Hull, Options, Futures, and Other Derivatives, 10th Edition | Pearson

# John k hull options buy

## Hull, Options, Futures, and Other Derivatives, 10th Edition | Pearson

Introduction 1 1. Mechanics of futures markets 19 2. Determination of forward and futures prices 41 3. Hedging strategies using futures 70 4. Interest rate markets 93 5. Swaps 6. Mechanics of options markets 7.

Properties of stock options 8. Trading strategies involving options 9. Introduction to binomial trees A model of the behavior of stock prices The Black-Scholes model Options on stock indices, currencies, and futures The Greek letters Volatility smiles Value at risk Estimating volatilities and correlations Numerical procedures Exotic options More on models and numerical procedures Martingales and measures Interest rate derivatives: the standard market models Interest rate derivatives: models of the short rate Interest rate derivatives: more advanced models Swaps revisited Credit risk Credit derivatives Real options Insurance, weather, and energy derivatives Derivatives mishaps and what we can learn from them There have been many developments in derivatives markets over the last 15 years and the book has grown to keep up with them.

The fifth edition has seven new chapters that cover new derivatives instruments and recent research advances. Like earlier editions, the book serves several markets. It is appropriate for graduate courses in business, economics, and financial engineering.

It can be used on advanced undergraduate courses when students have good quantitative skills. Also, many practitioners who want to acquire a working knowledge of how derivatives can be analyzed find the book useful.

One of the key decisions that must be made by an author who is writing in the area of derivatives concerns the use of mathematics. If the level of mathematical sophistication is too high, the material is likely to be inaccessible to many students and practitioners.

If it is too low, some important issues will inevitably be treated in a rather superficial way. I have tried to be particularly careful about the way I use both mathematics and notation in the book.

Nonessential mathematical material has been either eliminated or included in end-of-chapter appendices. Concepts that are likely to be new to many readers have been explained carefully, and many numerical examples have been included. The book john k hull options buy both derivatives markets and risk management.

It assumes that the reader has taken an introductory course in finance and an introductory course in probability and statistics. No prior knowledge of options, futures contracts, swaps, and so on is assumed. It is not therefore necessary for students to take an elective course in investments prior to taking a course based on this book.

There are many different ways the book can be used in the classroom. Instructors teaching a first course in derivatives may wish to spend most time on the first half of the book.

Instructors teaching a more advanced course will find that many different combinations of the chapters in the second half of the book can be used. I find that the material in Chapters 29 and 30 works well at the end of either an introductory or an advanced course.

What s New? Material has been updated and improved throughout the book. The changes in this edition include: 1. A new chapter on the use of futures for hedging Chapter 4. Part of this material was previously in Chapters 2 and 3. The change results in the first three chapters being less intense and john k hull options buy hedging to be covered in more depth. A new chapter on models and numerical procedures Chapter Much of this material is new, but some has been transferred from the chapter on exotic options in the fourth edition.

A new chapter on swaps Chapter This gives the reader an appreciation of the range of nonstandard swap products that are traded in the over-the-counter market and discusses how they can be valued.

There is an extra chapter on john k hull options buy risk. Chapter 26 discusses the measurement of credit risk and credit value at risk while Chapter 27 covers credit derivatives. There is a new chapter on real options Chapter There is a new chapter on insurance, weather, and energy derivatives Chapter There is a new chapter on derivatives mishaps and what we can learn from them Chapter The chapter on martingales and measures has been improved so that the material flows better Chapter The chapter on value at risk has been rewritten so that it provides a better balance between the historical john k hull options buy approach and the model-building approach Chapter The chapter on volatility smiles has been improved and appears john k hull options buy in the book.

Chapter One or two changes have been made to the notation. The most significant is that the strike price is now denoted by K rather than X. Many new end-of-chapter problems have been added. Software A new version of DerivaGem Version 1. The Options Calculator consists of the software in the previous release with minor improvements. The Applications Builder consists of a number of Excel functions from which users can build their own applications.

It includes a number of sample applications and enables students to explore the properties of options and numerical procedures more easily. It also allows more interesting assignments to be designed. The software is described more fully at the end of the book. Updates to the software can be downloaded from my website: www. Instructors who adopt the text are welcome to adapt the slides to meet their own needs. Answers to Questions As in the fourth edition, end-of-chapter problems are divided into two groups: "Questions and Problems" and "Assignment Questions".

Solutions to Assignment Questions are available only in the Instructors Manual. Preface xxi A cknowledgments Many people have played a part in the production of this book. Huafen Florence Wu and Matthew Merkley provided excellent research assistance. I am particularly grateful to Eduardo Schwartz, who read the original manuscript for the first edition and made many comments that led to significant improvements, and to Richard Rendleman and George Constantinides, who made specific suggestions that led to improvements in more recent editions.

The what options trading four editions of this book were very popular with practitioners and their comments and suggestions have led to many improvements in the book. The students in my elective courses on derivatives at the University of Toronto have also influenced the evolution of the book.

Alan White, a colleague at the University of Toronto, deserves a special acknowledgment. Alan and I have been carrying out joint research in the area of derivatives for the last 18 years. During that time we have spent countless hours discussing different issues concerning derivatives. Many of the new ideas in this book, and many of the new ways used to explain old ideas, are as much Alan s as mine.

Alan read cash shelf online earnings reviews original version of this book very carefully and made many excellent suggestions for improvement. Alan has also done most of the development work john k hull options buy the DerivaGem software.

### If You're an Educator

Special thanks are due to many people at Prentice Hall for their enthusiasm, advice, and encouragement. I would particularly like to thank Mickey Cox my editorP. Boardman the editor-in-chief and Kerri Limpert the production editor. I am also grateful to Scott Barr, Leah Jewell, Paul Donnelly, and Maureen Riopelle, who at different times have played key roles in the development of the book. I welcome comments on the book from readers. My email address is: hull rotman.

Futures and options are now traded actively on many exchanges throughout the world. Forward contracts, swaps, and many different types of options are regularly traded outside exchanges by financial institutions, fund managers, and corporate treasurers in what is termed the over-the-counter market.

Derivatives are also sometimes added to a bond or stock issue.

### If You're a Student

A derivative can be defined as a financial instrument whose value depends on or derives from the values of other, more basic underlying variables. Very often the variables underlying derivatives are the prices of traded assets. A stock option, for example, is a derivative whose value is dependent on the price of a stock.

However, derivatives can be dependent on almost any variable, from the price of hogs to the amount of snow falling at a certain ski resort. Since the first edition of this book was published inthere have been many developments in derivatives markets.

There is now active trading in credit derivatives, electricity derivatives, weather derivatives, and insurance derivatives. Many new types of interest rate, foreign exchange, and equity derivative products have been created. There have been many new ideas in risk management and risk measurement.

Analysts have also become more aware of the need to analyze what are known as real options. These are the options acquired by a company when it invests in real assets such as real estate, plant, and equipment. This edition of the book reflects all these developments.

In this opening chapter we take a first look at forward, futures, and options markets and provide an overview of how they are used by hedgers, speculators, and arbitrageurs.

Later chapters will give more details and elaborate on many of the points made here. Derivatives exchanges have existed for a long time. Initially its main task was to standardize the quantities and qualities of the grains that were traded.

Within a few years the first futures-type contract was developed. It was known as a to-arrive contract. Speculators soon became interested in the contract and found trading the contract to be an attractive alternative to trading the grain itself. Now futures exchanges exist all over the world. Options had traded prior to but the CBOE succeeded in creating an orderly market with well-defined contracts.

Put option contracts started trading on the exchange in The CBOE now trades options on over stocks and many different stock indices. Like futures, options have proved to be very popular contracts.

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Many other exchanges throughout the world now trade options. The underlying assets include foreign currencies and futures contracts as well as stocks and stock indices.

Traditionally derivatives traders have met on the floor of an exchange and used shouting and a complicated set of hand signals to indicate the trades they would like to carry out. This is known as the open outcry system. In recent years exchanges have increasingly moved from the open outcry system to electronic trading. The latter involves traders entering their desired trades at a keyboard and a computer being used to match buyers and sellers.

There seems little doubt that eventually all exchanges will use electronic trading. The over-the-counter market is an important alternative to exchanges and, measured in terms of the total volume of trading, has become much larger than the exchange-traded market.

It is a telephone- and computer-linked network of dealers, who do not physically meet.

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