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DerivativesDerivatives should not scare you! They really are not that difficult to understand. They are volatile which have led many to lose enormous amounts of money, but the derivatives in and of themselves are not difficult. So relax.
Introduction
My introduction
to Options
(needs updating 11/6/03)
My introduction to other derivatives
such as futures and swaps.
A glossary of risk management terms is available at the Treasury Management Association of Canada 's site. It is fairly complete and quite good. Yahoo's finance site has a good Frequently Asked Questions section for basic derivatives that answers some of the practival questions people have who want to trade options.
Swaps
Interest rate swaps are powerful tools to hedge interest rate
risk. Here is an excellent link that explains
interest rate swaps
as well as another source for information on
interest rate swaps
.
Pricing Options
The two most common ways to price options are the Balck-Scholes Formula and the Binomial Option Pricing model.
Notes on the Black-Scholes Fomula
My own class notes on the
Black-Scholes
formula.
Kevin Rubash from Bradley has a great site on the
B-S Model.
About.com
has simply excellent coverage. Even a calculator!
Not sure what volatility to use? Numa has a good discussion of it!
Pricing options on your computer? Here is a very cool
calculator
that will look up historical volatility for you and give you the "Correct
price" as well as the actiual price.
Notes on the Binomial Option Pricing Model
Philip H. Dybvig of Washington University has a very good notes
on the
binomial option pricing
model.
A discussion of the
Cox-Rubenstein
's model.
Joaquin R. Trigueros at Tulane offers a binomial pricing calculator.
Much more rigorous, but good for the "expert."
Why Hedge?
A common problem with derivatives is that the user is unsure of why derivatives are being used. This centers on risk management which is a very important field that generally does not get the coverage it warrants in an undergraduate course.
Want to know why firms hedge? The answer in "
note form
" is here, it is also available in "
working paper
" form from Allayannis and Weston from UVA.. Nut shell reason?
It can increase shareholder wealth!
Other derivative links (only the best ones!)
Looking for test questions on derivatives? try here!
The Option Club lists implied volatilities and can help you look for arbitrage opportunities. Good for class or real world!
Derivative information and fun? Try the Margrabe Group's E'zine and site. Fun and informative! :-)
a discussion of Rubenstien's oprion procing models
od!
Derivative Primers
* A true primer for beginners is available at through
Option Source
* Cool site! List of
common questions
(and answers) Update daily.
* Invest-FAQ
has an easy to follow introduction to derivatives.
* One would be remiss to overlook the
CBOE education links!
Other Derivative topics
regulatory concerns
and derivatives
good commenatry
on derivatives and banks
A good overview of much in the field of derivatives including links to journal articles and conferences is available at Numa.
Real options
Realoptions.com
A good
tutorial
and
article
from McKinsey Quarterly (free Registration required)
other good linnks I need to add to pages somewhere:
CMOs http://www.firstinstitutional.com/about/cmo/
foreign stock exchanges