Derivatives: Valuation and Risk Management by David A. DubofskyDerivatives: Valuation and Risk Management by David A. Dubofsky

Derivatives: Valuation and Risk Management

byDavid A. Dubofsky, Thomas W. Miller

Hardcover | September 15, 2002

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Derivatives: Valuation and Risk Management, by David A. Dubofsky and Thomas W. Miller, Jr., enables students to acquire a strong working knowledge and thorough understanding of the rapidly growing field of financial derivatives. Students will learn essential risk management skills, such as howmarkets in these securities can be used to shift risk away from or toward the user. With the purchase of this book, students will also have the unique opportunity to utilize Fincad XL-Dubofsky/Miller Edition, a limited version of FinancialCAD's comprehensive derivatives valuation toolkit, Fincad XL. The book features many examples using FinancialCAD's industry-leading package,affording students the chance to develop "real life" skills and helping business school students gain a competitive edge in the job market. Derivatives: Valuation and Risk Management is ideal for both undergraduate and graduate classes on derivatives, financial risk management, futures, or options. Fincad XL is a software product currently used by thousands of financial practitioners and companies worldwide. Functions available in Fincad XL-Dubofsky/Miller Edition include: DT Swaps DT Forward Rates DT Vanilla Options DT Exotic Options DT Fixed Income DT Interest Rate Derivatives To download your copy of Fincad XL-Dubofsky/Miller Edition, go to For more information on the complete version of Fincad XL, visit
David A. Dubofsky is at Virginia Commonwealth University. Thomas W. Miller is at University of Missouri, Columbia, MO.
Title:Derivatives: Valuation and Risk ManagementFormat:HardcoverDimensions:672 pages, 7.6 × 9.29 × 1.42 inPublished:September 15, 2002Publisher:Oxford University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0195114701

ISBN - 13:9780195114706


Table of Contents

Preface: Acknowledgments: PART 1. INTRODUCTION TO DERIVATIVES AND RISK MANAGEMENT1. An Overview of Derivative Contracts1.1. Forward Contracts and Futures Contracts1.2. Swaps1.3. Options1.4. Why Is It Important to Learn About Derivatives?1.5. Summary2. Risk and Risk Management2.1. What Is Risk?2.2. How Is Risk Managed?2.3. Should Firms Manage Risk?2.4. What Should Be Done After Risk Exposures Have Been Identified?2.5. Accounting for Derivatives: FAS 1332.6. SummaryPART 2. FORWARD CONTRACTS AND FUTURES CONTRACTS3. Introduction to Forward Contracts3.1. General Concepts3.2. Forward Rate Agreements3.3. Forward Foreign Exchange Contracts3.4. Summary4. Using Forward Contracts to Manage Risk4.1. Using Forwards to Manage Commodity Price Risk4.2. Using Forwards to Manage Interest Rate Risk4.3. Using Forward Foreign Exchange Contracts to Manage Risk4.4. What Quantity Should Be Bought or Sold Forward?4.5. Summary5. Determining Forward Prices and Futures Prices5.1. Forward Commodity Prices5.2. Forward Exchange Rates5.3. Forward Interest Rates5.4. Summary6. Introduction to Futures6.1. Futures Contracts and Forward Contracts6.2. Margin Requirements for Futures Contracts6.3. Marking to Market6.4. Basis and Convergence6.5. Should Futures Prices Equal Forward Prices?6.6. Futures Contracts, Exchanges, and Regulation6.7. The Purposes of Futures Markets6.8. Reading Futures Prices in the Wall Street Journal6.9. Limits on Price Fluctuations6.10. Orders and Position Limits6.11. Individuals in the Futures Industry6.12. Taxes and Commissions6.13. Summary7. Risk Management with Futures Contracts7.1. Introduction7.2. Some Special Considerations in Hedging with Futures7.3. The Hedge Ratio7.4. Tailing the Hedge7.5. Managing the Futures Hedge7.6. Summary8. Stock Index Futures8.1. What Is An Index?8.2. Pricing Stock Index Futures8.3. Risk Management With Stock Index Futures8.4. Summary9. Treasury Bond and Treasury Note Futures9.1. Features of the T-Bond Futures Contracts9.2. Determining T-Bond and T-Note Futures Prices9.3. Using T-Bond Futures to Shift Interest Rate Risk9.4. Advanced Applications of T-Bond and T-Note Futures Contracts9.5. Summary10. Treasury Bill and Eurodollar Features10.1. The Spot Treasury Bill Market10.2. T-Bill Futures Contracts10.3. The Eurodollar Cash Market10.4. Eurodollar Futures Contracts10.5. Two Useful Applications of Eurodollar Futures Contracts10.6. Hedging with Short-Term Interest Rate Futures10.7. Eurodollar Bundles and Packs10.8. SummaryPART 3. SWAPS11. An Introduction to Swaps11.1. Interest Rate Swaps11.2. Currency Swaps11.3. Commodity Swaps11.4. Equity Index Swaps11.5. Credit Risk in Swaps and Credit Swaps11.6. Summary12. Using Swaps to Manage Risk12.1. Using Interest Rate Swaps12.2. Using Currency Swaps12.3. Using Commodity Swaps12.4. Using Equity Swaps12.5. Using Index Swaps12.6. Using Diff Swaps12.7. Summary13. Pricing and Valuing Swaps13.1. Pricing and Valuing Plain Vanilla Fixed Floating Interest Rate Swaps13.2. Pricing a Currency Swap13.3. Pricing a Commodity Swap13.4. SummaryPART 4. OPTIONS14. Introduction to Options14.1. Call Options14.2. Put Options14.3. In the Money, At the Money, Out of the Money14.4. Intrinsic Value and Time Value14.5. Payout Protection14.6. Pricing at Expiration14.7. A Brief Look at Option Pricing Before Expiration14.8. Stock Options Markets14.9. Reading Options Prices in the Financial Press14.10. Transaction Costs14.11. Margin14.12. Taxes14.13. Index Options14.14. Foreign Exchange Options14.15. Futures Options14.16. Other Options14.17. Summary15. Options Strategies and Profit Diagrams15.1. Profit Diagrams for Long Stock and Short Stock15.2. Long Calls15.3. Writing a Naked Call15.4. Long Puts15.5. Writing a Naked Put15.6. Covered Call Writing15.7. Vertical Spreads15.8. Straddles and Strangles15.9. Synthetic Forward15.10. Other Strategies15.11. Ratio-of-Return Diagrams15.12. Profit Diagrams for Different Holding Periods15.13. Several Caveats15.14. Research on Option Strategies15.15. Summary16. Arbitrage Restrictions on Option Prices16.1. Notation16.2. Pricing Restrictions for Calls16.3. Puts16.4. Put-Call Parity16.5. Box Spreads Using European Options16.6. Summary17. The Binomial Option Pricing Model17.1. A Quiz17.2. Deriving the Binomial Option Pricing Model for Calls on Non-Dividend-Paying Stocks17.3. Using the Binomial Option Pricing Model to Value Calls on Dividend-Paying Stocks17.4. Puts17.5. Portfolio Insurance and Dynamic Trading17.6. Other References on the BOPM and Dynamic Trading17.7. Summary18. Continuous Time Option Pricing Models18.1. The Black-Scholes Option Pricing Model18.2. The Black-Scholes Option Pricing Model and a Detailed Numerical Example18.3. An Intuitive Look at the Black-Scholes Option Pricing Model18.4. The Black-Scholes Option Pricing Model and European Put Prices18.5. Two Handy Extensions of the Black-Scholes Option Pricing Model18.6. The Relationship Between the Binomial Option Pricing Model and the Black-Scholes Option Pricing Model18.7. The Nettlesome Task of Estimating a Security's Volatility18.8. Generalizing the Black-Scholes Option Pricing Model18.9. Options on Futures Contracts18.10. American Call Options18.11. Summary19. Risk Management for Using Options19.1. The Greeks19.2. The Importance of Delta19.3. Riskless Hedging19.4. Position Deltas and Gammas19.5. Caps, Floors, and Collars: Using Options to Manage Interest Rate Risk19.6. SummaryPART 5. DERIVATIVE FRONTIERS20. Current Topics in Risk Management20.1. Value at Risk (VaR)20.2. Credit Derivatives and Options on Debt Instruments20.3. Exotic Options20.4. SummaryBibliographyIndex