Contents

About the Author

Foreword

The aim of the book

Introduction

Part 1 STRUCTURES

1 Investment bank divisions

Mergers and acquisitions (M&A)

Capital markets (CM)

Securitisation

Sales and trading

2 Investment bank organisational structure

Front office

Middle office

Back office

Part 2 MONEY MARKETS AND CAPITAL MARKETS INSTRUMENTS

3 Money market products

Time value of money

Nominal and effective rates

Cashflow analysis

Overview of money market products

Money market calculations

4 Capital markets instruments

Overview of capital markets instruments

Bond pricing fundamentals

Other bond markets

Part 3 FINANCIAL DERIVATIVES

5 Speculative financial instruments – derivatives

Overview of derivatives markets

Users of derivatives

Interest rate derivatives

Equity derivatives

Commodity derivatives

Credit derivatives

6 Financial futures and forward rate agreements (FRAs)

Financial futures

Forward rate agreements (FRAs)

Futures vs. FRAs

7 Swaps

Basic swap concepts and applications

Types of swaps

Swap pricing fundamentals

Pricing currency swaps

Equity swap valuation

8 Foreign exchange

Spot exchange rates

Direct and cross-rates

Forward exchange rates

9 Options

Motivation behind option trading

Option contract specifications

Types of option contracts

Option contract risks and benefits

Ideas behind option pricing

Put–call parity

Option value sensitivities – ‘option Greeks’

Option pricing: practical implementation

10 Bond and equity derivatives

Introduction to bond derivatives

Background on equity markets

11 Commodity and credit derivatives

Background on commodity derivatives

Introduction to credit derivatives

12 OTC derivatives and hybrid securities

OTC derivatives

Hybrid securities

Part 4 PRICING AND VALUATION TOOLS

13 Probability and statistics

Definition of probability

The main concepts of probability

The concept of probability distribution

Types of probability distribution

Binomial distribution

Normal distribution

Log-normal distribution

Other probability distributions

Binomial trees

14 Yield curves

Choice of financial instruments for yield curve construction

Yield curve construction methodology

The one-month curve construction

The basis curve construction

Shape of the yield curve

Graphical yield curve representation

15 Quantitative analytics

Role of quantitative analytics

Classification of pricing models

Numerical methods

Analytical methods

16 Summary of pricing formulae

Notation

Time value of money

Money markets calculations

Capital markets instruments

Financial futures

Forward rate agreements (FRAs)

Interest rate swaps

Foreign exchange

Option characteristics

Option pricing

Bond derivatives

Equity derivatives

Probability and statistics

Yield curves

Part 5 RISK MANAGEMENT

17 Credit risk on derivatives

Counterparty risk

Product risk

Credit risk of specific financial instruments

Credit ratings

Credit risk management

Credit risk management best practice guidelines

18 Market risk on derivatives

Balance sheet vs. off-balance sheet instruments

Market risk on specific financial instruments

Market risk management

Market risk management best practice guidelines

Value at risk (VAR)

Appendices

1 Option strategies

2 ISO (SWIFT) currency codes

Glossary

Bibliography

Index