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

About the Author

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"