Includes bibliographical references and index.

Contents: preface ; derivatives-an introduction ; introduction to risk ; managing risk ; types of business risks ; price risk ; exchange rate risk ; interest rate risk ; derivatives ; principle of hedging ; derivative products ; classification of derivatives ; participants in derivative markets ; hedgers ; speculators ; arbitrageurs ; steps for hedge accounting ; hedged item ; hedging instruments ; hedging relationship ; functions of derivative markets ; misuses and criticism of derivatives ; 2. forwards and futures ; introduction ; forward contract ; features of forward contract ; settlement of forward contract ; futures contract ; specifications of futures contract ; open interest ; differences between forward and futures contracts ; margins ; marking to market ; pricing of forward/futures contract ; cash-and-carry arbitrage ; reverse cash-and-carry arbitrage ; pricing investment asset ; pricing consumption asset ; value of a forward contract ; convergence ; relationship between forward and futures price ; relationship of futures price and future spot price ; expectancy model of futures pricing ; types of futures ; commodity futures ; introduction ; benefits of commodity futures ; commodity futures and economy ; differences - commodity and financial futures ; futures contracts on commodities ; hedging with commodity futures ; long and short positions ; short hedge ; long hedge ; perfect and imperfect hedge ; basis and basis risk ; hedge ratio ; hedging for changes in volume ; speculation with commodity futures ; spread strategies with futures ; hedging for gross profit margin ; stock and index futures ; introduction ; index futures ; forward contracts on stocks ; futures contracts on indices and individual stocks ; features and specifications ; margining system ; pricing stock and index futures ; applications of index futures ; hedging through index futures ; hedging existing portfolio ; hedge ratio ; hedging short position ; insulate against market risk ; controlling risk of stock portfolio ; speculation with futures ; arbitrage with futures ; other applications of index futures ; currency forwards and futures ; introduction ; foreign exchange preliminaries ; foreign exchange risk ; foreign exchange markets and rates ; bid rate vs. ask rate ; spot rate vs.

forward rate ; forward premium/discount ; currency forwards ; foreign exchange transactions ; spot transaction, forward transaction, swap transaction ; outright forward vs swap ; arbitrage and foreign exchange rates ; hedging through forward contracts ; hedging receivables ; hedging payables ; cost of forward hedge ; speculation with forward contracts ; arbitrage with forward contract ; non deliverable forward (ndf) ; evolution and growth of ndf ; features of ndf ; how ndf works ; ndf and interest rate parity ; are ndfs desirable ; currency futures ; contract specifications ; pricing currency futures ; hedging through currency futures ; speculation with currency futures ; arbitrage with currency futures ; interest rate and forwards ; introduction ; interest rate markets ; repo and reverse repo transactions ; treasury rate ; interbank transactions ; term structure of interest rates (yield curve) ; treasury zeros and ytms ; bootstrapping method ; continuous compounding ; forward rate agreements (fras) ; fra - the product, borrower's fra, investor's fra, settlement of fra ; pricing fra ; hedging with fras ; hedging against rising interest rates ; hedging against falling interest rates ; speculation with fras ; arbitrage with fras ; interest rate futures ; introduction ; short term interest rate futures ; treasury bills ; interest rate futures on t-bills ; futures contracts on t-bills ; pricing of t-bills and price quotation on t-bill futures ; futures contract on t-bills in india ; hedging with t-bill futures ; hedging against falling yields (long hedge) ; hedging against rising interest rates (short hedge) ; speculation with t-bill futures ; arbitrage with t-bill futures ; implied repo rate ; pricing of t-bill futures ; euro dollar futures ; euro dollars ; futures contracts on euro dollars ; pricing of and hedging with euro dollar futures ; treasury bond futures ; treasury bonds ; pricing treasury bonds ; futures contract on treasury bonds ; pricing of treasury bond futures ; conversion factor ; cheapest to deliver bond ; hedging principle, duration and modified duration ; optimal hedge ratio: duration based hedging ; interest rate futures in india ; interest rate and currency swaps ; introduction ; interest rate swaps ; features of swap ; need for swap intermediary ; applications of swaps ; transforming nature of liabilities ; transforming nature of assets ; hedging with swaps ; reducing cost of funds ; rationale for swaps - the comparative advantage ; types of interest rate swaps ; fixed to floating, floating to fixed, basis swap ; currency swaps ; hedging against exchange rate risk with currency swap ; reducing cost of funds with currency swap ; distinguishing features of currency swap ; valuation of swap ; valuing interest rate swap ; swap as pair of bonds ; swap as series of forward contracts ; swap quotes and initial pricing ; counter party risk and swaps ; valuing currency swap ; other swaps ; commodity swaps ; equity swaps ; options-basics ; introduction ; terminology of options ; call option ; put option ; moneyness of options ; in-the-money, at-the-money and out-of-the-money options ; types of options ; nature of exercise ; nature of markets ; nature of underlying asset ; understanding options quotations ; trading and settlement ; assignment ; options other than stocks/indices ; differences between options and forwards/futures ; option pricing - basics ; introduction ; intrinsic value and time value ; boundary conditions for option pricing ; call option ; put option ; arbitrage based relationship of option pricing ; put call parity ; put call parity for european options ; put call parity for american options ; option pricing - binomial model ; introduction ; binomial option pricing model ; risk neutral valuation ; equivalent portfolio approach ; binomial model for put pricing ; multi-period binomial model ; valuing american options ; valuing american call ; valuing american put ; binomial model for valuing options on dividend paying stocks ; putting binomial model in practice ; binomial model for currency options ; binomial model for index options ; monte carlo simulation ; options - black scholes model ; introduction ; factors affecting option prices ; spot price ; exercise price ; time to maturity ; volatility ; interest rates ; dividend ; black scholes option pricing model ; lognormal distribution ; mean and standard deviations ; applying black scholes model ; assumptions of black scholes model ; interpreting black scholes model ; put pricing using bsm ; merton model for valuing options on dividend paying stock ; valuing options on indices ; valuing options on currencies ; pseudo american option pricing ; black scholes american option pricing for single dividend ; volatility - measurement ; implied volatility ; options greeks-sensitivities ; introduction ; delta and delta hedging ; computing delta ; meaning of and limits on values of delta ; assumption of linearity ; behaviour of delta ; delta and time to maturity ; additivity of delta ; deltas of other derivatives ; delta hedging ; delta neutrality ; theta ; computing theta ; meaning of theta ; theta and time ; theta for put option ; portfolio theta ; gamma and gamma neutrality ; computing gamma ; behaviour of gamma with spot price and time ; portfolio gamma ; gamma neutrality ; other greeks ; vega ; volatility and value at risk ; introduction ; measures of risk ; volatility ; exponential weighted moving average method ; correlation and covariance ; garch (1,1) model ; volatility index ; computing vix ; value at risk ; introduction ; definition and meaning of var ; decisions on var ; methods of calculating var ; historical simulation ; limitations of var ; stress testing ; 15. hedging with options ; introduction ; hedging strategies with options ; hedging with stock options ; hedging long position in stock ; hedging short position in stock ; hedging portfolios with index options ; hedging long position in portfolio ; hedging short position in portfolio ; hedging with currency options ; hedging receivables ; hedging payables ; range forward- zero cost structures ; 16. options trading strategies ; introduction ; income generation with options ; naked call ; writing covered call ; writing put ; option trading strategies ; straddle - long and short ; strangle - long and short ; straps and strips ; bull spread ; bear spread ; butterfly spread ; condor spread ; calendar spreads ; diagonal spread ; box spread ; factor affecting spreads ; synthetic positions ; synthetic long position ; synthetic short position ; other synthetic positions ; 17. exotic options ; introduction ; forward start option ; binary option ; chooser option ; shout option ; exchange option ; gap option ; pay later option ; compound option ; path dependent options ; barrier options ; asian options ; look-back option ; other exotic options ; 18. interest rate options ; introduction ; interest rate option ; cap ; hedging with cap ; valuation of cap ; floor ; valuation of floor ; collar ; options on bonds ; valuation of options on bonds ; 19. options on futures and swaps ; introduction ; options on futures ; payoff ; put call parity for futures options ; binomial model for futures options ; valuation of futures options - black's model ; options on swaps - swaptions ; payoff ; option on bonds and swaptions ; valuation of swaptions ; 20. credit risk, securitization, and credit derivatives ; introduction ; credit risk ; introduction ; probability of default ; recovery rates ; default rates ; transition rates ; credit value at risk ; credit derivatives ; introduction ; credit derivative ; types of credit risk ; credit default swaps

The second edition of Derivatives and Risk Management serves as a textbook for an introductory course on derivatives and risk management.