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Tables of Contents for Managing Currency Risk Using Foreign Exchange Options
Chapter/Section Title
Page #
Page Count
Preface
xi
Acknowledgements
xv
Short history of foreign exchange options
1
5
Development of interbank (over the counter) market
2
1
Simple option structures
3
1
The arrival of exotics
4
1
Corporate awareness
4
1
Terms and conditions governing options
5
1
Supervision and regulation
5
1
The basics
6
10
Foreign exchange (FX)
7
1
Spot and forward FX
8
1
Option definition
8
1
Premium
9
1
Face value
10
1
Call and put
10
1
Exercise
11
1
Maturity (expiry) date and time
11
1
Option style
12
1
Strike
13
1
Intrinsic value
13
3
Option characteristics
16
10
FX position
16
2
Long call (bought call)
18
1
Long put (bought put)
19
1
Call and put together (straddle)
20
1
Short options
21
2
Interim value of options
23
1
Underlying position
24
2
The market-place
26
13
Over the counter (OTC)
26
5
Exchange listed options
31
5
Comparison (OTC versus exchange listed contracts)
36
3
Put-call parity
39
8
Synthetic positions
39
4
Put-call parity: working example
43
2
Other synthetics
45
1
Interim values
46
1
Option pricing
47
21
Black-Scholes
47
1
Input factors for pricing
48
1
Volatility
49
2
Components of price
51
1
Intrinsic value
51
1
Time value
52
1
Components of time value
53
1
Time value effects: non-linear nature
54
2
Time value effects: ATM versus OTM/ITM options
56
2
Time value adjustment through volatility
58
4
Pricing terms
62
2
Pricing systems
64
2
Pricing summary
66
2
Using options for hedging: simple
68
33
Calls and puts
68
4
Selling options
72
2
The risk reversal
74
10
Participating forwards
84
6
Seagulls
90
5
Designing a strategy
95
4
Risk manipulation
99
2
The delta and option replication
101
12
Understanding the delta
102
3
Delta hedging
105
4
Option replication
109
4
OTC market practice
113
20
Volatility quoting
114
11
Exercise procedure
125
1
Other practices
126
2
Corporate market
128
1
How to compare quotes using volatility
129
4
Bank relationships
133
7
The salesperson
133
2
The dealer
135
2
Is price all that matters?
137
1
Guidelines for good relationships
137
3
Using options for hedging: intermediate
140
41
Compound options
141
3
Forward start options
144
1
Average rate options (AVROs)
145
6
Barrier options
151
27
Lookback (optimal) options
178
1
Basket options
179
2
Using options for hedging: advanced
181
27
The digital (binary or bet) option
182
13
Exotic options in strategies
195
13
Risk control
208
8
Interim value of options
209
1
Risk simulations
210
5
Software systems
215
1
Documentation
216
19
History of option terms and conditions
217
2
Market preference: terms and conditions
219
1
Master agreements: summary
219
1
1997 international currency options market (ICOM) terms
220
2
Market practice
222
7
Schedule of Certain matters to be agreed
229
2
The barrier option addendum
231
2
Impact of 1997 ICOM
233
2
Counterparty credit risk
235
12
Background
235
1
Foreign exchange limits
236
2
Netting
238
2
Option counterparty risk factors
240
4
Margins
244
1
Master Agreement terms and conditions
245
1
Conclusion
245
2
Glossary of terms
247
20
Appendix I Currency codes
267
4
Apendix II London Code of conduct
271
2
Appendix III Exchange contract specifications
273
2
Appendix IV International OTC market terms and conditions
275
48
Index
323