contract?

7.3 Hedging Using Single Stock Futures

7.3.1 What Type of Hedging Is Appropriate?.

7.3.2 Which Instrument to Use?

7.3.3 How Many Contracts to Use?

7.3.4 When to Take an Open Position?

7.3.5 When to Close the Position?

7.3.6 Risks in Hedging Using Single Stock Futures

7.4 Speculation Using Stock Futures

7.5 Pricing of Single Stock Futures Contracts

7.6 Single Stock Futures and Arbitrage

7.7 Using Stock Futures for Insurance Purposes

7.8 Using Stock Futures for Investment Purposes

7.9 Stock Indexes

7.10 Stock Index Futures

7.11 Stock Index Futures Contracts Traded on the BSE and the NSE

7.12 How do Index Futures Work?

7.13 Pricing of Index Futures Contracts

7.14 Speculation Using Index Futures

7.15 Portfolio Insurance Using Index Futures

7.16 Index Arbitrage

7.17 Program Trading

7.18 Hedging the Value of a Portfolio of Shares Using Index Futures

7.19 Adjusting Equity Portfolio Beta Using Index Futures

7.20 Issues in Using Index Futures

Chapter 8: Interest Rate Futures

8.1 The Impact of Interest Rate Risk and the Need for Hedging

8.2 Interest Rate Futures in India

8.3 Contract Specification

8.4 Conversion Factor

8.5 Cheapest-to-deliver Bonds

8.6 The Pricing of Bond Futures

8.7 Uses of Long-term Interest Rate Futures

8.7.1 Directional Trading

8.7.2 Arbitrage

8.7.3 Calendar-spread Trading

8.7.4 Hedging

8.7.5 Fixed Income Portfolio Management

8.7.6 Changing a Fixed Income Loan to a Floating-rate Loan

8.8 Short-term Interest Rate Futures

8.9 Pricing of T-bill Futures Contracts

8.10 Hedging Using Bill Futures Contracts

8.11 Uses of Short-term Interest Rate Futures Contracts

8.11.1 Hedging Borrowing Costs

8.11.2 Hedging an Investment Yield

8.11.3 Hedging a Floating-rate Loan or Strip Hedging

8.11.4 Directional Trades.

8.11.5 Spread Trades

8.11.6 Arbitrage Transactions

8.11.7 Adjusting the Duration of the Portfolio

8.11.8 Cross-hedging

8.12 Cautions in Using Interest Rate Futures

Chapter 9: Currency Futures

9.1 What Are Currency Futures?

9.2 The Specifications of Exchange-traded Currency Futures Contracts

9.3 The Pricing of Currency Futures

9.4 Hedging with Currency Futures

9.5 Basis Risk While Using Currency Futures

9.6 Speculation Using Currency Futures

9.7 Arbitraging with Currency Futures Contracts

Chapter 10: Swaps

10.1 What Are Swaps?

10.2 Types of Swaps

10.3 Terminologies in Swaps

10.4 Interest Rate Swaps

10.5 Swap Rates

10.6 Rationale for Swap Arrangements

10.7 Swap with Intermediaries

10.8 Forward Swaps

10.9 Swaptions

10.10 Uses of Interest Rate Swaps

10.11 Valuation of Interest Rate Swaps

10.12 Currency Swaps

10.12.1 Differences Between an Interest Rate Swap and a Currency Swap

10.12.2 Basic Structure of Currency Swaps

10.13 Currency Risk in Currency Swaps

10.14 Comparative Advantages of Currency Swaps

10.15 Uses of Currency Swaps

10.16 The Valuation of a Currency Swap

10.17 Equity Swaps

10.18 The Valuation of an Equity Swap

10.19 Commodity Swaps

10.20 Risks While Entering into Interest Rate Swaps

Chapter 11: Fundamentals of Options

11.1 Options Issued by Corporations

11.1.1 Warrants

11.1.2 Employee Stock Options

11.1.3 Convertible Bonds

11.1.4 Callable Bonds

11.1.5 Put Bonds

11.1.6 Rights

11.2 Options Contracts Between Private Parties

11.3 Exchange-traded Options.

11.4 Options Contracts: An Example.

Notes:

Includes bibliographical references.

Online resource; Title from title page (viewed February 13, 2011)

ISBN:

9789332501133

9332501130

OCLC:

1024274462