Chance
Brooks
An Introduction to
Derivatives and Risk Management
Derivatives and
Risk Management
An Introduction to
10th Edition
Don M. Chance & Robert Brooks
An Introduction to
Derivatives and
Risk Management
10th Edition
To register or access your online learning solution or purchase materials
for your course, visit www.cengagebrain.com.
10th
Edition
Don M. Chance & Robert Brooks
,An Introduction
to Derivatives and
Risk Management
Louisiana State University
University of Alabama
Australia • Brazil • Mexico • Singapore • United Kingdom • United States
, An Introduction to Derivatives and Risk © 2016, 2013 Cengage Learning
Management, 10th Edition
WCN: 01-100-101
Don M. Chance and Robert Brooks
ALL RIGHTS RESERVED. No part of this work covered by the copyright
Vice President, General Manager, Science, herein may be reproduced, transmitted, stored, or used in any form or by
Math & Quantitative Business: Balraj Kalsi any means graphic, electronic, or mechanical, including but not limited
Product Director: Joe Sabatino to photocopying, recording, scanning, digitizing, taping, Web distribution,
Product Manager: Clara Goosman information networks, or information storage and retrieval systems,
except as permitted under Section 107 or 108 of the 1976 United States
Content Developer: Kendra Brown Copyright Act, without the prior written permission of the publisher.
Senior Product Assistant: Adele Scholtz
Marketing Director: Natalie King For product information and technology assistance, contact us at
Cengage Learning Customer & Sales Support, 1-800-354-9706
Marketing Manager: Heather Mooney
For permission to use material from this text or product,
Senior Marketing Coordinator: Eileen submit all requests online at www.cengage.com/permissions
Corcoran Further permissions questions can be emailed to
Art and Cover Direction, Production
Management, and Composition:
Lumina Datamatics, Inc.
Library of Congress Control Number: 2014953625
Associate Media Developer: Mark
ISBN: 978-1-305-10496-9
Hopkinson
Intellectual Property
Cengage Learning
Analyst: Christina Ciaramella
20 Channel Center Street
Project Manager: Anne Sheroff Boston, MA 02210
Manufacturing Planner: Kevin Kluck USA
Cover Image: © isak55/Shutterstock
Unless otherwise noted, all items © Cengage Learning.
Cengage Learning is a leading provider of customized learning
solutions with office locations around the globe, including Singapore,
the United Kingdom, Australia, Mexico, Brazil, and Japan. Locate your
local office at: www.cengage.com/global
Cengage Learning products are represented in Canada by
Nelson Education, Ltd.
To learn more about Cengage Learning Solutions, visit
www.cengage.com
Purchase any of our products at your local college store or at our
preferred online store www.cengagebrain.com
Printed in the United States of America
Print Number: 01 Print Year: 2014
, Brief Contents
Preface xv
CHAPTER 1 Introduction 1
CHAPTER 2 Structure of Derivatives Markets 26
PART I Options 69
CHAPTER 3 Principles of Option Pricing 70
CHAPTER 4 Option Pricing Models: The Binomial Model 109
CHAPTER 5 Option Pricing Models: The Black Scholes Merton Model 143
CHAPTER 6 Basic Option Strategies 202
CHAPTER 7 Advanced Option Strategies 239
PART II Forwards, Futures, and Swaps 273
CHAPTER 8 Principles of Pricing Forwards, Futures, and Options on
Futures 274
CHAPTER 9 Futures Arbitrage Strategies 316
CHAPTER 10 Forward and Futures Hedging, Spread, and Target
Strategies 343
CHAPTER 11 Swaps 395
PART III Advanced Topics 437
CHAPTER 12 Interest Rate Forwards and Options 438
CHAPTER 13 Advanced Derivatives and Strategies 475
CHAPTER 14 Financial Risk Management Techniques and Applications 516
CHAPTER 15 Managing Risk in an Organization 559
Appendix A Solutions to Concept Checks A-1
(This content is also available on the textbook companion site.)
Appendix B References B-1
(This content is available on the textbook companion site only.)
Appendix C List of Symbols C-1
(This content is available on the textbook companion site only.)
Appendix D List of Important Formulas D-1
(This content is available on the textbook companion site only.)
Glossary G-1
Index I-1
iii
Brooks
An Introduction to
Derivatives and Risk Management
Derivatives and
Risk Management
An Introduction to
10th Edition
Don M. Chance & Robert Brooks
An Introduction to
Derivatives and
Risk Management
10th Edition
To register or access your online learning solution or purchase materials
for your course, visit www.cengagebrain.com.
10th
Edition
Don M. Chance & Robert Brooks
,An Introduction
to Derivatives and
Risk Management
Louisiana State University
University of Alabama
Australia • Brazil • Mexico • Singapore • United Kingdom • United States
, An Introduction to Derivatives and Risk © 2016, 2013 Cengage Learning
Management, 10th Edition
WCN: 01-100-101
Don M. Chance and Robert Brooks
ALL RIGHTS RESERVED. No part of this work covered by the copyright
Vice President, General Manager, Science, herein may be reproduced, transmitted, stored, or used in any form or by
Math & Quantitative Business: Balraj Kalsi any means graphic, electronic, or mechanical, including but not limited
Product Director: Joe Sabatino to photocopying, recording, scanning, digitizing, taping, Web distribution,
Product Manager: Clara Goosman information networks, or information storage and retrieval systems,
except as permitted under Section 107 or 108 of the 1976 United States
Content Developer: Kendra Brown Copyright Act, without the prior written permission of the publisher.
Senior Product Assistant: Adele Scholtz
Marketing Director: Natalie King For product information and technology assistance, contact us at
Cengage Learning Customer & Sales Support, 1-800-354-9706
Marketing Manager: Heather Mooney
For permission to use material from this text or product,
Senior Marketing Coordinator: Eileen submit all requests online at www.cengage.com/permissions
Corcoran Further permissions questions can be emailed to
Art and Cover Direction, Production
Management, and Composition:
Lumina Datamatics, Inc.
Library of Congress Control Number: 2014953625
Associate Media Developer: Mark
ISBN: 978-1-305-10496-9
Hopkinson
Intellectual Property
Cengage Learning
Analyst: Christina Ciaramella
20 Channel Center Street
Project Manager: Anne Sheroff Boston, MA 02210
Manufacturing Planner: Kevin Kluck USA
Cover Image: © isak55/Shutterstock
Unless otherwise noted, all items © Cengage Learning.
Cengage Learning is a leading provider of customized learning
solutions with office locations around the globe, including Singapore,
the United Kingdom, Australia, Mexico, Brazil, and Japan. Locate your
local office at: www.cengage.com/global
Cengage Learning products are represented in Canada by
Nelson Education, Ltd.
To learn more about Cengage Learning Solutions, visit
www.cengage.com
Purchase any of our products at your local college store or at our
preferred online store www.cengagebrain.com
Printed in the United States of America
Print Number: 01 Print Year: 2014
, Brief Contents
Preface xv
CHAPTER 1 Introduction 1
CHAPTER 2 Structure of Derivatives Markets 26
PART I Options 69
CHAPTER 3 Principles of Option Pricing 70
CHAPTER 4 Option Pricing Models: The Binomial Model 109
CHAPTER 5 Option Pricing Models: The Black Scholes Merton Model 143
CHAPTER 6 Basic Option Strategies 202
CHAPTER 7 Advanced Option Strategies 239
PART II Forwards, Futures, and Swaps 273
CHAPTER 8 Principles of Pricing Forwards, Futures, and Options on
Futures 274
CHAPTER 9 Futures Arbitrage Strategies 316
CHAPTER 10 Forward and Futures Hedging, Spread, and Target
Strategies 343
CHAPTER 11 Swaps 395
PART III Advanced Topics 437
CHAPTER 12 Interest Rate Forwards and Options 438
CHAPTER 13 Advanced Derivatives and Strategies 475
CHAPTER 14 Financial Risk Management Techniques and Applications 516
CHAPTER 15 Managing Risk in an Organization 559
Appendix A Solutions to Concept Checks A-1
(This content is also available on the textbook companion site.)
Appendix B References B-1
(This content is available on the textbook companion site only.)
Appendix C List of Symbols C-1
(This content is available on the textbook companion site only.)
Appendix D List of Important Formulas D-1
(This content is available on the textbook companion site only.)
Glossary G-1
Index I-1
iii
