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Table Of Contents

CHAPTER 1:Introduction to Derivatives
1.1Types of Derivative Contracts
1.2History of Financial Derivatives Markets
1.3Participants in a Derivative Market
1.4Economic Function of the Derivative Market
CHAPTER 2: Understanding Interest Rates and Stock Indices
2.1Understanding Interest rates
2.2Understanding the Stock Index
2.3Economic Significance of Index Movements
2.4Index Construction Issues
2.5Desirable Attributes of an Index
2.6Applications of Index
2.6.1Index derivatives
CHAPTER 3: Futures Contracts, Mechanism and Pricing
3.1 Forward Contracts
3.2Limitations of forward markets
3.3 Introduction to Futures
3.4Distinction between Futures and Forwards Contracts
3.5Futures Terminology
3.6Trading Underlying vs. Trading Single Stock Futures
3.7Futures Payoffs
3.7.1Payoff for buyer of futures: Long futures
3.7.2Payoff for seller of futures: Short futures
3.8 Pricing Futures
3.8.1Pricing equity index futures
3.8.2Pricing index futures given expected dividend amount
3.8.3Pricing index futures given expected dividend yield
3.9Pricing Stock Futures
3.9.1Pricing stock futures when no dividend expected
3.9.2Pricing stock futures when dividends are expected
CHAPTER 4: Application of Futures Contracts
4.1Understanding Beta (βββββ)
4.2Numerical illustration of Applications of Stock Futures
4.2.1. Long security, sell futures
4.2.2Speculation: Bullish security, buy futures
4.2.3Speculation: Bearish security, sell futures
4.2.4 Arbitrage: Overpriced futures: buy spot, sell futures
4.2.5Arbitrage: Underpriced futures: buy futures, sell spot
4.3Hedging Using Stock Index Futures
4.3.1 By Selling Index Futures
5.1Option Terminology
5.2Comparison between Futures and Options
Table 5.1: Comparison between Futures and Options
5.3Options Payoffs
5.3.1Payoff profile of buyer of asset: Long asset
5.3.2Payoff profile for seller of asset: Short asset
5.3.3Payoff profile for buyer of call options: Long call
5.3.4Payoff profile for writer of call options: Short call
5.3.5Payoff profile for buyer of put options: Long put
5.3.6Payoff profile for writer of put options: Short put
5.4Application of Options
5.4.1Hedging: Have underlying buy puts
5.4.2 Speculation: Bullish security, buy calls or sell puts
5.4.3 Speculation: Bearish security, sell calls or buy puts
5.4.4Bull spreads - Buy a call and sell another
5.4.5Bear spreads - sell a call and buy another
CHAPTER 6: Pricing of Options Contracts and Greek Letters
6.1Variables affecting Option Pricing
6.2The Black Scholes Merton Model for Option Pricing (BSO)
6.3The Greeks
6.3.1 Delta ( )
6.3.2Gamma (ΓΓΓΓΓ)
6.3.4Vega (ννννν)
6.3.5Rho (ρρρρρ)
Chapter 7: Trading of Derivatives Contracts
7.1 Futures and Options Trading System
7.1.1Entities in the trading system
7.1.2Basis of trading
7.1.3Corporate hierarchy
7.1.4Client Broker Relationship in Derivative Segment
7.1.5Order types and conditions
7.2The Trader Workstation
7.2.1 The Market Watch Window
7.2.2 Inquiry window
7.2.3Placing orders on the trading system
7.2.4 Market spread/combination order entry
7.3Futures and Options Market Instruments
7.3.1Contract specifications for index futures
7.3.2Contract specification for index options
7.3.3Contract specifications for stock futures
7.3.4Contract specifications for stock options
7.4Criteria for Stocks and Index Eligibility for Trading
7.4.1Eligibility criteria of stocks
7.4.2Eligibility criteria of indices
CHAPTER 8: Clearing and Settlement
8.1Clearing Entities
8.1.1Clearing Members
8.1.2Clearing Banks
8.2Clearing Mechanism
8.3 Settlement Procedure
8.3.1Settlement of Futures Contracts
8.3.2Settlement of options contracts
8.4Risk Management
8.4.2Types of margins
8.5Margining System
8.5.1SPAN approach of computing initial margins
8.5.2Mechanics of SPAN
8.5.3Overall portfolio margin requirement
8.5.4Cross Margining
CHAPTER 9: Regulatory Framework
9.1 Securities Contracts (Regulation) Act, 1956
9.2Securities and Exchange Board of India Act, 1992
9.3Regulation for Derivatives Trading
9.3.1Forms of collateral’s acceptable at NSCCL
9.3.2Requirements to become F&O segment member
9.3.3Requirements to become authorized / approved user
9.3.4Position limits
9.3.5Reporting of client margin
9.4 Adjustments for Corporate Actions
CHAPTER 10: Accounting for Derivatives
10.1 Accounting for futures
10.2Accounting for options
10.3Taxation of Derivative Transaction in Securities
10.3.1Taxation of Profit/Loss on derivative transaction in securities
10.3.2Securities transaction tax on derivatives transactions
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Published by: rajasekhar on Sep 21, 2011
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