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A Trader’s Guide to Options:

Volume 1 – Products, Pricing, & Structuring

Subject Index

Available at the ARTShop

(1,437   colour pages, much software, e-Book & soft cover)

 

See also here for the Table of Contents

 
2-factor Models, 536
Absolute volatility, 1102
Accrual notes, 985
All or Nothing options, 920
annualisation, 198
Annuity
  Finite term, 598
  In perpetuity, 597
Annutisation
  Factor, 599
  Finite term, 598
  In perpetuity, 597
Arithmetic average price, 894
  Continuous averaging, 896
  Discrete averaging, 898
Arithmetic average strike, 904
Asian Options, 892
Asset swaps, 744
Authorisation, 993
Average, 1155
Average Rate Options, 892
Back Testing, 1239
Backward Testing, 1236
Backwardation, 843
Barrier options, 925
Rebates, 928
Barrier Options, 1065
  Closed form solution, 928
Basis
  Interest, 584
Basis Point Vol, 1167
Basis point volatility, 1106
Binary options, 919
Black76, 716, 872
  (forward) yield-based, 747
  (forward) yield-based, caps/floors/collars, 756
  (forward) yield-based, swaptions, 739
  Caps, 761
  Collars, 766
  Floors, 766
  Physical delivery option, 719
  Swaptions, 745
Black-Scholes-Merton
  assumptions, 262
  Derivation, 247
  Framework, 228
  Option Pricing Formula, 256
  Risk-neutral derivation, 237
  Risk-neutral hedging strategy, 228
  Bond Curves vs. Swap Curves, 780
  Bond Option
Black76 coupon-bearing, 722
Black76 zero-coupon, 719
  Clean price vs. Dirty price forwards, strikes, and volatilities, 722
Bond Options
  Price based, 718
  Pull-to-Par, 533
  Rate based, 718
Bootstrapping, 583, 741, 749
Boundary Methods, 1047
Brownian motion
  2-factor, 536
  n-factor, 542
Brownian Motion
  Geometric, 508
Bucket Curve Shifts, 771
Bucketing, 768
Calibration, 173, 198
  Term-Structure Models, 557
Callable/Putable, 972
call-spread, 367
Capital protected structures, 984
CAPM, 707
Caps, 757
  Pricing, 761
  Put-Call-Parity, 767
Caps/floors/collars, 756
Carbon credits, 831
Cash or Nothing options, 919
CEV, 516
Channels, 690
chaos, 1223
Charm
  Definition, 359, 361
Cheap/Dear Analysis, 1223
Cheapest to Deliver
Commodities, 842
Chooser options, 961
Complex, 963
Clearing, 862
Coal, 827
Coffee, 841
Collars, 759
  Pricing, 766
  Zero-cost, 759, 766
Colour
  Definition, 361
Commodity options, 824
Compound options, 955
Confirms, 1002
Constant Elasticity of Variance, 211, 516, 519
Contango, 843
Contingent premium options, 923
Continuous compounding interest, 573
Contract Specifications, 1008
  Listed, 1009
  OTC, 1015
Convenience yield, 844
Convertible Bonds, 975
  Bond + EofA approach, 982
  Bond + warrant approach, 979
Convexity Adjustments, 785
Copper, 840
Correlation products, 887
Correlation/Covariance, 1166
Corridor options, 985
Covariance VaR (CVaR), 371, 378, 386, 390, 391
Credit Default Swaps, 744
Credit Spreads, 589
Cross-correlation, 939, 1166
Cumulative Density Function CDF, 148
Curve Building, 583
Curves
  Bucketing, 768
CVaR, 386
Default swaps, 744
Delta
  Definition, 329
Delta and Gamma neutral, 486
Delta Hedge, 431
Delta neutral, 431
Delta risk-neutral, 228, 232
Delta-Strike
  Definition, 360
Derivative
  Total, 412
Digital options, 919
Digital Options, 156, 199
Dilution, 696
Discrete compounding interest, 573
discrete vs. continuous time, 188
Distribution
  Normal Distribution, 147
  Uniform Distribution, 147
Distributions
  Continuous, 146
  Discrete, 145
  Generalised, 521
  Implied, 1221
Dividends and Dividend Yield, 680
Drawdown measures, 306
drift, 121, 173, 185
Drift
  Market vs. BSM, 688
Duration
  Macaulay, 729
  Modified, 729
Duration and V01, 729
Dynamic Rebalancing, 233
Economic Capital, 394
Elasticity
  Definition, 359
Electricity
  Grids, 836
  Electricity markets, 830
Energy
  Transportation, 836
Energy markets, 824
Equity Options, 673
  Market convention, 675
ERA’s, 806
Exchange for Physical, 855
Exchange of Asset options, 934
  Margrabe’s Method, 944
Execution, 862
Expectations, 142
  Continuous, 146
  Discrete, 143
expected loss level, 155
Extendible/Retractable, 972
Fairway bonds, 985
Fat-tailed Distributions, 526
FCOJ, 841
FFT
  Inverse, 1213
FFT- Discrete, 1213
Finite Difference (FD) methods, 1085
Finite Difference Methods, 1047
Finite Element Methods, 1047
Floors, 759
  Pricing, 766
Forecasting
  model, 134
  Prices, 161
  Returns, 161
Formulations
  Difference, 181
  Difference vs. Differential, 188
  Differential, 181
  differential/integral equation, 203
forward prices
  dynamics, 121
Forward Rate Agreement, 711
Forward Rate Agreements (FRA’s), 759
  Transaction mechanics, 759
Forward Rates, 711
Forward start options, 890
Forward Testing, 1236, 1237
Fourier Transform
FFT - Discrete, 1213
FRA, 711
fractal Adjusted Options Trading, 530
fractals, 1223
FRA's. See also Forward Rate Agreements
Frequency Conversions, 595
Funding Rate, 678
Futures
  Calendars, 863
  Delivery rules/cycles, 858
  FRA convexity, 868
  Margins, 860
Futures contracts, 855
FX Options, 802
FXA’s, 806
Game
  Coin Toss, 152
  Dice Rolling, 153
Gamma
  Definition, 335
Gamma Hedge, 439
Gamma neutral, 440
Gamma-Strike
  Definition, 360
GARCH, 1210, 1223
Garman - Kohlhagen, 812
Gas, 827
Gaussian, 178, 201, 266
Generalised Distributions, 521
Geometric average price, 907
Gold, 837
Greeks
  Charm, 361
  Colour, 361
  Delta, 329
  DeltaDecay, 361
  Delta-Strike, 360
  DeltaVega, 412
  Elasticity, 359
  Gamma, 335
  Gamma-Strike, 360
  Gearing, 359
  Lambda, 359
  Leverage, 359
  Other, 357
  Psi, 359
  Rho, 351
  Theta, 345
  Vanna, 412
  Vega, 340
  Vomma, 412
Green energy, 831
Heath, Jarrow, Morton, 561, 1153
  Path-dependence, 562
Hedge
  slippage, 324, 439
Hedging
  Profile match based, 317
  Pyramid, 478
  Pyramid – Delta/Gamma/Rho, 480
  Pyramid – Delta/Gamma/Vega/Rho, 489
  Pyramid – Delta/Vega/Rho, 487
  Sensitivity based, 317
histogram, 23
Historical correlation, 1166
Historical VaR (HVaR), 371, 378
HVaR, 379
Historical Volatility, 1154
Hybrids, 887, 969
Immunisation, 314
Implied volatility, 1116
Index Amortisation, 987
integration, 149
Interest Basis, 584
Interest rate
  Continuous compounding, 573
  Discrete compounding, 573
  Simple, 573
Interest rate options, 709
Interest Rate Parity, 807
  synthetically replicated portfolio, 665
Interest Rate Parity (IRP), 589, 665
Interest rates
  Negative, 784
Inverse Fourier Transform
Inverse FFT, 1213
IR Curves
  mean-reverting, 1127
IR options
  Bucketing, 768
Ito’s Lemma, 190
  Derivation, 243
  The trader’s version, 239
Jump-Diffusion, 517, 210
Knock-in, 1123
Knock-Out/Knock-In options, 925
Kurtosis, 1155
LIBOR swaps, 740
Linear-Programming, 470
Liquidity and Repo’s, 687
Log-Normal, 170
Log-Normal Prices vs. Log-Normal Yields, 731
Lookback options, 911
  Floating price, 915
  Floating strike, 912
Margins, 860
Margrabe’s Method, 944
Market Convention
  most common model, 212, 1048
Market Modelling, 132
  market price of risk, 123, 218
Mark-to-market
  OTC IR options, 788
Mark-to-Market, 1001
Mathematical modelling
  of securities prices, 121
MBS Spread Options, 523
Mean Reversion, 511, 519
Mean Variance Optimisation (MVO), 1261
Metals markets, 836
Model
  n-factor, 542
  model of uncertainty, 167
Modelling the Price/Returns processes, 132
Models
  2-factor, 536
  absolute, 163
  arithmetic, 163
  geometric, 164
  Multi-Index, 536
  relative, 164
Moments
  volatility, 1155
Monte Carlo Methods, 1047, 1052
Monte Carlo VaR (MCVaR), 371, 378
MCVaR, 392
Mortgage Backed Securities, 989
Mortgages, 987
mountain range, 178
Multi-Asset options, 939
Multi-Factor Problems, 535
Multi-Index Models, 536
Multi-Index Problems, 535
Negative interest rates, 784
negative prices, 169
n-factor, 542
Non-Linear Dynamics
  fractal Adjusted Options Trading, 530
Non-Linear Dynamics (NLD), 1216
  Return Maps, 1217
Normal, 170
Normally Distributed Differences
  Absolute, 182
  Relative, 183
Numerical Approximation Errors, 193
Numerical Methods
  Binomial Tree – American options, 1081
  Binomial Tree – Backward induction, 1079
  Binomial Tree – convergence, 1080
  Binomial Tree – European options, 1076
  Binomial Tree – Forward induction, 1078
  Binomial Tree – Instability, 1083
  Binomial Tree – non-recombining, 1083
  Binomial Tree – Pros/Cons, 1083
  Binomial Tree – Recursion formulas, 1079
  Binomial Trees, 1074
  Boundary methods, 1047
  Differential Equations (DEs), 1046
  Finite Difference – Explicit, 1089
  Finite Difference – Option pricing (explicit), 1092
  Finite Difference – Option pricing (implicit), 1095
  Finite Difference – Pros/Cons, 1096
  Finite Difference – Stability (explicit), 1094
  Finite Difference – Taylor Series, 1089
  Finite Difference (FD) methods, 1047, 1085
  Finite Element (FE) methods, 1047
  Monte Carlo, 1047
  Monte Carlo Methods, 1052
  Monte Carlo Methods – Barrier options, 1065
  Monte Carlo Methods – Hedging, 1071
  Monte Carlo Methods - PaR, 1072
  Monte Carlo Methods – Pros/Cons, 1072
  Monte Carlo Methods – Vanilla options, 1060
  Monte Carlo Methods – Variance reduction, 1070
  Partial Differential Equations (PDEs), 1047
  Trees, 1047
  Trees and Lattices, 1074
Oil, 827
  Peak, 828
OIS, 786
Open/High/Low/Close, 1164
Optimal holding period P&L analysis, 1261
Option Parameter
  Strike Price, 677
Option Parameter
  Underlying Price vs. Forward Price, 676
Option Parameter
  Funding Rate, 678
Option Parameter
  Dividends and Dividend Yield, 680
Option Parameter
  Volatility, 682
Option Parameter
  Time to Expiration, 683
Options
  Asian, 892
  Bonds, 718
  Commodity, 824
  Convenience yield, 844
  Correlation products, 887
  Equity, 673
  Exotics, 887
  Forward start, 890
  FX, 802
  FX curves, 811
  FX Fat-tails, 810
  FX Jump-diffusion, 810
  Garman - Kohlhagen, 812
  Interest rate, 709
  Listed, 851
  Log-Normal Prices vs. Log-Normal Yields, 731
  on futures, 851
  Ratio call spread, 877
  Serial contracts, 865
Options on futures
  Market convention, 872
Ornstein- Ühlenbeck, 519
Ornstein-Ühlenbeck Equations, 211
Orthogonalisation, 539, 549
OverNight Index Swaps, 786
PaR, 317
  Efficient Frontier, 1250
  Measures, 315
PaR, 1227
Parallel Curve Shifts, 769
Path-Dependence, 567
Peak oil, 828
Pipelines, 836
Pollution derivatives, 831
Pork bellies, 841
Portfolio options, 934
portfolio variance, 389
Position keeping, 317
Position Keeping, 1273
  IR options, 768
Position Sensitivity Measures, 320
Pre-payment, 987
Principle Component Analysis, 1221
Probability Density Function, 147
Profile matching
  Digitals, 921
Profile Matching, 314, 365
Profit at Risk (PaR), 1100, 1228
Profit-at-Risk, 1227
Pull-to-Par, 733
Price-based vs. yield-based, 733
Purchasing Power Parity, 808
Purchasing Power Parity (PPP), 591, 667
Put-Call Parity, 267
  Example, 270
Pyramid Hedging, 478, 480, 487
quadrature, 204
Quantity Adjusted options, 966
Quanto options, 966
Quasi Forecasting Model, 160
Quotation
  Listed, 997
  OTC, 999
Quotation conventions, 996
Ratio call spread, 877
Rebates, 928
regulators, 207
Relative volatility, 1102
repo, 174
repo rates, 174
Repo’s, 687
Return Maps, 1217
Rho
  Definition, 351
Risk
  Credit Risk, 303
  Event Risk, 303
  Market Risk, 303
  Model/Systems/Valuation, 304
  Multiple dimensions, 480
  Operational, 304
  Reinvestment Risk, 303
  Traditional measures, 305
  Types of, 303
Risk Management, 317
risk measurement, 207
Risk Preference, 24
risk premium, 218
Risk/Return profile, 24, 25
Risk-adjusted Performance Calculations, 1248
Risk-Neutral Valuation, 228
  Derivation, 237, 247
Root-2, 178, 201, 266
Rotation Risk, 771
Saw-Tooth Markets, 692
Securitisation, 989
Sensitivity
  chord slope, 322
  Instantaneous, 325
  Measures, 310
  tangent slope, 325
  V01, 321
Serial-correlation, 956, 1166
Serial-Correlation in Parameters, 1170
Series Representation
  Taylor Series, 405
Settled for Difference, 855
Settlement, 1001
Shape of Uncertainty, 167
Silver, 839
Simple interest, 573
SIMPLEX, 470
Skew, 1155
Softs, 841
Special Purpose Vehicle, 989
Spectral Analysis, 1212
Splits, 699
Spread options, 934
Spread Options, 539
Statistical Forecasting, 132
Stochastic Calculus, 191, 239
stochastic valuation, 133
stochastic volatility, 210
Stochastic Volatility, 541
Strike Price, 677
Structured products, 887, 969
Swap curve, 741
Swap curve generation, 741, 749
Swap Curves vs. Bond Curves, 780
Swap rate, 741
Swaps, 740
  Asset, 744
  Default, 744
  LIBOR, 740
Swaptions, 739
  Black76, 745
  Market convention valuation, 745
  Payer, 745
  Receiver, 745
  Settlement, 747
Synthetic Replication
  Continuous, 232, 233
  Discrete, 228
Synthetic Replication, 1278
Synthetic Replication, 1286
Synthetic Replication, 1307
Taylor Series, 405
Term Products, 710
Term-structure, 768
Term-Structure Models, 544
  1-factor, 546
  1-factor (functional), 547
  2-factor (functional), 549
  Black-Derman-Toy, 555
  Calibration, 557
  Calibration - PaR, 559
  Calibration - Standard, 558
  CIR, 554
  Equilibrium, 546
  Heath, Jarrow, Morton, 561
  Ho-Lee, 554
  Hull-White, 554
  n-factor, 546
  No Arbitrage, 546
  Traditional, 550
  Vasicek, 554
Term-structure of volatility, 265
Term-Structure Theories (TST), 1140
Theta
  Definition, 345
time buckets, 771
Time Evolution of Uncertainty, 176
Time Series Analyses
  Econometrics, 1209
  GARCH, 1210
time stretching factor, 180
Time to Expiration, 683
trade optimisers, 1245
Trading, 1273
Trading Volatility, 1277
traditional forecast, 160
Tree and Lattice Methods, 1047
Trees and Lattices, 1074
trend, 121
Trends and Wobbles, 133
Underlying Price vs. Forward Price, 676
Up-side Participation structures, 984
US Dollar
  As price of gold, 668
  As price of oil, 667
  As reserve currency, 667
Valuation Under UnCertainty, 199
Vanna
  Definition, 412
VaR, 317, 370
  Covariance VaR (CVaR), 317
  Credit VaR, 394
  formulation, 372
  Historical VaR (HVaR), 317
  Measurement, 377
  Measures, 314
  model assumptions, 373
  Monte Carlo VaR (MCVaR), 317
  policy, 374
VaR Methods, 394
Verification, 393
Variability Measures, 308
Variance, 1155
  of a portfolio, 388
  Vega
  Definition, 340
Volatility, 682, 1099
  “P&L” Volatility, 1201
  “Trading” Volatility, 1163, 1190, 1191, 1195
  Absolute, 1102, 1105, 1134, 1167
  Absolute price vol, 729
  Absolute vs. Relative, 693
  Absolute yield vol, 729
  Advanced Concepts, 1157, 1222
  Asian options, 1120
  Barrier option, 1120
  Basis point - historical, 1183, 1184
  Basis point vol, 729
  basis point volatility, 1106
  Bond, Swaption, Cap Vol, etc., 781
  Convertible Bonds, 1121
  Deposit Futures Options, 1136
  Forecasting with GARCH, 1210
  GARCH, 1152
  High/Low, 1175
  High/Low/Close, 1176
  Historical – Constant maturity, 1187
  Historical, Empirical, Statistical, 1154
  Histories of “Historicals”, 1168, 1184
  implied volatility, 1116, 1117
  Implied volatility, 1116
  Implied vs. Historical, 1189
  Implied-implied vols, 1139
  Interpolation, 1108
  Intra-Period Effects & Annualisation, 1163
  Mean Reversion, 1140
  Mean Reverting, 1151
  Model volatility, 1116
  Open/High/Low/Close, 1173
  Open/High/Low/Close – next day, 1177
  Open/High/Low/Close – same day, 1177
  Price vol to yield vol conversion, and vice versa, 729
  Price-based vs. yield-based, 1134
  Proportional vol, 729
  Quantos, 1121
  Realised volatility, 1195
  Rebalance volatility, 1195
  relationship to Duration and V01, 729
  Relative, 1102, 1104, 1134, 1167
  Relative price vol, 729
  Relative yield vol, 729
  Sample Weighting, 1162
  Sampling Frequency, 1162
  Sampling Length, 1161
  Skew, 1140, 1148
  Smile, 1148
  Spread Options, 1121
  stationarity, 1168
  Surfaces, 1145
  Term-Structure and Expiration, 1141
  Term-Structure in terms of Maturity of the Underlying, 1144
  Term-Structure Models, 1126
  Term-Structure of Volatility, 1140
  Traded Volatility, 1139
  Volume adjusted, 1178
Volatility Indices, 1194
Volatility Matrices, 780
Vomma
  Definition, 412
Warrants, 694, 697
Yield curve slope options, 949
Yield Curve Slope Options, 522
Zero-cost collar
  Pricing, 766
Zinc concentrate, 840
 

 

 

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