DeRosa Options on Foreign Exchange

3. Auflage 2011
ISBN: 978-1-118-09755-7
Verlag: John Wiley & Sons
Format: PDF
Kopierschutz: Adobe DRM (»Systemvoraussetzungen)

E-Book, Englisch, 268 Seiten, E-Book

Reihe: Wiley Finance Editions

A comprehensive guide to the world's largest financialmarket
Foreign exchange is the world's largest financial market andcontinues to grow at a rapid pace. As economies intertwine andcurrencies fluctuate there is hardly a corporate entity thatdoesn't need to use options on foreign exchange to hedge risk orincrease returns. Moreover, currency options, both vanilla andexotic, are part of standard toolkit of professional portfoliomanagers and hedge funds.
Written by a practitioner with real-world experience in thisfield, the Third Edition of Options on ForeignExchange opens with a substantive discussion of the spot andforward foreign exchange market and the mechanics of tradingcurrency options. The Black-Scholes-Merton option-pricing model asapplied to currency options is also covered, along with anexamination of currency futures options. Throughout the book,author David DeRosa addresses the essential elements of thisdiscipline and prepares you for the various challenges you couldface.
* Updates new developments in the foreign exchange markets,particularly regarding the volatility surface
* Includes expanded coverage of the currency crises and capitalcontrols, electronic trading, forward contracts, exotic options,and more
* Employs real-world terminology so you can a firm understandingof this dynamic marketplace
The only way to truly succeed in today's foreign exchange marketis by becoming more familiar with currency options. The ThirdEdition of Options on Foreign Exchange will help youachieve this goal and put you in better position to make moreprofitable decisions in this arena.

Autoren/Hrsg.

DeRosa, David F.

Inhaltsverzeichnis

Preface xi
What's New to This Edition xii
Before You Begin xii
Acknowledgments xiii
CHAPTER 1: Foreign Exchange Basics 1
The Foreign Exchange Market 1
The International Monetary System 6
Spot Foreign Exchange and Market Conventions 11
Foreign Exchange Dealing 14
Interest Parity and Forward Foreign Exchange 21
Departures from Covered Interest Parity in 2007-200826
CHAPTER 2: Trading Currency Options 29
The Interbank Currency Option Market 29
Option Basics 31
Listed Options on Actual Foreign Currency 38
Currency Futures Contracts 40
Listed Currency Futures Options 44
CHAPTER 3: Valuation of European Currency Options 47
Arbitrage Theorems 48
Put-Call Parity for European Currency Options 50
The Black-Scholes-Merton Model 52
How Currency Options Trade in the Interbank Market 60
Reflections on the Contribution of Black, Scholes, and Merton62
CHAPTER 4: European Currency Option Analytics 65
Base-Case Analysis 65
The "Greeks" 66
Special Properties of At-the-Money Forward Options 77
Directional Trading with Currency Options 79
Hedging with Currency Options 86
Appendix 4.1 Derivation of the BSM Deltas 88
CHAPTER 5: Volatility 91
Alternative Meanings of Volatility 91
Some Volatility History 99
Construction of the Volatility Surface 113
The Vanna-Volga Method 115
The Sticky Delta Rule 118
Risk-Neutral Densities 118
Dealing in Currency Options 119
Trading Volatility 121
Mixing Directional and Volatility Trading 124
Appendix 5.1 Vanna-Volga Approximations 125
CHAPTER 6: American Exercise Currency Options 127
Arbitrage Conditions 127
Put-Call Parity for American Currency Options 128
The General Theory of American Currency Option Pricing 131
The Economics of Early Exercise 132
The Binomial Model 136
The Binomial Model for European Currency Options 143
American Currency Options by Approximation 144
Finite Differences Methods 149
CHAPTER 7: Currency Futures Options 159
Currency Futures and Their Relationship to Spot and ForwardExchange Rates 159
Arbitrage and Parity Theorems for Currency Futures Options167
Black's Model for European Currency Futures Options 174
The Valuation of American Currency Futures Options 178
The Quadratic Approximation Model for Futures Options 180
CHAPTER 8: Barrier and Binary Currency Options 183
Single Barrier Currency Options 185
Double Barrier Knock-Out Currency Options 193
Binary Currency Options 197
Contingent Premium Currency Options 203
Applying Vanna-Volga to Barrier and Binary Options 204
What the Formulas Don't Reveal 205
CHAPTER 9: Advanced Option Models 207
Stochastic Volatility Models 208
The Mixed Jump-Diffusion Process Model 211
Local Volatility Models 213
Stochastic Local Volatility 214
Static Replication of Barrier Options 215
Appendix 9.1: Equations for the Heston Model 231
CHAPTER 10: Non-Barrier Exotic Currency Options 233
Average Rate Currency Options 233
Compound Currency Options 237
Basket Options 241
Quantos Options 242
Comments on Hedging with Non-Barrier Currency Options 250
Appendix 10.1 Monte Carlo Simulation for Arithmetic Mean AverageOptions 250
Bibliography 253
Index 263

Über Autor(innen)

DAVID F. DeROSA is the founder and President of DeRosa Research. He is also an Adjunct Associate Professor of Finance at the Fu Foundation School of Engineering and Applied Science at Columbia University where he teaches courses in derivatives pricing models and foreign exchange. His bachelor's and PhD (finance and economics) are from the University of Chicago. Dr. DeRosa has worked at a variety of Wall Street investment firms, banks, and hedge funds. He sits on the boards of directors of six major hedge fund groups.