Appendix

WORLDWIDE EXCHANGES TRADING OPTION CONTRACTS

Next to the name of each exchange, in brackets, is its abbreviation (when available) followed by the name of the city where the exchange is located (when necessary).

1. Argentina

Bolsa de Comercio de Buenos Aires, Sarmiento · Equities (22) · Public Bonds (Pesos) · Public Bonds (US$) • Cattle Index (Pesos) • Cattle Index (US$)

Mercado de Futuros y Opciones SA (MERFOX), Sarmiento • Live Cattle (US$) · Live Cattle (Pesos) · Live Cattle (DMK)

2. Australia

Australian Options Market, Sydney · Equity Options (47) · Long Term Equity Options (15) · Twenty Leaders Index · Gold Index

Sydney Futures Exchange (SFE) Limited, Sydney · 50 Leaders Share Price Index · All Ordinaries Share Price Index · 90 Day Bank Accepted Bills · 10 yr T -bonds · 3 yr T-bonds

3. Austria

Osterreichische Termin und Optionenborse (OTOB Clearing Bank AG), Vienna

579

Options Exp/ained2

· Stock Options (American Style · ATX (European Style)

4. Belgium

Belgian Futures & Options Exchange (BELFOX), Brussels · Traded Stock (6) · Bel 20 Index (BXO) · Belgian Government Bond Futures (BGB)

5. Brazil

Bolsa Brasileira de Futuros, Rio de Janeiro · Gold · Cash Commercial US Dollar · Cash Floating US Dollar

Bolsa de Mercadorias & Futuros, Silo Paulo . Gold · Foreign Currency · Arabica Coffee

Rio de Janeiro Stock Exhchange, Rio de Janeiro · Stock Index · Individual Stocks

6. Canada

Montreal Exchange, Montreal · 10 year Government of Canada bond Futures (OGB) · Bond Options (3) · Equity Options Short-Term (22) · Equity Options Long-Term (4)

Toronto Futures Exchange (TFE), Toronto · Silver · Toronto 35 Index (European Style) · Toronto 35 Index Participation Options

Vancouver Stock Exchange (VSE), Vancouver · Gold (European Style)

Winnipeg Commodity Exchange (WCE), Winnipeg · Canola (American Style)

580

Appendix

· Canadian Barley (Domestic Feed) (American Style) · Barley (Western Domestic Feed) (American Style) · Feed Wheat (American Style) · Flaxseed (American Style)

7. Denmark

Copenhagen Stock Exchange and the Guarantee Fund for Danish Options and Futures(FUTOP}.

· KFX Stock Index Futures · Danish Government Bonds Futures: Bullet Loan 8% 2003 Futures · Danish Stocks

8. Finland

Finnish Options Market (FOM), Helsinki · FOX Index (European Style) · Currencies: · USD American · DEM American · SEK American · GBP Stocks

9. France

Marche des Options Negocialbles de Paris (MONEP), Paris · On 30 Equities (American Style) · CAC 40 Index Short-Term Options (American Style) · CAC 40 Index Long-Term Options (European Style)

MATIF SA, Paris . ECUBond · Notional Bond · 3 Month Pibor

to. Germany

Deutsche Terminborse (DTB), Frankfurt · Equity Options · Dax Index · Dax Index Futures . Bund · Medium-term Bund (Bobl)

581

Options Explained2

11. Hong Kong

Hong Kong Futures Exchange Limited (HKFE), Hong Kong · Hang Seng Index

12. Japan

Kansai Agricultural Commodities Exchange (KANEX), Osaka · Raw Sugar

Osaka Securities Exchange, Osaka · Nikkei 225

Tokyo Grain Exchange, Tokyo · US Soyabeans · Raw Sugar

Tokyo International Financial Futures Exchange (TIFFE), Tokyo · Three month Euroyen

Tokyo Stock Exchange, Tokyo · Topix Options · 1 0 Year Government Bond Futures

13. Netherlands

European Options Exchange (EOE), Amsterdam · Equities (40) · Government Bonds · EOE Index · MMI Index · OMX Index · XMI Leaps · Dollar · Jumbo Dollar · Dutch Top 5 Index · Eurotop 100 Index · Gold · Guilder Bond

14. New Zealand

New Zealand Futures & Options Exchange (NZFOE), Auckland · Forty Index

582

· NZ 3 Year Government Stock · 90 Day Bank Bills (BBO) · NZ 10 Year Government Stock · Equities (5)

15. Norway

Oslo Stock Exchange, Oslo · Bergesen · Saga Petroleum · Norsk Hydro · Hafslund . Nycomed · OBX - Index ·XC4L

16. Singapore

Singapore International Monetary Exchange (SIMEX), Singapore · Eurodollar · Euroyen · Nikkei Stock Index · D-mark · Japanese Yen

17. South Africa

Johannesburg Stock Exchange (JSE), Johannesburg · All Share Index · All Gold Index · Share Options

South African Futures Exchange (SAFEX), Johannesburg · All Share Index · All Gold Index · Industrial Index · Gold Price · Long Bond · Short-term Interest

18. Spain

Meff Renta Fija, Barcelona · 90 Day Mibor

Appendix

583

Options Explained2

· 3 Year Government Bond · 10 Year Government Bond · Monthly Options on 10 Year Government Bonds

Meff Renta Variable, Madrid · Equities (3) (American Style) · IBEX 35

19. Sweden

OM Stockholm AB, Stockholm · Stock Options (Approx 22 Free Issues) · Stock Options Long Term (Approx 22 Free Issues) · OMX Stock Index (Based on 30 Stocks) · OMX Stock Index Long Term (Based on 30 Stocks)

20. Switzerland

Swiss Options & Financial Futures Exchange (SOFFEX), Zurich · Swiss Market Index · Equity Options (5 Shares) · Low Exercise Price Option (5 Shares)

21. United Kingdom

International Petroleum Exchange (IPE), London · Gas Oil · Brent Crude

London Commodity Exchange (LCE), London · Robusta Coffee · No 7 Cocoa · No 5 White Sugar · Baltic freight Index (Biffex) · EEC Wheat · EEC Barley · Potatoes

London International Financial Futures & Options Exchange (LIFFE), London Interest Rate Options · Long Gilt · 3 Month Eurodollar · 3 Month Sterling

584

· German Government Bond · 3 Month Euromark · Italian Government Bond · 3 Month Euroswiss Equity Options · Equities · FTSE 100 Index (American Style Exercise) · FTSE 100 Index (European Style Exercise)

The London Securities and Derivatives Exchange (OMLX), London · Swedish Stock Options · Long Stock Options · OMX Index · Long OMX Index (European Style) ·EOE · Eurotop 100 Index

22. United States of America

American Stock Exchange (ASE), New York · Major Market Index · S & P MidCap 400 · XMI LEAPSTM · Japan Index · Institutional Index · Biotechnology Index · LEAPS on the Biotechnology Index · EUROTOP 100 Index · Computer Index · Oil Index · Pharmaceutical Index · LEAPS on the Pharmaceutical Index · Morgan Stanley Cycle Index · Morgan Stanley Consumer Index · North American Telecommunications Index · Options on more than 375 Equities · LEAPSTM on Equities · S & P MidCap LEAPS

Chicago Board Options Exchange (CBOE), Chicago · Equity Options · LEAPS® (Long term Equity Anticipation Securities®) · S & P 100 Index OEX®

Appendix

585

Options Explained2

·OEXLEAPS® ·OEXCAPSTM · S & P 500 Index SPXTM ·SPL · S & P 500 Index NSX · SPXLEAPS® · SPXCAPS® · S & P 500 end-of-quarter (SPQ) · FLEXTM (S & P 100 and 500) · Russell 2000® Index (RUT) · Russell 2000 Index LEAPS® · FT-SE 100 Index (FSX) · CBOE BioTech Index (BGX) · CBOE Bio Tech Index LEAPS® · Priority Super Share (ZIS) · Appreciation Super Share (ZAS) · Protection Super Share (ZPS) · Income and Residual Super Share (ZYS) · Short Term Int Rate (IRX) · Long Term Interest Rate 5 year yield (FVX) LEAPS® (VXV) · Long Term Interest Rate 10 year yield (TNX) LEAPS® (VXN) · Long Term Interest Rate 30 year yield (TYX) LEAPS® (VYY) Sector Indices · S & P Bank (BIX) · S & P Chemicals (CEX) · S & P Retail · S & P Health Care (HCX) · S & P Insurance (lUX) · S & P Transportation (TRX) · CBOE Computer Software (CWX) · CBOE Enviroment (EVX)

Chicago Board o/Trade (CBT), Chicago . Com · Soyabeans · Soyabean Meal · Soyabean Oil · Wheat · Oats · Silver · US Treasury Bonds · lOY ear Treasury Notes · Municipal Bond Index

586

Appendix

· Wilshire Small Cap Index · Eastern Catastrophe Insurance · National Catastrophe Insurance · Midwestern Catastrophe Insurance · Mortgage backed Securities · Five Year US Treasury Note

Chicago Mercantile Exchange (CME), Chicago · Pork Bellies · Live Cattle · Feeder Cattle · Live Hogs · Broiler Chicken · FT-SE 100 Index · Goldman Sachs Commodity Index · S & P 500 Index · S & P MidCap 400 · Russell 2000 · Major Market Index · US Treasury Bills · Libor · Eurodollar · Australian Dollar · British Pound · Canadian Dollar · Deutschemark · Japanese Yen · Swiss Franc · French Franc · Deutschemark/Japanese Yen · Three-month Euromark · Rolling Spot™ British Pound · Rolling Spot™ Deutschemark · Lumber · Nikkei 225 Stock Average

Coffee, Sugar & Cocoa Exchange Inc (CSCE), New York · Coffee C · No 11 Sugar · Cocoa · Non Fat Dry Milk · Cheddar Cheese

587

Options Explained2

Commodity Exchange (COMEX), New York · Copper · Gold · Silver · 5 Day Gold · 5 Day Silver · 5 Day Copper · Eurotop 100 Index

FINE){, New York · US Dollar Index ·ECU

Kansas City Board of Trade (KCBOT), Kansas · No 2 Red Wheat · Mini Value Line

MidAmerica Commodity Exchange (MIDAM), Chicago · Soyabeans · Wheat · Gold . Com · US Treasury Bond · Rough Rice

Minneapolis Grain Exchange, Minneapolis · Hard Red Spring Wheat · White Wheat · Oats · Frozen Shrimp

New York Cotton Exchange (NYCE), New York · Cotton · Cotlook World Cotton™ · Orange Juice

New York Futures Exchange (NYFE), New York · NYSE Composite Index · NYSE Utility Index · CRB Index

New York Mercantile Exchange (NYMEX), New York · Crude Oil

588

· Heating Oil · Gasoline · Platinum · Natural Gas

New York Stock Exchange (NYSE), New York · NYSE Composite Index ® NY A · NYSE Utility Index ® NNA,VNA,LNA · Equity Options (155 Stocks)

Pacific Stock Exchange (PSE), San Fransico · Wiltshire Small Cap Index · Equity Options (240 Stocks) · LEAPS®

Philadelphia Stock Exchange (PHLX), Phildalphia · National OTC Stock Index · Value Line Composite Index · Gold/Silver Stock Index · Utility Stock Index · Australian Dollar · British Pound · Canadian Dollar · Deutschemark · French Franc · Japanese Yen · Swiss Franc ·ECU · Deutschemark/Japanese Yen · British PoundlDeutschemark · British Pound/Japanese Yen · Long Term Currency Options · Month end Currency Options · Equity Options (227 Stocks) · Leaps® · Value Line LEAPS®

Appendix

589

Index

Actual Energy (see Kinetic Energy) Allor Nothing option (see Digital Option) American style options, 11 American vs. European Option prices, 33-4 Analytic Models, 463 Apollo Space Program, 461 Arbitrage, 278, 305, 329, 345, Arbitrage Model of Pricing, 346 Aristotle, 503 Asian option (see Average Rate option) Assignment, 11 At-the-money,25 Australian Securities Commission, 555 Australian Stock Exchange (ASX), 555 Automatic Exercise of options, 10 Average Rate option, 398, 482, 484 Average Strike option, 484-6 Bachelier, Louis, 99, 504 Ball, CA, l34, 427 Bankers Trust, 482 Barrier option (see Knockout option) Basis (for Bond Futures), 360, 364, 375 Basis Risk, 425, 436, 448 Basket option, 497-8 Beckers, Stan, 134 Beef Wellington Spread, 320, 324 Belgian Futures and Options Exchange

(BELFOX), 557 Bermudan Option, 470-1 Beta Coefficient, 341, 414 Beta of Option, 417 Binary Option (see Digital Option) Binomial Distribution, 78, 80 Binomial Option Pricing Model, 78-82 Bisection (in Implied Volatility

Estimation), 142, 144-5 Bivariate Normal Distribution, 468 Black, Fischer, 27, 456-7, 462, 504 Black, Derman and Toy Model, 180,429

Black (1976) Commodity Options Model, 77, 431, 441 446,456, 473,488,507

Black and Scholes Model, 27, 32, 36, 53 Black and Scholes

Model Assumptions, 30-2, 34, 35, 40, 140-2,153,174,291,408

Black and Scholes Model Derivation, 35-7, 51-3

Blackjack (card game), 124-5 Block orders, 546 Borrower Option, 440 Boundary Conditions for Options price, 28-30 Box Arbitrage, 306-9 Brown, Robert, 99 Brownian Bridge, 427-8 Brownian Motion, 31, 99, 348 Bucket Shops, 503 Burghardt, Galen, 181 Butterfly Spread, 258-62, 527-8 Buy-Write Strategy (see Covered Call

Writing) Calendar Spreads, 278-89, 312 Call Option Defmed, 3 Call Ratio Back Spread (see Call-Back

Spread) Call Ratio Spread, 271-4 Call-Back Spread, 241-5 Capital Asset Pricing Model (CAPM), 339,

403 Caption, 467 Cardano, Girolamo, % Cash or Nothing option (see Digital Option) Cash Secured Put Writing, 383 Cash Settled Options, 7 Ceiling Agreements, 442-50 Central Limit Theorem, 98 Certificati di Credito del Tesoro

Con Opzione, 424

591

Options ExplainecP

Cheapest to Deliver (on Bond Futures), 358 Chemical Bank, 467 Chicago Board ofTrade (CBT), 319, 355 Chicago Board Options Exchange

(CBOE), 23, 310, 387, 391, 504, 543 Chicago Mercantile Exchange (CME),

136,142,277,319, 387,505,546-9 Chooser option, 477-9 Clearing House, 11,533-4 Clewlow, Les, 347 Cliquet option (see Ratchet option) Closed fonn solution models (see

Analytic Models) Coffee, Sugar and Cocoa Exchange

(CSCE), 227-8 Collar Agreements, 443 Commodity Exchange (COMEX), 5 Commodity Exchange Act, 548 Commodity Futures Trading Commission

(CFTC),576 Compound Options, 370, 467-70 Condor Spread, 262-6 Conservation of Volatility, The Theory of,

124-8 Contingent Risk, 362 Conversion Arbitrage, 302-5 Conversion Factor (for Bond Futures), 359 Convertible Bonds (variable strike price), 70 Convexity (of Bonds), 438-40 Convexity of Bond options, 439 Copenhagen Stock Exchange (CSE), 559 Correlation Coefficient, 320-5, 403 Correlation Dependent Options, 325, 496-501 Costless Assets, 92 Costly Assets, 90 Covariance, 321 Covered Call Writing, 376, 425 Cox, Ross and Rubinstein Model

(see Binomial Option Pricing Model) Cox, John, 473 Crash ofl987, 160,262, 409 Credit Risk ofOTC options, 437-8 Crocodile Spread, 265 Cross Currency Options, 326-33, 338-9 Days - Nonnal, 126-8 Days-Calendar, 112, 121-2 Days - Economic, 124-8, 177 Days - Trading, 112, 121

592

de Mere, the Chevalier, 96 Delayed option, 475-7 Delta - Comparison across Maturities, 518,

523 Delta Defmition, 57-61 DeltaNeutral, 63-5, 227-275, 291-8, 525 Delta Neutral Hedging Ratio, 63, 292 Dennan, Emanuel, 180, 188 Deutsche Atkien Index (DAX), 389, 562 Deutsche Kassenverein (DKV), 562 Deutsche Tenninborse (DTB), 389, 561 Digital Option, 471-4 Disposition of option contracts, 9-11 Dow Jones Industrial Average, 389 Dupire, Bruno, 188 Duration (Modified), 439 Duration (of Bonds), 428, 438 Duration of Bond options, 439 Dutch Tulip Bulb mania, 503 Economic Statistics Effect, 178 Edge (see Theoretical Edge) Einstein, Albert, 99 Electronic market, 537, 544 Emanuel, David, 504 Embedded Call Features (in Bonds), 423 Employee Stock Option

Compensation Plan, 385 Epsilon (see Vega) Equilibrium, 90, 300 Equilibrium Model of Pricing, 345-6 Equivalent Long Positions, 197 Equivalent Portfolio to Call Option, 201-3,

407 Equivalent Portfolio to Put Option, 410 Equivalent Short Positions, 207 European Options Clearing Corporation

(EOCC),540 European Options Exchange (EOE), 540-3 European style options, 11 Exercise, 9 Exercise Price, 4 EXTRA, 467 Fair Price Police, 305 Fama,Eugen~ 122 Fence Agreements (see Collar Agreements) Fennat, 96 Floor Agreements, 442 Floor Broker, 539

Floortion (see F1option) Floption, 467 Forward Price of Assets, 309, 400, 433 Forward Rate Agreement, 440 FRA (see Forward Rate Agreement) French, Ken, 122 Galton, Francis, 98 Ganuna Defmition, 66-9 Garruna Effect of Options, 197 Garruna Neutral, 257, 265 Gannan, Mark, 78, 134,431 GannanlKohlhagen FX Options Model, 75-6 Gatto, M., 487 Gauss, Carl Friedrich, 99-100 Gaussian Distribution (see Nonna!

Distribution) Gearing (see Leverage) Geske, Robert, 468 Geske Compound Option Model, 468-9 Ginnie Mae Fixed Income Securities, 299 GLOBEX, 410, 546 Golden Toyota Spread, 320 Goldman, M.B., 487 Goldman, Sosin and Gatto Model

for Look Back options, 487 Government National Mortgage Association

Notes (see Ginnie Mae Fixed Income Securities)

Guaranteed Fund for Danish Options and Futures, 559

Guaranteed Return Funds (see Ninety-Ten Strategy)

Guerrilla Warfare, 275 Gulf War, 326 Guts Strategy, 237 Hakansson, Nils, 472 Harris Bank and Trust Company of Chicago,

326 Heat Transfer Equation, 32, 71 Heath, Jarrow and Morton Model, 180,429 Heath, D., 180 Hedge Ratio Determination, 363, 414 Hedging, 43, 356, 372 Hedging - with Long Futures, 363 Hedging - with Short Futures, 361 Heteroscedasticity, 48, 117 Ho, Thomas, 180 Ho and Lee Model, 180,427,428

Hoffinan, Dustin, 99 Holders of Options, 8 Homoscedasticity, 117 Hong Kong Futures Exchange, 563 Hull, John, 180, 483 Hull and White Model, 180,429 Huygens, Christian, 96 Implied Correlation, 338-9 Implied Distributions, 173 In-the-money,24

Index

Index and Options Market (lOM), 387 Inter market Spreads with Futures, 319-20 Inter market Volatility formula, 337-9 Inter market Volatility Relationships, 329-37 Interest Impacts on Option Prices, 91, 434 Interest Impacts for "Costless" Assets, ,92 Interest Impacts for "Costly" Assets, '90-1 Interest Impacts for "Neutral" Assets, 92-3 Interest Impacts for Currency Options, 91 . Interest Rate CAP Agreements, 442-50 Interest Rate Guarantee Agreements, 440-2 Interest Rate Insurance, 278 Interest Rate Swaps, 454 International Commodity Clearing House

(lCCH),533 International Monetary Market (lMM), 55,

277 International Petroleum Exchange (lPE), 347 International Swap and Derivatives Association (lSDA), 438 Intra market Spread risks, 197,282,285,

450-8 Intrinsic Value Calculation, 26 Intrinsic Value Definition, 26, 39 Intrinsic Value Graph, 39 Irish Futures and Options Exchange

(IFOX),564 Iron Butterfly (see Butterfly Spread), 260 Jarrow, RobertA., 180 Jelly Roll Arbitrage, 309-16 Johannesburg Stock Exchange, 571 Kani, Iraj, 188 Kansas City Board ofTrade, 389 Kappa (see Vega) Kinetic Energy, 124 Klass, Michael 1., 134 Knockin option (see Knockout option), Knockout option, 493-5

593

Options ExplainetF

Ladder option, 490-2 Lambda,74-5,417 Landeszentralbank (LZB), 562 Lee, S.B., 180 Legging, 240, 265 LEGOTM Toys, 259 Lemming Effect, 409 Lender Option, 440 Leong, Kenneth, 126 Leptokurtosis, 128, 156, 514 Leverage of Options, 2, 44, 290 LIBOR, 277, 440 Lognonnal Dispersion Process, 30 Lognonnal versus Nonnal Distribution, 104 London Clearing House (LCH), 533, 549 London Commodity Exchange (LCE), 347 London Interbank Offer Rate (see LIBOR) London International Financial Futures

and Options Exchange (LIFFE), 114, 165,319,393,535,549

Long Straddle, 232 Look Back option, 486-9 Lottery Time, 44 Luxernbourg Monetary Institute, 567 Magic Graphing Rules, 87 Major Market Index, 389 Margin (fUturesh 15,394,534-7 Margin (options), 92-3,537 Margin - Futures Style for Options, 310, 393 Margin - initial, 535 Margin - maintenance, 535, 542 Margin - Risk Based (see SPAN) Margin - variation, 536, 542, 549 Margrabe, William, 160,334,456 Margrabe Model, 334, 456 Markettnaker,43,539 Martingale Processes - Nonnal, 109 Martingale Processes - Sub, 109-10 Martingale Processes - Supra, 108-9 Maximum/Minimum options

(see Look Back option) Mean Reversion of Volatility, 179 MEFF Sociedad Holding de Productos Financieros Derivados, 572 Mercato Italiano Futures (MIF), 564 Merton, Robert c., 27, 427 Merton (1973) Dividend Adjusted Model,77 Merton Debt Option Model, 427

594

Monetary Authority of Singapore, 569 Monte Carlo Casino, 257 Monte Carlo Simulation Models, 464 Morgan Stanley, 382 Morton, A., 180 Multi-Factor options, 496-501 Naked Option (see ProfitlLoss profile

Long Call or Long Put) Neutral Assets, 92-3 New York Mercantile Exchange, 196 Newton,SrrIsaac, 143 Newton-Raphson Iterative Process, 143-4 Nikkei Dow Index, 389 . Ninety-Ten (90/10) Strategy, 391 No Arbitrage State (see equilibrium) NOB Spread, 319 Non Stationarity of Price Series, 176-7 Non Unifonnity of Volatility, 177-9 Nonnal Distribution, 31, 38, 97-9,103-5 Numerical Models, 463 Offsetting Option transactions, 8 Omega (see Vega) One Touch option (see Digital Option) Open Interest, 9 Open Outcry market, 537 Option Class, 8 Option Diamond Diagram, 21 Option on the Spread

between two Assets (see Spread option) Option Series, 8 Options as Insurance, 3, 12, 15, 16,29,40,46,

137,228,250,369,371,420 Options as Roulette (or Gambling), 2, 15,249,

253,380 Options as Securitised Risk, 227, 231, 249 Options Clearing Corporation (OCC), 540 Options on Interest Rate Swaps

(see Swaptions) Options on options (see Compound Options) Options on Stock Index Futures, 390 Options vs Futures, 3 Out-of-the-money, 25 Over the Counter (OTC) options, 55, 149, 423 Paper Refmeries, 320, 324 Parkinson, Michael, 133 Pascal, Blaise, 96 Path Dependent options, 481-96 Pay Later option, 474-5

Philadelphia Stock Exchange (PHLX), 55, 537,538-40

Physical Delivery Options, 7, 508 Portfolio Insurance, 403, 411 Portfolio Theory, 339, 403 Potential Energy, 124 Power option, 479-81 Pricing of Puts using Black and Scholes, 40 Profit and Loss Profile Defmed, 14 Profitlloss profile Call Ratio Spread, 271 Profitlloss profile Call-Back Spread, 242 Profitlloss profile Long Butterfly, 258, 528 Profitlloss profile Long Calendar Spread,

279-86 Profitlloss profile Long Call, 16, 199 Profitlloss profile Long Condor, 263, 528 Profitlloss profile Long Futures, 14, 198 Profitlloss profile Long Put, 19,210 Profitlloss profile Long Straddle, 233 Profitlloss profile Long Strangle, 237 Profitlloss profile Put Ratio Spread, 268 Profitlloss profile Short Calendar Spread,

287,529 Profitlloss profile Short Call, 19,212 Profitlloss profile Short Futures, 18, 208 Profitlloss profile Short Put, 19, 204 Profitlloss profile Short Straddle, 251, 527 Profitlloss profile Short Strangle, 254, 527 Put Option Defmed, 3 Put Ratio Back Spread (see Put-Back Spread), Put Ratio Spread, 267-71 Put-Back Spread, 245-8 Put-Call Parity, 84-9, 296, 299-301 Quantity adjusted option (see Quanto option) Quanto option, 498-501 Quetelet, Adolphe, 96 Quincunx, 98-9 R squared statistic, 340-3 Rainbow option, 496-72 Random Walk Hypothesis, 105-11, 141 Raphson, Joseph, 143 Ratchet option, 489-90 Regression, 340 Repo Rates (see Repurchase Rates) Repurchase Rates, 433-4 Return Estimation - Difference

in Logarithms, 117 Return Estimation - Percentages, 114

Index

Return Estimation - Ratio of Logarithms, 116 Reuters newswire service, 545 Reversal Arbitrage, 305-6 Reverse Conversion (see Reversal Arbitrage) Rho Defmition, 73-4 Rho Impact on Bond Options, 436 Risk Analysis Program, 504, 533 Risk Averse (see Hedging) Risk Neutral (see Arbitrage) Risk Seeking (see Speculation) Risk versus Return Tradeoff, 403 Rocket Scientist - Defmition, 461 Rogers, Will, 110 Rubinstein, Mark, 188,473 Ryan Index, 380 Salomon Brothers, 411 Savings and Loan Associations (US), 443 Schaefer, Steven, 427 Schaefer and Schwartz

Duration Model, 427, 428 Scholes, Myron, 27, 462, 504 Schuldscheindarlehen, 424 Schwartz, Edwardo, 427 SCOUT, 467 Securities and Futures Authority (SF A), 575 Securities and Futures Commission (SFC)

Hong Kong, 563 Securities and Investments Board (Sill), 575 Security and Exchange Commission

(SEC), 385, 538, 576 Selby, Michael, 347 Serial Expiration Period, 7 Sharpe, William, 78 Shout option, 492-3 Sigma (see Vega) Singapore International Monetary Exchange

(SIMEX), 546, 569 Sosin, H., 487 South African Futures Exchange

(SAFEX),571 Soybean Crush Spread, 320 SPAN margining system, 549-51 Specialist, 538 Specialist market, 537 Speculation, 43 Spread option, 347-53, 498 Spread risks (see Intra market Spread risks) Standard and Poors 100 Stock Index

595

Options Explained2

(OEX),391 Standard and Poors 500 Stock Index, 389 Standard Deviation Defmition, 100, 102 Standard Deviation of Portfolio, 404 Standard Error, 119 Stochastic Dominance Arguments, 28 Stock Clearing Corporation of Philadelphia

(SCCP),539 Stock Index Futures, 387 Stock Indices, 388 Stock Indices - Geometric Weighted, 389 Stock Indices - Price Weighted, 389 Stock Indices - Valued Weighted, 389 Stockholm Options Market (OM), 543-6 Straddle - Long, 232-6 Straddle - Short, 250-3 Strangle - Long, 236-40 Strangle - Short, 254-7 Strategy Matrix, 196, 224, 275, 316, 352 Strike Bonus option

(of Look Back option), 488-9 Strike Price, 4 Strike Price Code, 6 Super Model, 188-92 Supershares,472 Swaptions, 451-8 Swaptions - "Reversible", 453 Swaptions - "Standard", 453 Swaptions - PAYER, 451-2 Swaptions - RECEIVER, 451 Swedish Bank Inspection Board, 546 Swiss Options and Financial Futures Exchange (SOFFEX), 574 Sydney Futures Exchange (SFE), 393, 555 TED Spread, 319 Term Structure ofInterest Rates, 192, 384,

426 Term Structure of Volatility Definition, 174 Term Structure of Volatility Reasons

for, 175-80 Thales the Milesian, 503 Theoretical Edge, 249 Theta Defmition,70-3 Time Decay of Options, 32 Time decay versus Leverage, 44, 290 Time Spreads (see Calendar Spreads) Time Value Definition, 27, 39, 47 Time Value Estimation, 34-41

596

Time Value Graph, 39 Tokyo International Financial Futures

Exchange (TIFFE), 566 Torous, W., 134,427 Toy, William, 180 Traded Options Market (TOM) , 571 Tree Diagram (see Binomial) TIC (Tender to Contract options), 467 Two Dollar Broker, 539 Underlying Asset Defined, 4 Underwriting Stock Purchases, 384 Uniform Distribution, 97 Value Line Index, 389 Variance - Effective, 179 Vega Definition, 69-70 Vega Effect of Options, 197 Vertical Spreads, 215-24 Vertical Spreads - Bear Spread, 221-4 Vertical Spreads - Bull Spread, 215-21, 401 Vertical Spreads - Credit Spread,

245,259,261 Vertical Spreads - Debit Spread, 218, 223, 261 Viewpoints on Underlying, 195 Viewpoints on Volatility, 195 Volatility - Actual, 113, 117, 128 Volatility - Cyclical (see Seasonal), Volatility - Effective (see Actual) Volatility - Forecasted, 48, 128-31 Volatility - Forward, 192 Volatility - Historical, 46, 114-33,229 Volatility - Implied, 47-8, 139-45 Volatility - Implied vs. Actual, 48, 229, 382 Volatility - Seasonal, 113, 134-9 Volatility - Spot (see Actual) Volatility - Theol)' of Conservation,

124, 127, 132 Volatility Buying Strategies, 232-41 Volatility Cone, 181-8,289,435 Volatility Defmed, 46 Volatility Matrix, 154 Volatility of Bond Yields, 432 Volatility Selling Strategies, 249-75 Volatility Smile Definition, 155 Volatility Smile Index, 167-72 Volatility Smile Reasons for, 156 Volatility Weighting of Historical , 132 Volatility Weighting ofImplied, 147-52 Volume (trading), 8

Weekend Effect, 178 When Issued Bonds, 436 White, Alan, 180 Wiener, Norbert, 99 Wiener Process (see Brownian Motion) Writers of Options, 8-10 Yield Curve

(see Term Structure of Interest Rates) Yield to Maturity Problems, 140 Zero Cost Options, 398-403 Zero Coupon Yields, 192,426 Zeta (see Vega)

Index

597