Manufacturing and Managing Customer-Driven Derivatives
Beschreibung
Weitere Details
Weitere Ausgaben
Andere Ausgaben
Person
Inhalt
Preface xiii
Acknowledgments xv
About the Author xvii
PART I Overview of Customer-driven Derivative Business 1
CHAPTER 1 Evolving Derivative Business Environment 3
Customer-driven Derivative Product Categories 3
Lessons in Derivatives and Crises 4
Regulations Affecting Derivative Business 7
Structured Derivative Products Geographic Features 11
CHAPTER 2 Pillars in Structured Derivative Business 21
Derivative Business Value Chain 21
Model and Product Development Process 22
Product Issuance and Wrappers 31
Product Distribution 35
CHAPTER 3 Financial Risk Management, Basel III and Beyond 39
Risk Measures and Financial Rule Books 39
Basel III Technical Requirements 41
Internal Model Method (IMM) 48
Beyond Basel III 55
PART II Equity Derivatives 59
CHAPTER 4 Equity Derivatives Market Features 61
Equity Index Underlyings 61
Discrete Dividends 61
Option Settlement Delay 68
Quanto Effect 70
Future Versus Forward 72
Implied Volatility Surface 74
CHAPTER 5 Black-Scholes Paradigm 87
Basic Modelling Framework 87
Asian Options 93
Basket Options 100
Dividend Futures and Options 103
American Options 106
Barrier Options 110
Lookback and Hindsight Options 113
Volatility Smile/Skew Dynamics Impact on Hedging 117
CHAPTER 6 Local Volatility Framework 123
Local Volatility Stripper 123
Local Volatility PDE Solver 127
Local Volatility Monte Carlo 132
Local Volatility to Implied Volatility 138
Practical Issues With Local Volatility 142
CHAPTER 7 Stochastic Local Volatility Framework 145
Stochastic Volatility Models 145
SLV Model Formulation 147
SLV Numerical Implementation 150
SLV Numerical Results 154
SLV in Practice 161
CHAPTER 8 Equity-Linked Structured Products 163
General Payoff Category 163
Features of Important Structured Product Categories 168
Barrier Reverse Convertibles 183
Constant Proportion Portfolio Insurance (CPPI) 187
Risks During Retail Issuance Period 193
CHAPTER 9 Basket Option Analysis 197
Basket Option Risks 197
Copula Pricing Models 198
Historic Basket Volatility Surfaces 213
Implied Basket Volatility Surfaces 217
Copula Applications 224
PART III Interest Rate Derivatives 227
CHAPTER 10 Multi-Curve Environment and Yield Curve Stripping 229
Multi-Curve Environment 229
Yield Curve Stripping 237
Collateral Impacts 248
Multi-Curve Multi-Facet Reality 252
CHAPTER 11 Vanilla Interest Rate Options 255
Martingale Pricing Principle 255
Cap/Floor 258
European Swaption and SABR 274
Risk Sensitivities 286
CHAPTER 12 Practical Interest Rate Derivative Models 293
Key Model Categories 293
Linear Gauss-Markov Model 295
Libor Market Model 303
Extended Cheyette Model 312
Local Volatility Model 318
CHAPTER 13 CMS Replication and CMS Spread Options 343
CMS Convexity 343
CMS Replication 344
CMS Calibration 350
CMS Spread Option Pricing Framework 356
Copula Pricing with Full Market Marginal Distributions 362
CHAPTER 14 Interest Rate Derivative Products 375
Product Design and Product Risks 375
Bermudan Swaption 381
Callable Products 387
Other Important Products 392
PART IV Real-Life Options and Derivatives 399
CHAPTER 15 Long-dated FX Volatility and Hybrid Risks 401
FX Volatility Surface 401
Extrapolating FX Volatility Term Structure to Long End 403
Extrapolating FX Volatility Smile to Long End 407
Hybrid Optionality 410
PRDC Hybrid Risks 413
CHAPTER 16 Portfolio CVA: Efficient Numerical Techniques 419
CVA Valuation Implementation Framework 420
Numerical Techniques in Portfolio CVA Valuation 420
Grid Monte Carlo for CVA 422
GMC Implementation Example 425
GMC in Practice 432
CHAPTER 17 Contingent Convertibles (CoCo) 435
CoCo Features 435
CoCo Categories 436
CoCo Risk Factors 438
Indirect Modelling Approaches 439
Direct Modelling Approaches 442
CHAPTER 18 Variable Annuity Products 451
Key VA Product Types 453
Major Risk Factors in VA Products 456
Hybrid Pricing Models for VA Products 458
Practicalities of Handling Long-dated VA Products 466
Importance of Understanding VA Risks 469
CHAPTER 19 Interest Rate Optionality in Fixed-Rate Mortgage 473
Prepayment Optionality 473
Prepayment Risk Characteristics 479
Early Redemption Charge 486
Applying Option-Based Prepayment Technique 488
CHAPTER 20 Real Estate Derivatives 491
Equity Release Scheme and Related Derivatives 491
Mortality in Derivatives Pricing 492
Reversion Derivatives Products 497
Real Estate Portfolio Derivatives 501
Property-Linked Roll-Up Mortgage 507
HPI Retail Products 512
APPENDIX A: PRODUCT OF TWO CALLS 515
Decomposition 515
Three Key Integrals 516
Analytical Formula 518
BIBLIOGRAPHY 521
INDEX 531
