Equity Derivatives (eBook)
XXIII, 502 Seiten
Palgrave Macmillan UK (Verlag)
978-0-230-39107-9 (ISBN)
This book provides thorough coverage of the institutional applications of equity derivatives. It starts with an introduction on stock markets' fundamentals before opening the gate on the world of structured products. Delta-one products and options are covered in detail, providing readers with deep understanding of the use of equity derivatives strategies. The book features most of the traded payoffs and structures and covers all practical aspects of pricing and hedging. The treatment of risks is performed in a very intuitive fashion and provides the reader with a great overview of how dealers approach such derivatives. The author also delivers various common sensical reasons on which models to use and when.
By discussing equity derivatives in a practical, non-mathematical and highly intuitive setting, this book enables practitioners to fully understand and correctly structure, price and hedge these products effectively, and stand strong as the only book in its class to make these equity-related concepts truly accessible.
Neil C. Schofield is the Managing Director of Financial Markets Training Ltd. and delivers training courses in the areas of treasury, derivatives, capital markets and risk management to financial institutions, central banks and corporations worldwide.
Neil was global head of Financial Markets training at Barclays Capital from 2001 to 2008. He teaches primarily on the rates business, covering all of the major asset classes and their respective derivative products from foreign exchange through to commodities.
Before joining Barclays Capital, he was a director at Chisholm-Roth Training for 4 years, where he was responsible for provision of training services for a number of blue chip global investment banks. He started his training career at Chase Manhattan Bank, where he was originally employed as an internal auditor.
Neil holds a B.Sc. in Economics from Loughborough University, UK, and an MBA from Manchester Business School, UK. He was elected as a Fellow of the IFS School of Finance (formerly the Chartered Institute of Bankers) in 1999.
Neil was appointed as a Visiting Fellow at the University of Reading ICMA Centre, UK, in April, 2007.
This book provides thorough coverage of the institutional applications of equity derivatives. It starts with an introduction on stock markets' fundamentals before opening the gate on the world of structured products. Delta-one products and options are covered in detail, providing readers with deep understanding of the use of equity derivatives strategies. The book features most of the traded payoffs and structures and covers all practical aspects of pricing and hedging. The treatment of risks is performed in a very intuitive fashion and provides the reader with a great overview of how dealers approach such derivatives. The author also delivers various common sensical reasons on which models to use and when. By discussing equity derivatives in a practical, non-mathematical and highly intuitive setting, this book enables practitioners to fully understand and correctly structure, price and hedge these products effectively, and stand strong as the only book in its class to makethese equity-related concepts truly accessible.
Neil C. Schofield is the Managing Director of Financial Markets Training Ltd. and delivers training courses in the areas of treasury, derivatives, capital markets and risk management to financial institutions, central banks and corporations worldwide. Neil was global head of Financial Markets training at Barclays Capital from 2001 to 2008. He teaches primarily on the rates business, covering all of the major asset classes and their respective derivative products from foreign exchange through to commodities. Before joining Barclays Capital, he was a director at Chisholm-Roth Training for 4 years, where he was responsible for provision of training services for a number of blue chip global investment banks. He started his training career at Chase Manhattan Bank, where he was originally employed as an internal auditor. Neil holds a B.Sc. in Economics from Loughborough University, UK, and an MBA from Manchester Business School, UK. He was elected as a Fellow of the IFS School of Finance (formerly the Chartered Institute of Bankers) in 1999. Neil was appointed as a Visiting Fellow at the University of Reading ICMA Centre, UK, in April, 2007.
Acknowledgements 5
Contents 7
List of Figures 9
List of Tables 18
1: Equity Derivatives: The Fundamentals 23
1.1 Chapter Overview 23
1.2 Fundamental Concepts 23
1.2.1 Corporate Capital Structures 23
1.2.2 Types of Equity 24
1.2.3 Equity Indices 25
1.2.4 Volume-Weighted Average Price 29
1.2.5 Share Price Dilution 30
1.2.6 Stock Lending and Equity Repo 32
1.3 Equity Derivatives 38
1.3.1 Forwards and Futures 38
1.3.2 Equity Swaps 41
1.3.3 Equity Options 42
1.3.4 Exotic Equity Options 45
1.4 Overview of Secondary Equity Markets 47
1.4.1 Institutional Investors 47
1.4.2 Pension Funds 49
1.4.3 Unit Trusts/Mutual Funds 50
1.4.4 Investment Trusts 50
1.4.5 Hedge Funds 51
1.4.6 Exchange-Traded Funds 51
1.5 Overview of the Equity Derivative Markets 54
2: Corporate Actions 56
2.1 Introduction 56
2.2 The Ratio Method 57
2.3 Mergers 58
2.4 Special Dividend 59
2.5 Restructuring 60
2.6 Spin-offs 61
2.7 Return of Capital 61
2.8 Stock Split 61
2.9 Reverse Stock Split 62
2.10 Rights Issues 62
2.11 Bonus Issue 63
2.12 Share Buybacks 63
2.13 Summary 64
3: Equity Valuation 65
3.1 Introduction 65
3.2 Financial Statements 66
3.2.1 The Balance Sheet 67
3.2.1.1 Asset Conversion Cycle 69
3.2.2 The Income Statement 70
3.2.3 Cash Flow Statement 72
3.3 Valuation Techniques 73
3.3.1 Dividend Discount Model 74
3.3.2 Free Cash Flow Approaches 77
3.3.3 Calculating the Terminal Value 80
3.3.4 Calculating the Weighted Average Cost of Capital 81
3.4 Comparable Company Analysis 83
3.4.1 Profitability Ratios 85
3.4.2 Margin Ratios 86
3.4.3 Share Price Ratios 86
3.4.4 Enterprise Value Multiples 90
3.4.5 Identifying Mispriced Shares 92
3.5 Conclusion 92
4: Valuation of Equity Derivatives 93
4.1 Chapter Overview 93
4.2 Valuation of Single Stock Equity Forwards and Futures 93
4.3 Valuation of Index Forwards and Futures 96
4.3.1 No Arbitrage Valuation Principles 96
4.3.2 Implied Equity Repo Rates 98
4.3.3 Withholding Tax 100
4.4 Valuation of Equity Index Swaps 101
4.4.1 Intuitive Approach to Equity Swap Valuation 101
4.4.2 Linking the Equity Repo and Equity Swaps Market 103
4.4.3 Discounted Cash Flow Approach to Swap Valuation 105
4.4.4 Interest Rate Exposure of Equity Swaps 108
4.4.5 Overnight Index Swap (OIS) Discounting 109
4.4.6 Hedging Equity Swaps 110
4.5 Valuation of Equity Options 110
4.5.1 Intuitive Approach to Option Pricing 110
4.6 Changes in an Option’s Fair Value 115
4.6.1 Change in the Spot Price 115
4.6.2 Change in Time to Maturity 116
4.6.3 Change of Implied Volatility 118
4.6.4 Change in Interest Rates 119
4.6.5 Change of Dividend Yield and Equity Repo Rates 120
4.7 Early Exercise of American -Style Options 121
4.8 Put-Call Parity 122
4.9 Summary 123
5: Risk Management of Vanilla Equity Options 124
5.1 Introduction 124
5.2 Delta 124
5.3 Gamma 129
5.3.1 Definition and Characteristics 129
5.3.2 The Delta–Gamma Relationship 132
5.3.3 The Delta–Gamma–Theta Relationship 137
5.4 Delta and Gamma ‘Cash’ Limits 138
5.5 Theta 140
5.6 Interest Rates and Dividend Yield 144
5.7 Vega 145
5.8 Non-constant Volatility 147
5.9 Second Order Greeks 152
5.9.1 Volgamma 152
5.9.2 Vanna 155
5.10 Summary 157
6: Volatility and Correlation 158
6.1 Introduction 158
6.2 Definitions 158
6.2.1 Variance and Volatility 158
6.2.1.1 Different Types of Volatility 161
6.2.2 Covariance and Correlation 162
6.3 Overview of Volatility and Correlation Trading Strategies 165
6.3.1 Market ‘Flows’ of Volatility 165
6.3.2 Trading Volatility—An Overview 166
6.3.3 Trading Correlation—An Overview 167
6.4 Characteristics of Volatility and Correlation 168
6.4.1 Characteristics of Volatility 169
6.4.1.1 Implied Volatility Versus the Level of the Market 169
6.4.1.2 Implied versus Realized Volatility 169
6.4.1.3 Index Volatility Versus Single Stock Volatility 169
6.4.1.4 Volatility Skew 175
6.4.1.5 Term Structure of Volatility 187
6.4.1.6 The Volatility Surface 191
6.4.1.7 How Volatile Is Volatility? 194
6.4.1.8 Volatility Regimes 199
6.4.2 Characteristics of Correlation 201
6.4.2.1 Correlation Versus Market Level Versus Implied Volatility 201
6.4.2.2 Implied Versus Realized Correlation 204
6.4.2.3 Correlation Skew 204
6.4.2.4 Term Structure of Correlation 204
6.5 Identifying Value in Volatility and Correlation 204
6.5.1 Volatility 209
6.5.2 Correlation 215
6.6 Conclusion 215
6.7 Appendix 1 218
6.7.1 Calculating Variance, Standard Deviations (‘Volatility’), Covariance and Correlation 218
6.7.1.1 Calculating Variance and Standard Deviation (‘Volatility’) 218
6.7.1.2 Calculating Covariance and Correlation 220
6.8 Appendix 2 221
6.8.1 Calculating Forward Volatility 221
7: Barrier and Binary Options 222
7.1 Introduction 222
7.2 Barrier Options 222
7.2.1 Features of Barrier Options 222
7.2.2 Valuation of Barrier Options 225
7.2.3 Risk Management of Regular Barrier Call Options 228
7.2.3.1 Regular Knock in Call Option 228
7.2.3.2 Regular Knock Out Call Option 230
7.2.4 Risk Management of Reverse Barrier Call Options—I 234
7.2.4.1 Reverse Knock in Call Option—I 234
7.2.4.2 Reverse Knock Out Call Option—I 236
7.2.4.3 Barrier/Exit Risk 240
7.2.5 Risk Management of Reverse Barrier Call Options—II 245
7.2.5.1 Reverse Knock in Call Options—II 246
7.2.5.2 Reverse Knock Out Call Options—II 249
7.2.6 Barrier Parity 253
7.2.7 Other Barrier Options 254
7.3 Binary Options 254
7.3.1 Overview 254
7.3.2 Pricing of Binary Options 256
7.3.3 Risk Management of American-Style Binary Options 257
7.3.4 Features of European-Style Binary Options 260
7.3.5 Risk management of European-Style Binary Options 261
7.4 Summary 265
8: Correlation-Dependent Exotic Options 266
8.1 Introduction 266
8.2 Basket Options 266
8.2.1 Introduction 266
8.2.2 Example of a Basket Option 267
8.2.3 Volatility of a Portfolio 269
8.2.4 Correlation and the Basket Option Premium 271
8.3 Best of and Worst of Structures 272
8.3.1 Introduction 272
8.3.2 Expiry Payoffs 272
8.3.3 Valuation and Risk Management of ‘Best of’ and ‘Worst of’ Options 275
8.3.4 ‘Best of’ Call Option 275
8.3.5 ‘Worst of’ Call Option 276
8.4 Outperformance Options 277
8.4.1 Introduction 277
8.4.2 Expiry Payoffs 278
8.4.3 Valuation Principles 279
8.4.4 Impact of Correlation 280
8.4.5 Impact of Volatility 282
8.5 Quanto and Composite Options 283
8.5.1 Plain Vanilla Call with No Currency Protection 283
8.5.2 Quanto Call Option 283
8.5.3 Composite Call Option 286
8.6 Summary 288
9: Equity Forwards and Futures 290
9.1 Introduction 290
9.2 Forward and Futures Risk 290
9.3 Rolling a Futures Exposure 292
9.4 Index Arbitrage 293
9.5 Hedging Applications 295
9.5.1 Using Futures to Hedge a Portfolio of Shares 295
9.5.2 Using Forwards to Hedge the Delta Risk of an Exotic Option Portfolio 298
9.5.3 Use of Futures to Short the Market 298
9.5.4 Tactical Asset Allocation 298
9.6 Trading Strategies 300
9.6.1 Futures Spread Trades 300
9.6.2 Forward Trades 302
9.7 Exchange for Physical 302
9.7.1 Product Fundamentals 302
9.7.2 Using EFPs to Trade the Implied Equity Repo Rate 303
9.8 Summary 304
10: Equity Swaps 305
10.1 Introduction 305
10.2 Fundamentals of Equity Swaps 305
10.3 Equity Swaps Variants 308
10.4 Motivations for Using Equity Swaps 309
10.5 Institutional Applications 311
10.5.1 Dividend Taxation Arbitrage 311
10.5.2 ‘Covered Swap’ Transaction 313
10.5.3 Trading the Implied Equity Repo Rate 313
10.5.3.1 Term Structure of Equity Repo Rates 313
10.5.3.2 Trading the Equity Repo Rate 314
10.5.4 Cross-Currency Equity Swaps 317
10.6 Corporate Applications 320
10.6.1 Mergers and Acquisitions 320
10.6.2 Financing Shareholdings 323
10.6.3 Monetization of Cross Shareholdings 325
10.6.4 Diversification of Cross Shareholdings 326
10.7 Contracts of Difference 326
10.7.1 Product Fundamentals 327
10.7.2 Applications 330
10.8 Summary 331
11: Investor Applications of Equity Options 332
11.1 Introduction 332
11.2 Portfolio Downside Protection 332
11.2.1 Buy a Put Option 333
11.2.2 Put Spread 335
11.2.3 Collars 336
11.2.4 Prepaid Variable Forward 339
11.2.5 Cash Extraction 343
11.3 Expressing Directional Views 343
11.3.1 Buying the Underlying Versus Buying a Call Option 344
11.3.2 Call Spread 345
11.3.3 1 × 2 Call Spread6 347
11.3.4 Comparison of Directional Strategies 347
11.4 Range-Bound Versus Volatile Views 350
11.4.1 Straddles 350
11.4.2 Strangle 352
11.4.3 Comparison of Volatility Strategies 352
11.5 Yield Enhancement Strategies 354
11.5.1 Covered Calls/Call Overwriting 354
11.5.2 Call Spread Overwriting 356
11.5.3 Put Selling 357
11.6 Outperformance Strategies 357
11.6.1 Option Ratios 358
11.6.2 Risk Reversals 360
11.6.3 Outperformance Options 362
11.7 Conclusion 363
12: Structured Equity Products 364
12.1 Introduction 364
12.2 Capital Protected Notes 365
12.3 Yield Enhanced Structures 372
12.4 Income Structures 376
12.5 Volatility Structures 380
12.6 Hybrid Structures 384
12.7 Structured Product Risk Management 386
12.7.1 Introduction: Autocallable Market Risks 386
12.7.2 Market Risk Associated with Digital Options 386
12.7.3 Market Risk Associated with ‘down and in’ Put Option 388
12.7.3.1 Delta Risk 388
12.7.3.2 Dividend Risk 391
12.7.3.3 Vega Exposures 391
12.7.4 Asian Autocallable Structures 393
12.8 Summary 397
12.9 Appendix 398
13: Traded Dividends 401
13.1 Introduction 401
13.2 Sources of Traded Dividend Risk 401
13.3 Dividends as an Asset Class 402
13.4 Dividend Futures 403
13.5 Dividend Swaps 406
13.5.1 Features of Dividend Swaps 406
13.5.2 Quotation Conventions 408
13.5.3 Example Transaction 409
13.5.4 Early Termination 410
13.5.5 Novation 411
13.5.6 Dividend Swap Risk 411
13.5.7 Hedging Applications of Dividend Swaps 411
13.5.8 Principles of Index Dividend Swap Valuation 412
13.5.8.1 Forward Pricing 412
13.5.8.2 Extracting Implied Dividends from Options 413
13.5.8.3 Bottom Up Approach 414
13.5.9 Pull to Realized 414
13.6 Dividend Options 415
13.6.1 Dividend Option Valuation 417
13.6.2 Characteristics of Implied Dividend Volatility 418
13.6.3 Applications 420
13.7 A Relative Value Approach to Traded Dividend Investing 420
13.7.1 Introducing the Framework 420
13.7.2 Applying the RV Triangle: Individual Products 423
13.7.2.1 Cash Markets 423
13.7.2.2 Dividend Futures and Swaps 423
13.7.2.3 Dividend Options 426
13.7.3 Applying the RV Triangle: Relationships Between Products 427
13.7.3.1 Cash Versus Futures/Swap 427
13.7.3.2 Trading the Dividend Yield 427
13.7.4 Other Relative Value Trades 428
13.7.4.1 Dividends Versus Interest Rates 428
13.7.4.2 Dividend Dispersion Trades 430
13.7.4.3 High Versus Low Yielding Stock 431
13.7.4.4 Capital Structure Trades 431
13.8 Summary 432
14: Trading Volatility 433
14.1 Introduction 433
14.2 Conventional Option Trades 433
14.3 Volatility Surface Trades 434
14.3.1 Trading the Slope of the Skew 435
14.3.2 Trading the Curvature of the Skew 437
14.3.3 Trading the Slope of the Term Structure 438
14.4 Range Trades 441
14.5 Listed Volatility Contracts 442
14.5.1 The VIX® 442
14.5.2 VIX® Futures 443
14.5.3 Options on the VIX® 445
14.6 Trading Volatility Using Swaps 447
14.6.1 Variance and Volatility Swaps 447
14.6.1.1 Features 447
14.6.1.2 Valuation: The Intuition 452
14.6.1.3 Mark-to-Market 458
14.6.1.4 Applications 460
14.6.2 Forward Variance Swaps 467
14.6.3 Conditional Variance Swaps 468
14.6.4 Corridor Variance Swaps 470
14.6.5 Gamma Swaps 473
14.7 Options on Realized Variance 474
14.7.1 Features 474
14.7.2 Applications 475
14.8 Summary 476
15: Trading Correlation 477
15.1 Introduction 477
15.2 Sources of Correlation 478
15.3 Factors that Influence Correlation 479
15.4 Correlation Trading 480
15.4.1 Correlation-Dependent Exotics 480
15.4.2 Correlation Swaps 480
15.4.3 Basket Call Versus a Basket of Calls 481
15.4.4 Covariance Swaps 484
15.4.5 Dispersion Trading 487
15.4.5.1 Definition 487
15.4.5.2 Quoting Conventions 487
15.4.5.3 Choice of Instruments 488
15.4.5.4 Dispersion Trade Weighting Techniques 489
15.4.5.5 Dispersion Options 491
15.5 Summary 493
Bibliography 494
Index 496
| Erscheint lt. Verlag | 14.3.2017 |
|---|---|
| Zusatzinfo | XXIII, 487 p. 274 illus. |
| Verlagsort | London |
| Sprache | englisch |
| Themenwelt | Recht / Steuern ► Wirtschaftsrecht |
| Wirtschaft ► Betriebswirtschaft / Management ► Finanzierung | |
| Wirtschaft ► Volkswirtschaftslehre ► Finanzwissenschaft | |
| Schlagworte | capital structure • Delta One Products • Equity Swaps • Equity Valuation • Forwards • Futures • Traded Dividends • Traded Payoffs • Vanilla Equity Options • Volatility |
| ISBN-10 | 0-230-39107-9 / 0230391079 |
| ISBN-13 | 978-0-230-39107-9 / 9780230391079 |
| Haben Sie eine Frage zum Produkt? |
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