Preface
I was originally persuaded to write this book by colleagues who liked my book Options, Futures, and Other Derivatives, but found the material a little too advanced for their students. Fundamentals of Futures and Options Markets covers some of the same ground as Options, Futures, and Other Derivatives, but in a way that readers who have had limited training in mathematics .nd easier to understand. One important di.erence between the two books is that there is no calculus in this book. Fundamentals is suitable for undergraduate and graduate elective courses o.ered by business, economics, and other faculties. In addition, many practitioners who want to improve their under-standing of futures and options markets will .nd the book useful.
Instructors can use this book in a many di.erent ways. Some may choose to cover onlythe.rst12chapters, .nishingwith binomialtrees.For thosewhowanttodomore, there are many di.erent sequences in which Chapters 13 to 25 can be covered. From Chapter 18 onward, each chapter has been designed so that it is independent of the others and can be included in or omitted from a course without causing problems. I recommend .nishing a course with Chapter 25, which students always .nd interesting and entertaining.
What ¡¯s New in This Edition?
Many changes have been made to update material and improve the presentation. The derivatives markets¡¯ move toward OIS discounting has continued since the eighthedition was written. This has allowed me to streamline the material in the .rst seven chapters of Fundamentals. LIBOR discounting is no longer presented as a way to value instruments such as swaps and forward rate agreements. The valuation of these instruments requires
(a) forward rates for the rate used to calculate payments (usually LIBOR) and (b) the zero-coupon risk-free zero curve used for discounting (usually the OIS zero curve).Most instructors will .nd the new presentation appealing and more logical. It can be extended to situations where payments are dependent on any risky rate. Other changes include:
1.
Moreonthenewregulations concerningthetradingand clearingofOTCderivatives.
2.
A major revision of the swaps chapter (Chapter 7) to improve the presentation of material and re.ect the derivative markets¡¯ move to OIS discounting.
3.
A fuller description of the impact of daily settlement when futures contracts are used for hedging.
4.
More details on the calculation and use of Greek letters.
5.
More discussion of the expected shortfall measure, re.ecting its increasing importance.
xiv
Pr
efa
ce
6.
A
ne
w
v
ersi
on
of
the
softw
ar
e
DerivaGem
,
tailor
ed
to
the
need
s
of
r
eaders
of
this
book.
Other
Points
of
Distinction
Software
DerivaGem
F
undamen
tals
4.00
(DG
400f)
is
includ
ed
with
this
book.
This
con
sis
ts
of
two
Excel
applic
a
tions
:
the
Options
Cal
cula
tor
and
the
Appl
ica
tions
Builde
r
.
The
Options
Calcula
tor
consis
ts
of
ea
s
y-to-use
softw
ar
e
for
valui
ng
many
of
the
deriva
tiv
es
discus
sed
in
this
book.
The
Appli
ca
tions
Bui
lder
consis
ts
of
a
num
ber
of
Exc
el
functi
ons
fr
om
which
users
can
build
their
o
wn
applica
tions
.
It
includes
some
sampl
e
applic
a
tions
and
enab
les
s
tuden
ts
to
e
xplor
e
the
pr
ope
rties
of
options
a
nd
numeri
cal
pr
ocedur
es.
It
also
allo
ws
mor
e
inter
es
ting
assignment
s
to
be
de
signed.
The
soft
w
ar
e
is
describ
ed
mor
e
fully
a
t
the
end
of
the
book.
Upd
a
tes
to
the
softw
ar
e
can
be
do
wnl
oaded
fr
om
my
w
ebsite:
www-2.
r
otman.ut
or
onto.ca
/
.
hull
End-of-Chapter
Problems
At
the
end
of
ea
ch
chap
ter
(e
xcept
the
las
t)
ther
e
ar
e
sev
en
quiz
ques
tions
,
which
s
tudents
can
use
to
pr
o
vide
a
quick
tes
t
of
their
unde
rs
tanding
of
the
k
e
y
con
cepts.
The
answ
ers
to
these
ar
e
giv
en
a
t
the
end
of
the
book.
In
addition,
ther
e
ar
e
a
mu
ltitude
of
pr
a
ctice
ques
tions
and
further
ques
tions
in
the
book.
For the Instructor
The following supplements are available with this text:
. PowerPoint Presentations (adopting instructors can adapt the slides to meet their
needs) . Instructors Manual (including answers to both practice questions and further
questions)
John Hull
