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Mastering Derivatives Markets

Mastering Derivatives Markets

A Step-by-Step Guide to the Products, Applications and Risks
4th Edition

Francesca Taylor

Dec 2010, Paperback, 432 pages
ISBN13: 9780273735670
ISBN10: 0273735675
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"The first port of call for anyone looking to truly understand derivatives markets, appreciate the role they play within the global financial system and develop the technical knowledge to trade."
Matthew Thompson, Chief Strategy & Business Development Officer, Dubai Mercantile Exchange

"An essential read for anyone serious about understanding the impact of derivatives and technology on the global financial market."
Kevin Thorogood, Global Head, Investment Banking/Energy Trading, Thunderhead Ltd

"We have used Francesca for training on derivatives in the past. She demonstrates a passion for these markets and for learning. In a fast changing world, the combination of technical learning and practical experience that Francesca applies is helpful in keeping abreast of market developments."
Rachael Hoey, Director, Business Development, CLS


Mastering Derivatives Markets provides full up-to-the-minute explanations — with worked examples and screen shots — covering the basics of options, swaps and futures across the key asset classes: rates, currency, equity, commodity and credit.

This book is relevant to anyone working within the financial markets, from the new entrant to the seasoned trader looking for updates, and to non-trading personnel working in IT, legal, compliance, risk, credit and operations.

Please note that the 'look inside' feature is currently displaying the content of Mastering Derivatives Markets Third Edition, this will be updated soon.

Mastering Derivatives Markets Fourth Edition has been completely revised and features new chapters on:

  • The most up to date thinking in the market
  • OTC clearing
  • Regulation
  • Benchmarking
  • Electronic futures trading in the FX market
  • New insights into the commodities markets
  • Carbon trading and environmental products

Table of Contents

1. Background and development of the derivatives markets

  • Market background
  • Introduction
  • Key features
  • Uses of derivatives
  • Range of derivatives
  • Increasing use of the Central Counterparty Model (CCP)
  • Risk and benchmarking
  • Market volumes
  • Users and uses of derivatives
  • Straight Through Processing (STP)

2. Market fundamentals

  • Introduction
  • How banks generate income
  • Three key assumptions
  • Role and use of LIBOR
  • Day counts
  • Financial maths
  • Calculating forward rates
  • Marking to market
  • Yield curves
  • Quiz

3. Risk — a Primer

  • Introduction
  • Finacial risks: markets, credit, liquidity
  • Operational risk
  • More esoteric risks

4. Derviatives Fundamentals

  • Range of derivatives
  • What is a vanilla trade?
  • Settlement
  • Triggers
  • Liquidity and credit risk
  • Understanding the 'underlying'
  • Benchmarks
  • Fair value
  • Dealing with derivatives

5. Basic option concepts

  • Introduction
  • Option pricing
  • Option mechanics

6. Interest rate derivatives — single settlement instruments

  • Introduction
  • Single settlement interest rate derivatives
  • Financial futures contracts
  • Forward rate agreements (FRAs)
  • Interest rate options (IROs)
  • Quiz

7. Interest rate derivatives

  • Introduction
  • Interest rate caps and floors
  • Interest rate collars
  • Interest rate swaps
  • Quiz

8. Benchmarking in the OTC derivatives markets
Penny Davenport, Manging Director, Markit Document Exchange and Gavan Nolan, Vice President, Credit Research, Markit Group

  • Financial benchmarking for derivatives
  • Liquidity benchmarking for derivatives
  • Operational risk measurements for derivatives
  • Conclusion

9. Currency derivatives

  • Introduction
  • Over the counter currency options
  • Currency options: reduced premium strategies
  • Simple exotic structures
  • Currency swaps
  • Exchange-traded instruments
  • Quiz

10. The impact of electronic trading on the FX Market
Ray McKenzie, Vice President, ICE

  • The early years
  • FX as part of a commodity portfolio
  • First electronic dealing platforms
  • Electronic market making
  • Phases I and II
  • Point and click vs algo traders
  • The impact of the credit crisis on banks' FX trading
  • Phase III

11. Credit derivatives

  • Introduction
  • What is credit risk?
  • Styles of trading
  • The first deals
  • Range of credit derivatives
  • Credit default swaps

12. Central clearing and the OTC market
Bill Hodgson, Founder and CEO, The OTC Space Ltd

  • The basics
  • Trade execution
  • Risks and mitigation
  • Getting trades into clearing
  • The business case and benefits
  • Predictions for market development
  • Terminology

13. Equity derivatives

  • Introduction
  • Background
  • Single stocks or equity indices?
  • Stock index futures
  • Stock index options
  • Single stock options
  • Equity index swaps

14. Commodity derivatives

  • Introduction
  • Exchange-traded energy derivatives
  • Exchange-traded futures contracts
  • Exchange-traded energy option contracts
  • OTC or ‘off-exchange’ energy derivatives
  • OTC option products
  • OTC oil swaps

15. Carbon derivatives and environmental products
Emilie Mazzacurati, Point Carbon, a Thomson Reuters company

  • What are carbon markets?
  • Volumes and value
  • Overview of regulation
  • Carbon instruments
  • What drives carbon prices?
  • Trading carbon: in practice
  • Conclusion

16. Regulation in the derivatives markets
Eric Salomons, Associate Director, Dubai Financial Services Authority (DFSA)

  • Why regulate the derivatives market?
  • Who regulates the derivatives market?
  • Regulatory models and objectives
  • Supervisory aims — equal access to markets
  • Market integrity
  • Market abuse and manipulation
  • The role of market surveillance
  • Efficient markets
  • Continuing regulatory challenges

Answers to Quizzes

Francesca Taylor has been a major player in the international derivatives markets for over 25 years and has recently relocated to Dubai, UAE.

Francesca is also the founder and ex-CEO of Taylor Associates (International) Ltd, a financial training company based in London, which provides training and education to a range of financial and non-financial organisations.

She has extensive experience in the derivatives clearing and OTC post trade space working with key market providers of infrastructure services, notably Capco, CLS, DTCC, Deriv/SERV, Markit and Omgeo, both in the UK and North America.

She has worked with CME and Bloomberg in NYC and ICE in Chicago to create TV and web based tutorials in traded options and future markets.

Francesca has a BSc (Hons) in geology from London University, an MBA from Imperial College and an AMCT from the Association of Corporate Treasurers.

Francesca is the author of the bestselling Market Know How: Finance and Markets and Mastering Exchange and Currency Options, 2nd edition, also published by FT Prentice Hall.

A range of expert practitioners have also contributed chapters outlining their thoughts and views on the finance markets in their specialist areas:

Penny Davenport and Gavin Nolan, Markit
"Benchmarking in the OTC derivatives markets"

Bill Hodgson, The OTC Space
"When worlds collide, central clearing and the OTC market"

Emilie Mazzacurati, Point Carbon
"Carbon derivatives and environmental products"

Ray McKenzie, ICE
"The impact of electronic trading on the FX market"

Eric Salomons, DFSA
"Regulations in the derivatives markets"