Sunil K. Parameswaran - Fundamentals of Financial Instruments

11 CHAPTER 3: Equity Shares, Preferred Shares, and Stock Market IndicesINTRODUCTION PAR VALUE VERSUS BOOK VALUE ACCOUNTING FOR A STOCK ISSUE VOTING RIGHTS DIVIDENDS TREASURY STOCK ACCOUNTING FOR TREASURY STOCK SPLITS AND REVERSE SPLITS PREEMPTIVE RIGHTS INTERPRETING STATED RATIOS HANDLING FRACTIONS PHYSICAL CERTIFICATES VERSUS BOOK ENTRY TRACKING STOCK REPORT CARDS TYPES OF STOCKS RISK AND RETURN AND THE CONCEPT OF DIVERSIFICATION PREFERRED SHARES DIVIDEND DISCOUNT MODELS A GENERAL VALUATION MODEL THE CONSTANT GROWTH MODEL THE TWO-STAGE MODEL THE THREE-STAGE MODEL THE H MODEL STOCK MARKET INDICES PRICE-WEIGHTED INDICES THE IMPORTANCE OF PRICE VALUE-WEIGHTED INDICES CHANGING THE BASE PERIOD CAPITALIZATION EQUALLY WEIGHTED INDICES TRACKING PORTFOLIOS HANDLING A RIGHTS ISSUE THE FREE-FLOATING METHODOLOGY WELL-KNOWN GLOBAL INDICES MARGIN TRADING AND SHORT-SELLING TERMINOLOGY CASE A: THE MARKET RISES CASE B: THE MARKET DECLINES CASE A: THE MARKET RISES CASE B: THE MARKET DECLINES INTEREST AND COMMISSIONS CASE A: THE MARKET RISES CASE B: THE MARKET DECLINES MAINTENANCE MARGIN SHORT-SELLING MAINTENANCE OF A SHORT POSITION SHORTING AGAINST THE BOX THE RISK FACTOR THE ECONOMIC ROLE OF SHORT SALES THE UPTICK RULE NOTES

12 CHAPTER 4: BondsINTRODUCTION TERMS USED IN THE BOND MARKET VALUATION OF A BOND PAR, PREMIUM, AND DISCOUNT BONDS EVOLUTION OF THE PRICE ZERO-COUPON BONDS VALUING A BOND IN BETWEEN COUPON DATES DAY-COUNT CONVENTIONS ACTUAL-ACTUAL THE TREASURY'S APPROACH CORPORATE BONDS ACCRUED INTEREST NEGATIVE ACCRUED INTEREST YIELDS THE CURRENT YIELD SIMPLE YIELD TO MATURITY YIELD TO MATURITY APPROXIMATE YIELD TO MATURITY ZERO-COUPON BONDS AND THE YTM ANALYZING THE YTM THE REALIZED COMPOUND YIELD REINVESTMENT AND ZERO-COUPON BONDS THE HOLDING PERIOD YIELD TAXABLE EQUIVALENT YIELD CREDIT RISK BOND INSURANCE EQUIVALENCE WITH ZERO-COUPON BONDS SPOT RATES THE COUPON EFFECT BOOTSTRAPPING FORWARD RATES THE YIELD CURVE AND THE TERM STRUCTURE SHAPES OF THE TERM STRUCTURE THEORIES OF THE TERM STRUCTURE THE LIQUIDITY PREMIUM HYPOTHESIS THE MONEY SUBSTITUTE HYPOTHESIS THE MARKET SEGMENTATION HYPOTHESIS THE PREFERRED HABITAT THEORY THE SHORT RATE FLOATING RATE BONDS SIMPLE MARGIN BONDS WITH EMBEDDED OPTIONS CALLABLE BONDS YIELD TO CALL PUTABLE BONDS CONVERTIBLE BONDS USING SHORT RATES TO VALUE BONDS PRICE VOLATILITY A CONCISE FORMULA DURATION AND PRICE VOLATILITY PROPERTIES OF DURATION DOLLAR DURATION CONVEXITY A CONCISE FORMULA DOLLAR CONVEXITY PROPERTIES OF CONVEXITY IMMUNIZATION TREASURY AUCTIONS WHEN ISSUED TRADING PRICE QUOTES STRIPS INFLATION INDEXED BONDS COMPUTING PRICE GIVEN YIELD AND VICE VERSA IN EXCEL COMPUTING DURATION IN EXCEL NOTES

13 CHAPTER 5: Money MarketsINTRODUCTION MARKET SUPERVISION THE FEDERAL RESERVE SYSTEM KEY DATES IN THE CASE OF CASH MARKET INSTRUMENTS THE MODIFIED FOLLOWING BUSINESS DAY CONVENTION THE END/END RULE THE INTERBANK MARKET TYPES OF LOANS LIBOR LIBID SONIA TRANSITIONING FROM LIBOR INTEREST COMPUTATION METHODS TERM MONEY MARKET DEPOSITS MONEY MARKET FORWARD RATES FEDERAL FUNDS FEDERAL FUNDS VERSUS CLEARINGHOUSE FUNDS CORRESPONDENT BANKS: NOSTRO AND VOSTRO ACCOUNTS TREASURY BILLS REOPENINGS YIELDS ON DISCOUNT SECURITIES NOTATION DISCOUNT RATES AND T-BILL PRICES THE BOND EQUIVALENT YIELD (BEY) CASE A: TM < 182 DAYS THE MONEY MARKET YIELD CASE B: TM > 182 DAYS HOLDING PERIOD RETURN VALUE OF AN 01 CONCEPT OF CARRY CONCEPT OF A TAIL T-BILL RELATED FUNCTIONS IN EXCEL TBILLPRICE TBILLYIELD TBILLEQ DISC TREASURY AUCTIONS TYPES OF AUCTIONS RESULTS OF AN AUCTION PRIMARY DEALERS AND OPEN MARKET OPERATIONS REPURCHASE AGREEMENTS REVERSE REPOS GENERAL COLLATERAL VERSUS SPECIAL REPOS MARGINS SALE AND BUYBACK COLLATERAL REPOS AND OPEN MARKET OPERATIONS NEGOTIABLE CDs NOTATION COST OF A CD FOR THE ISSUING BANK TERM CDs CDs VERSUS MONEY MARKET TIME DEPOSITS COMMERCIAL PAPER LETTERS OF CREDIT AND BANK GUARANTEES YANKEE PAPER CREDIT RATING MOODY'S RATING SCALE S&P'S RATING SCALE FITCH'S RATING SCALE BILLS OF EXCHANGE DOCUMENTS AGAINST PAYMENT (DAP) VERSUS DOCUMENTS AGAINST ACCEPTANCE (DAA) TRANSACTIONS ELIGIBLE AND NONELIGIBLE BANK BILLS BUYING AND SELLING BILLS BANKERS' ACCEPTANCE ACCEPTANCE CREDITS EUROCURRENCY DEPOSITS APPENDIX NOTES

14 CHAPTER 6: Forward and Futures ContractsINTRODUCTION MARKING TO MARKET FOR A TRADER IN PRACTICE DELIVERY OPTIONS PROFIT DIAGRAMS VALUE AT RISK THE EXPECTED SHORTFALL SPOT-FUTURES EQUIVALENCE PRODUCTS AND EXCHANGES CASH-AND-CARRY ARBITRAGE REVERSE CASH-AND-CARRY ARBITRAGE REPO AND REVERSE REPO RATES SYNTHETIC SECURITIES VALUATION THE CASE OF ASSETS MAKING PAYOUTS PHYSICAL ASSETS NET CARRY BACKWARDATION AND CONTANGO THE CASE OF MULTIPLE DELIVERABLE GRADES RISK ARBITRAGE THE CASE OF MULTIPLICATIVE ADJUSTMENT THE CASE OF ADDITIVE ADJUSTMENT TRADING VOLUME AND OPEN INTEREST DELIVERY CASH SETTLEMENT HEDGING AND SPECULATION ROLLING A HEDGE TAILING A HEDGE THE MINIMUM VARIANCE HEDGE RATIO ESTIMATION OF THE HEDGE RATIO AND THE HEDGING EFFECTIVENESS CROSS-HEDGING SPECULATION LEVERAGE CONTRACT VALUE FORWARD VERSUS FUTURES PRICES HEDGING THE RATE OF RETURN ON A STOCK PORTFOLIO CHANGING THE BETA PROGRAM TRADING STOCK PICKING PORTFOLIO INSURANCE IMPORTANCE OF FUTURES NOTES

15 CHAPTER 7: Options ContractsINTRODUCTION NOTATION EXERCISING OPTIONS MONEYNESS EXCHANGE-TRADED OPTIONS OPTION CLASS AND OPTION SERIES FLEX OPTIONS CONTRACT ASSIGNMENT ADJUSTING FOR CORPORATE ACTIONS NONNEGATIVE OPTION PREMIA INTRINSIC VALUE AND TIME VALUE TIME VALUE OF AMERICAN OPTIONS TIME VALUE AT EXPIRATION PUT-CALL PARITY IMPLICATIONS FOR THE TIME VALUE PUT-CALL PARITY WITH DIVIDENDS IMPLICATIONS FOR THE TIME VALUE A VERY IMPORTANT PROPERTY FOR AMERICAN CALLS EARLY EXERCISE OF OPTIONS: AN ANALYSIS PROFIT PROFILES SPECULATION WITH OPTIONS HEDGING WITH OPTIONS VALUATION THE BINOMIAL OPTION PRICING MODEL THE TWO-PERIOD MODEL VALUATION OF EUROPEAN PUT OPTIONS VALUING AMERICAN OPTIONS IMPLEMENTING THE BINOMIAL MODEL IN PRACTICE THE BLACK-SCHOLES MODEL PUT-CALL PARITY INTERPRETATION OF THE BLACK-SCHOLES FORMULA THE GREEKS OPTION STRATEGIES FUTURES OPTIONS PUT-CALL PARITY THE BLACK MODEL NOTES

16 CHAPTER 8: Foreign ExchangeINTRODUCTION CURRENCY CODES BASE AND VARIABLE CURRENCIES DIRECT AND INDIRECT QUOTES EUROPEAN TERMS AND AMERICAN TERMS BID AND ASK QUOTES APPRECIATING AND DEPRECIATING CURRENCIES CONVERTING DIRECT QUOTES TO INDIRECT QUOTES POINTS RATES OF RETURN THE IMPACT OF SPREADS ON RETURNS ARBITRAGE IN SPOT MARKETS ONE-POINT ARBITRAGE TWO-POINT ARBITRAGE TRIANGULAR ARBITRAGE CROSS RATES MARKET RATES AND EXCHANGE MARGINS VALUE DATES THE FORWARD MARKET OUTRIGHT FORWARD RATES SWAP POINTS BROKEN-DATED CONTRACTS COVERED INTEREST ARBITRAGE A PERFECT MARKET FOREIGN EXCHANGE SWAPS THE COST THE MOTIVE INTERPRETATION OF THE SWAP POINTS A CLARIFICATION SHORT-DATE CONTRACTS OPTION FORWARDS NONDELIVERABLE FORWARDS RANGE FORWARDS FUTURES MARKETS HEDGING USING CURRENCY FUTURES A SELLING HEDGE A BUYING HEDGE EXCHANGE-TRADED FOREIGN CURRENCY OPTIONS SPECULATING WITH FOREX OPTIONS EXCHANGE RATES AND COMPETITIVENESS NOTES

17 CHAPTER 9: Mortgages and Mortgage-backed SecuritiesINTRODUCTION MARKET PARTICIPANTS MORTGAGE ORIGINATION RISKS IN MORTGAGE LENDING OTHER MORTGAGE STRUCTURES PSA PREPAYMENT BENCHMARK ANALYSIS EXTENSION RISK AND CONTRACTION RISK ACCRUAL BONDS FLOATING RATE TRANCHES NOTIONAL INTEREST-ONLY TRANCHE INTEREST-ONLY AND PRINCIPAL-ONLY STRIPS PAC BONDS NOTES

18 CHAPTER 10: SwapsINTRODUCTION MARKET TERMINOLOGY KEY DATES INHERENT RISK THE SWAP RATE ILLUSTRATIVE SWAP RATES DETERMINING THE SWAP RATE THE MARKET METHOD VALUATION OF A SWAP DURING ITS LIFE TERMINATING A SWAP THE ROLE OF BANKS IN THE SWAP MARKET MOTIVATION FOR THE SWAP COMPARATIVE ADVANTAGE AND CREDIT ARBITRAGE SWAP QUOTATIONS MATCHED PAYMENTS AMORTIZING SWAPS EXTENDABLE AND CANCELABLE SWAPS SWAPTIONS CURRENCY SWAPS CROSS-CURRENCY SWAPS VALUATION CURRENCY RISKS HEDGING WITH CURRENCY SWAPS NOTES

19 CHAPTER 11: Mutual Funds, ETFs, and Pension FundsINTRODUCTION PROS AND CONS OF INVESTING IN A FUND SHARES AND UNITS OPEN-END VERSUS CLOSED-END FUNDS PREMIUM/DISCOUNT OF A CLOSED-END FUND UNIT TRUSTS CALCULATING THE NAV COSTS SALES CHARGES PRICE QUOTES ANNUAL OPERATING EXPENSES SWITCHING FEES DIVIDEND OPTIONS TYPES OF MUTUAL FUNDS MONEY MARKET FUNDS GILT FUNDS DEBT FUNDS DIVERSIFIED DEBT FUNDS FOCUSED DEBT FUNDS HIGH YIELD DEBT FUNDS DEBT FUNDS AND BOND DURATION EQUITY FUNDS AGGRESSIVE GROWTH FUNDS GROWTH FUNDS SPECIALTY FUNDS SECTOR FUNDS OFFSHORE FUNDS SMALL CAP EQUITY FUNDS OPTION INCOME FUNDS FUND OF FUNDS EQUITY INDEX FUNDS VALUE FUNDS EQUITY INCOME FUNDS BALANCED FUNDS ASSET-ALLOCATION FUNDS COMMODITY FUNDS REAL ESTATE FUNDS TAX-EXEMPT FUNDS RISK CATEGORIES THE PROSPECTUS STRUCTURE OF A MUTUAL FUND SERVICES INVESTMENT TECHNIQUES THE TOTAL RETURN COMPUTATION OF RETURNS TAXATION ISSUES ALTERNATIVES TO MUTUAL FUNDS TYPES OF PLANS IRAs CASH BALANCE PLANS NOTE