Table of Content
Introduction
- Forward Contracts versus Futures Contracts
- Type of Assets Underlying Futures Contracts
- Futures Exchanges
- Types of Assets Underlying Options Contracts
- Options Exchanges
- Hedgers, Speculators, and Arbitrageurs
- The Role of Futures and Options Markets
- Reasons for the Rapid Growth of Derivative Markets
- The Recent Indian Story in Derivatives
- Electronic Exchanges: The State-of-the-Art
Fundamentals of Futures Markets
- Standardization of Futures Contracts
- Margins and Marking to Market: General Principles
- Spot-Futures Convergence at Expiration
- Trading: General Principles
- Value at Risk (VaR)
- VaR in the Context of Futures Trading in India
- Types of Members and the Margining System in India
- Types of Orders
- Liquidating a Futures Position
- Trading Volume versus Open Interest
- Conversion Factors When There are Multiple Deliverable Grades
- Single Stock Futures
Pricing of Futures Contracts
- Notation
- Assumptions
- Forward Contract on a Security That Provides No Income
- Forward Contracts on Assets That Provide a Known Dividend Yield
- Forward Contracts on Commodities
- Investment Assets
- Consumption Assets
- Calendar Spreads and Arbitrage
- Net Carry
- 'Backwardation' and 'Contango'
- Delivery Options
- Imperfect Markets
- Synthetic Securities
- Forward Price versus Futures Prices
- Stochastic Interest Rates
- Quasi- Arbitrage
- Risk and Futures Prices
Hedging
- A Selling Hedge
- A Buying Hedge
- Lifting a Hedge Prior to the Expiration of the Futures Contract
- Basis Risk
- Selecting a Futures Contract
- A Rolling Hedge
- The Hedge Ratio
- Estimating the Hedge Ratio
- Tailing a Hedge
- Quantity Uncertainty
- Rationale for Hedging
- Hedging Processing Margins
- Developing Derivative Exchanges Key Issues
Short -Term Interest Rate Futures
- Eurodollars
- T-bills
- Yields
- T-bill Futures
- The No-Arbitrage Pricing Condition
- Risk Management Using T-bill Futures
- Shortening T-bill Maturities
- Lengthening T-bill Maturities
- Risk Management Using Chained Hedge Ratios
- Introduction to Eurodollar Futures
- Calculating Profits and Losses on ED Futures
- Bundles and Packs
- Locking in a Borrowing Rate
- Cash and Carry Arbitrage
- Reverse Cash and Carry Arbitrage
- The No-Arbitrage Pricing Equation
- Hedging Rates for Periods Not Equal to Days
- Creating a Fixed Rate Loan
- Strip versus Stack Hedges
- The TED Spread
Long-Term Interest Rate Futures
- Fundamentals of Bond Valuation
- Duration
- The Cash Market
- The Futures Market
- Conversion Factors
- Calculating the Invoice Price for a T-bond
- The Cheapest to Deliver Bond
- Arbitrage or Risk Arbitrage?
- Seller's Options
- Hedging
Foreign Exchange Futures
- Purchase and Sale
- The Spot Market
- Arbitrage
- The Forward Market
- Merchant Rates and Exchange Margins
- The No-Arbitrage Forward Price
- One Way Arbitrage
- The Relationship Between Interest Rate Parity and One-Way Arbitrage
- Options Forwards
- Modification of Forward Contracts
- Futures Markets
- Hedging an Export Transaction
- Hedging an Import Transaction
- Creating Synthetic Investments
- Borrowing Funds Abroad
- Creating Synthetic Futures Contracts
- Creating Synthetic Futures Contracts
- Creating Synthetic Short-Term Interest Rate Contracts
- Forward Covered Interest Arbitrage
Stock Index Futures
- Price Weighted Indices
- Value Weighted Indices
- Equally Weighted Indices
- Forming Portfolios to Mimic an Index
- Portfolio Re-Balancing
- Re-balancing an Equally Weighted Portfolio
- Changing the Base Period Capitulation
- Pricing of Index Futures
- Cash and Carry Arbitrage
- Reverse Cash and Carry Arbitrage
- The No-Arbitrage Equation
- Index Arbitrage and Programme Trading
- Hedging with Index Futures
- Market Timing with Index Futures
- Using Index Futures to Change the Beta of a Portfolio
- Stock Picking
- Portfolio Insurance
- Index Futures and Stock Market Volatility
- Index Futures in India
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