This book is an invaluable resource of hedging case studies and examples, explaining with clarity and coherence how various instruments - such as futures and options - are used in different market scenarios to contain, control and eliminate price risk exposure. Its core objective is to elucidate hedging transactions and provide a systematic, comprehensive view on hedge performance. When it comes to hedge strategies specifically, great effort has been employed to create new instruments and concepts that will prove to be superior to classic methods and interpretations. The concept of hedge patterns - introduced here - proves it is possible to tabulate a hedging strategy and interpret its use with diagrams, so each example is shown visually with the result of radical clarity. A compelling visual pattern is also attached to each case study to give you the ability to compare different solutions and apply a best-fit hedging strategy in real-world situations. A diverse range of hedging transactions showing the ultimate payoff profiles and performance metrics are included. These have been designed to achieve the ultimate goal - to convey the necessary skills to allow business and risk management teams to develop proper hedging mechanisms and apply them in practice.
PREFACE CORE OBJECTIVES PART 1. FORWARDS, FUTURES & SWAPS 1. Evolution of Trade: From Physical to Derivative 2. Introduction to Futures 3. Commodity Futures Pricing 4. Hedging Basics 5. Hedge Patterns with Futures 6. Commodity Futures Spreads 7. Basis Controversy 8. Commodity Swaps PART 2. BASIC FEATURES AND STRATEGIES OF OPTIONS 9. Introduction to Options 10. Basic Directional Trading Using Options 11. Hedge Patterns with Options 12. Typical Equity Hedging Strategies PART 3. OPTIONS PRICING MODELS 13. Determinants of Options Value 14. European Put & Call Pricing Bounds 15. Black-Scholes Pricing Model 16. Binomial Option Pricing Model 17. Parity Relations PART 4. ADVANCED HEDGING STRATEGIES 18. Hedging Long Underlying with a Bear Call Spread 19. Hedging Short Underlying with a Bull Call Spread 20. Collars and Fences 21. Conversions and Reversals 22. Covered Short Straddle & Strangle 23. Accrued Profits Protection PART 5. OPTIONS SPREADS & COMBINATIONS 24. Option Spread Strategies 25. Call Ratio Spreads 26. Put Ratio Spreads 27. Options Combinations 28. Synthetic Instruments Index.
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