'Financial derivatives continue to play a major role in modern, market-based economies across the globe. The necessity to comprehend the economic rationales behind financial derivatives, as well as the purposes for which they were designed, has never been greater.
This new four-volume collection from Routledge answers that need. David H. Goldenberg, a leading scholar in the field, has brought together the foundational and the very best cutting-edge contributions. The collection maps the existing body of thinking and helps users to make sense of the continuing explosion in scholarly output. Financial Derivatives is fully indexed and has a chronological table. It also includes detailed introductions for each of the four volumes, newly written by the editor, which places the material in its intellectual and historical context. These introductions collectively constitute 108 pages, guide the reader through the material, and provide an overview of the subject. They form a virtual textbook, making the series suitable for courses taught in Finance, Mathematical Finance, and Economics programs worldwide. Financial Derivatives is an essential work of reference and is destined to be valued by users both as a vital one-stop research and as a teaching resource.
Volume I: Foundations for Forward and Futures Markets
Part 1: Rationales for Derivatives
Rational Expectations: Models and Price Discovery
1. Margaret Bray, ‘Rational Expectations, Information, and Asset Markets: An Introduction’, Oxford Economic Papers, 1985, 37, 2, 161–95.
2. Kenneth Arrow, ‘Futures Markets: Some Theoretical Perspectives’, Journal of Futures Markets, 1981, 1, 107–15.
3. Anat Admati, ‘The Informational Role of Prices’, Journal of Monetary Economics, 1991, 28, 347–61.
4. Sanford Grossman, ‘The Existence of Futures Markets, Noisy Rational Expectations, and Informational Externalities’, Review of Economic Studies, 1977, 44, 431–49.
General Equilibrium and Market Completeness
5. Robert M. Townsend, ‘On the Optimality of Forward Markets’, American Economic Review, 1978, 68, 1, 54–66.
6. Manfred Nermuth, ‘Futures Markets, Information Structures, and the Allocation of Resources’, European Economic Review, 1987, 31, 226–34.
7. David Levhari and Michael Rothschild, ‘Interest Rate Futures Markets, Interest Rate Variability, and the Demand for Investment’, in Mandred Streit (ed.), Futures Markets, Modeling, Managing and Monitoring Futures Trading (Blackwell, 1983), pp. 107–23.
Transactions: Costs and Agency Costs
8. Harlow N. Higinbotham, review of The Economic Function of Futures Markets by Jeffrey Williams, Journal of Political Economy, 1987, 95, 5, 1119–22.
9. Hendrik Bessembinder, ‘Forward Contracts and Firm Value: Investment Incentive and Contracting Effects’, Journal of Financial and Quantitative Analysis, 1991, 26, 4, 519–32.
Liquidity and Money Analogy
10. Lester Telser, ‘Why there are Organized Futures Markets’, Journal of Law and Economics, 1981, 24, 1–22.
11. H. S. Houthakker, ‘The Scope and Limit of Futures Trading, Cowles Foundation Paper 130’, in Moses Abramovitz (ed.), The Allocation of Economic Resources (Stanford University Press, 1959), pp. 134–59.
Part 2: Welfare Aspects of Derivatives
Informational Externalities
12. Jerome Stein, ‘Informational Externalities and Welfare-reducing Speculation’, Journal of Political Economy, 1987, 95, 6, 1123–45.
Destabilization
13. David Newberry, ‘When Do Futures Destabilize Spot Prices?’, International Economic Review, 1987, 28, 2, 291–7.
Social Costs of Derivatives
14. Merton Miller, ‘The Social Costs of Some Recent Derivatives Disasters’, Pacific-Basin Finance Journal, 1996, 4, 113–27.
Part 3: Hedging
Theory of the Firm
15. D. Holthausen, ‘Hedging and the Competitive Firm Under Price Uncertainty’, American Economic Review, 1979, LXIX, 989–95.
Normal Backwardation and Hedging Pressure
16. David Hirshleifer, ‘Hedging Pressure and Futures Price Movements in a General Equilibrium Model’, Econometrica, 1990, 58, 2, 411–28.
Portfolio Theory
17. Jerome L. Stein, ‘The Simultaneous Determination of Spot and Futures Prices’, American Economic Review, 1961, 51, 5, 1012–25.
Portfolio Theory with Output Risk
18. Ronald Britto, ‘The Simultaneous Determination of Spot and Futures Prices in a Simple Model with Production Risk’, Quarterly Journal of Economics, 1984, 99, 2, 351–65.
Arbitraging the Basis
19. Holbrook Working, ‘New Concepts Concerning Futures Markets and Prices’, American Economic Review, 1962, 52, 3, 431–59.
Proprietary Information
20. Peter Demarzo and Darrell Duffie, ‘Corporate Incentives for Hedging and Hedging Accounting’, Review of Financial Studies, 1995, 8, 3, 743–71.
Part 4: Speculation
Returns to Speculators vs. Hedgers
21. Michael Hartzmark, ‘Returns to Individual Traders of Futures: Aggregate Results’, Journal of Political Economy, 1987, 95, 6, 1292–306.
Part 5: Futures Pricing
Martingale Pricing Under Risk Neutrality
22. Holbrook Working, ‘A Theory of Anticipatory Prices’, American Economic Review, 1958, 48, 2, 188–98.
23. Paul Samuelson, ‘Proof that Properly Anticipated Prices Fluctuate Randomly’, Industrial Management Review, 1965, 6, 2, 41–9.
Futures Pricing vs. Forward Pricing
24. Emanuelle Amerio, ‘Forward and Futures Prices: A Note on a Convexity Drift Adjustment’, Journal of Alternative Investments, Fall 2005, 80–6.
25. John Cox, Jonathan Ingersoll, and Stephen Ross, ‘The Relation Between Forward Prices and Futures Prices’, Journal of Financial Economics, 1981, 9, 321–46.
Volume II: Foundations for Options
Part 6: Rationales for Options
Completing Incomplete Markets
26. Mark Sattertwhaite, ‘The Incentive for Creation of Complete Securities Markets’ (Discussion Paper 260, Dept. of Managerial Economics and Decision Sciences, Northwestern University, 1976).
Efficient Market Completion in Discrete State Spaces
27. Stephen Ross, ‘Options and Efficiency’, Quarterly Journal of Economics, 1976, 90, 1, 75–89.
Spanning Over Uncountable State Spaces
28. Valentina Galvani, ‘A Note on Spanning with Options’, Mathematical Social Sciences, 2007, 54, 106–14.
Spanning With Index Options
29. Jin Chuan, Arthur Moreau, and C. W. Sealey, ‘Spanning With Index Options’, Journal of Financial and Quantitative Analysis, 1992, 27, 303–9.
Part 7: Option-Pricing Theory
History (1900–75)
30. Clifford W. Smith, ‘Option Pricing: A Review’, Journal of Financial Economics, 1976, 3, 3–51.
Pricing Options Under Minimal Assumptions
31. Robert C. Merton, ‘Theory of Rational Option Pricing’, Bell Journal of Economics and Management Science, 1973, 4, 1, 141–83.
Part 8: European Option Pricing in Discrete Time
The Arbitrage Principle
32. Hal Varian, ‘The Arbitrage Principle in Financial Economics’, Journal of Economic Perspectives, 1987, 1, 2, 55–72.
33. Philip H. Dybvig and Stephen A. Ross, ‘Arbitrage’, in Steven N. Durlauf and Lawrence E. Blume (eds.), The New Palgrave Dictionary of Economics, 2nd edn. (Palgrave Macmillan, 2008).
Lattice Models for European Option Pricing
34. John Cox, Stephen Ross, and Mark Rubinstein, ‘Option Pricing: A Simplified Approach’, Journal of Financial Economics, 1979, 7, 229–63.
Part 9: European Option Pricing in Continuous Time
Mathematical Foundations for European Option Pricing in Continuous Time with Continuous State Spaces
35. Hans Föllmer, ‘On Kiyosi Itô’s Work and its Impact’ (Gauss Lecture at the International Congress of Mathematicians, 2006).
Economic Foundations for European Option Pricing in Continuous Time with Continuous State Spaces
36. J. Michael Harrison and David Kreps, ‘Martingales and Arbitrage in Multiperiod Securities Markets’, Journal of Economic Theory, 1979, 20, 381–408.
37. Chi-Fu Huang, ‘Information Structure and Equilibrium Asset Prices’, Journal of Economic Theory, 1985, 35, 33–71.
38. Bernard Wong and C. C. Heyde, ‘Arbitrage and Approximate Arbitrage: The Fundamental Theorem of Asset Pricing’, Stochastics, 2010, 82, 189–200.
Valuation of European Options for Alternative Stochastic Processes
39. John Cox and Stephen Ross, ‘The Valuation of Options for Alternative Stochastic Processes’, Journal of Financial Economics, 1976, 3, 145–66.
The Reduction Method for Pricing European Options on Diffusion Processes
40. David Goldenberg, ‘A Unified Method for Pricing Options on Diffusion Processes’, Journal of Financial Economics, 1991, 29, 1, 3–34.
Part 10: American Put Option Pricing in Continuous Time
41. Peter Carr, Robert Jarrow, and Ravi Myneni, ‘Alternative Characterizations of American Put Options’, Mathematical Finance, 1992, 2, 2, 87–106.
42. David Goldenberg, ‘Accuracy Measures for American Put Option Pricing Algorithms’, International Journal of Financial Markets And Derivatives, 2009, 1, 5–40.
43. G. Peskir, ‘On the American Option Problem’, Mathematical Finance, 2005, 15, 1, 169–81.
Volume III: Further Developments in Options Pricing
Part 11: Analyses of Specific Option Types
Commodity Options
44. Fischer Black, ‘The Pricing of Commodity Contracts’, Journal of Financial Economics, 1976, 3, 167–79.
FX Options
45. Kit Pong Wong, ‘Currency Hedging With Options and Futures’, European Economic Review, 2003, 47, 5, 833–9.
Futures Options
46. Krishna Ramaswamy and Suresh M. Sundaresan, ‘The Valuation of Options on Futures Contracts’, Journal of Finance, 2012, 40, 5, 1319–40.
Part 12: Empirical Option Pricing
Empirical Performance of Black-Scholes
47. Mihir Bhattacharya, ‘Empirical Properties of the Black-Scholes Formula Under Ideal Conditions’, Journal of Financial and Quantitative Analysis, 1980, 15, 1081–105.
The Leverage Effect
48. F. Black, ‘Studies of Stock Price Volatility Changes’, Proceedings of the 1976 Meetings of the American Statistical Association, Business and Economics Statistics Section (1976), pp. 177–81.
Forecasting Volatility
49. Ser-Huang Poon and Clive Granger, ‘Practical Issues in Forecasting Volatility’, Financial Analysts Journal, 2005, 61, 1, 45–56.
Part 13: Smile-Consistent Option Pricing in Complete vs. Incomplete Markets
The Nature of Incomplete Markets
50. Charles Wilson, ‘Incomplete Markets’, in Steven N. Durlauf and Lawrence E. Blume (eds.), The New Palgrave Dictionary of Economics, 2nd edn. (Palgrave Macmillan, 2008).
51. Michael Magill and Martine Quinzii, ‘General Equilibrium With Incomplete Markets’, in Steven N. Durlauf and Lawrence E. Blume (eds.), The New Palgrave Dictionary of Economics, 2nd edn. (Palgrave Macmillan, 2008).
Strategies for Extending Black-Scholes
52. Thomas Finucane, ‘Black-Scholes Approximations of Call Option Prices with Stochastic Volatilities: A Note’, Journal of Financial and Quantitative Analysis, 1989, 24, 4, 527–32.
53. Rudiger Frey, ‘Derivative Asset Analysis in Models with Level-Dependent and Stochastic Volatility’, CWI Quarterly, 1997, 10, 1, 1–34.
Option Pricing for Diversifiable Jump Processes (Complete Markets)
54. Robert C. Merton, ‘Option Pricing when Underlying Stock Returns are Discontinuous’, Journal of Financial Economics, 1976, 3, 125–44.
First-Generation Stochastic Volatility Option Pricing Models (Incomplete Markets)
55. Steven Heston, ‘A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options’, Review of Financial Studies, 1993, 6, 2, 327–43.
56. Bernard Wong and C. C. Heyde, ‘On Changes of Measure in Stochastic Volatility Models’, Journal of Applied Mathematics and Stochastic Analysis, 2006, 1–13.
Second-Generation Stochastic Volatility , Jump Option Pricing Models (Incomplete Markets)
57. Darrell Duffie, Jun Pan, and Kenneth Singleton, ‘Transform Analysis and Asset Pricing for Affine Jump—Diffusions’, Econometrica, 2000, 68, 6, 1343–76.
Part 14: Exotic Options
Classification of Exotic Options
58. Peter Zhang, ‘Professional Forum: An Introduction to Exotic Options’, European Financial Management, 1995, 1, 1, 87–95.
Path-Independent Options: Variations on Black-Scholes
59. Robert Geske, ‘The Valuation of Compound Options’, Journal of Financial Economics, 1979, 7, 1, 63–81.
60. F. Lajeri-Chaherli, ‘A Note on the Valuation of Compound Options, Journal of Futures Markets, 2002, 22, 1103–15.
61. Herb Johnson, ‘Options on the Maximum or the Minimum of Several Assets’, Journal of Financial and Quantitative Analysis, 1987, 22, 3, 277–83.
62. William Margrabe, ‘The Value of an Option to Exchange One Asset for Another’, Journal of Finance, 2012, 33, 1, 177–86.
Path-Dependent Options
63. Hua He and Akihoko Takahashi, ‘A Variable Reduction Technique for Pricing Average-rate Options’, International Review of Finance, 2000, 1, 2, 123–42.
64. Rolf Poulsen, ‘Barrier Options and their Static Hedges: Simple Derivations and Extensions’, Quantitative Finance, 2006, 6, 4, 327–35.
65. Jonathan Ingersoll, ‘Digital Contracts: Simple Tools for Pricing Complex Derivatives’, Journal of Business, 2000, 73, 1, 67–88.
Volume IV: Swaps and Structured Products
Part 15: otc Markets
The Structure of OTC Markets
66. Marco Avellaneda and Rama Cont, ‘Trade Transparency in the OTC Equity Derivatives Markets’, Finance Concepts Research, January 2011.
OTC Interest Rate Derivatives
67. Anatoli Kuprianov, ‘Over-the-Counter Interest Rate Derivatives’, Federal Reserve Bank of Richmond Economic Quarterly, 1993, 79/3, 65–94.
Part 16: Swaps
Swaps Taxonomy
68. Peter A. Abken, ‘Beyond Plain Vanilla: A Taxonomy of Swaps’, Economic Review—Federal Reserve Bank of Atlanta, Mar./Apr. 1991, 76, 2, 12–29.
Swaps vs. Eurodollar Strips
69. Ira G. Kawaller, ‘Interest Rate Swaps Versus Eurodollar Strips’, Financial Analysts Journal, Sept./Oct. 1989, 45, 5, 55–61.
Plain Vanilla Interest Rate Swaps
70. Anatoli Kuprianov, ‘The Role of Interest Rate Swaps in Corporate Finance’, Federal Reserve Bank of Richmond Economic Quarterly, 1994, 80/3, 49–68.
71. Raphael Hodgson, ‘The Birth of the Swap’, Financial Analysts Journal, 2009, 65, 3, 32–5.
72. C. W. Smith, C. W. Smithson, and L. M. Wakeman, ‘The Market for Interest Rate Swaps’, Financial Management, Winter 1988, 34–44.
73. Donald J. Smith, ‘Measuring the Gains from Arbitraging the Swap Market’, Financial Executive, Mar./Apr. 1988, 4, 2, 46–9.
74. Stuart M. Turnbull, ‘Swaps: A Zero Sum Game?’, Financial Management, 1987, 16, 1, 15–21.
75. Eric H. Sorensen and Thierry F. Bollier, ‘Pricing Swap Default Risk’, Financial Analysts Journal, 1994, 50, 3, 23–33.
Currency Swaps
76. B. Chowdry, Mark Grinblatt, and David Levine, ‘Information Aggregation, Security Design, and Currency Swaps’, Journal of Political Economy, 2002, 110, 3, 609–33.
77. John Kiff, Uri Ron, and Shafiq Ebrahim, ‘The Federal Government’s Use of Interest Rate Swaps and Currency Swaps’, Bank of Canada Review, Winter 2000–1, 23–34.
Equity Swaps
78. Mia Hinnerich, ‘Equity Swaps’, in Rama Cont (ed.), The Encyclopedia of Quantitative Finance (2010), pp. 577–80.
Variance Swaps
79. Kresimir Demeterfi, Emanuel Derman, Michael Kamal, and Joseph Zou, ‘A Guide to Volatility and Variance Swaps’, Journal of Derivatives, 1999, 9–32.
Part 17: Caps, Floors, Collars, and Swaptions
Rational Pricing Bounds
80. Claus Munk, ‘Price Bounds on Bond Options, Swaptions, Caps, and Floors Assuming Only Nonnegative Interest Rates’, International Review of Economics and Finance, 2002, 11, 335–47.
Term Structure Models
81. Oldrich Vasicek, ‘Term Structure Models’, in Rama Cont (ed.), The Encyclopedia of Quantitative Finance (2010), pp. 1802–5.
Model-Based Pricing
82. Eric Briys, Michel Crouhy, and Rainer Schobel, ‘The Pricing of Default-free Interest Rate Cap, Floor, and Collar Agreements’, Journal of Finance, 1991, XLVI, 5, 1879–92.
83. Kristian Miltersen, Klaus Sandmann, and Dieter Sondermann, ‘Closed Form Solutions for Term Structure Derivatives with Log-Normal Interest Rates’, Journal of Finance, 1997, LII, 1, 409–30.
84. F. Black, E. Derman, and W. Toy, ‘A One-Factor Model of Interest Rates and its Application to Treasury Bond Options’, Financial Analysts Journal, Jan.–Feb. 1990, 33–9.
Part 18: Structured otc Derivative Products
Structured Notes
85. Joel Telpner, ‘A Survey of Structured Notes’, Journal of Structured and Project Finance, 2004, 9, 4, 6–19.
Convertible Securities
86. Jonathan E. Ingersoll, ‘A Contingent Claims Valuation of Convertible Securities’, Journal of Financial Economics, 1977, 4, 289–322.
Part 19: Credit Derivatives
87. Rene Stulz, ‘Credit Default Swaps and the Credit Crisis’, Journal of Economic Perspectives, 2010, 24, 1, 73–92.
88. Gregory R. Duffee and C. Zhou, ‘Credit Derivatives in Banking: Useful Tools for Managing Risk?’, Journal of Monetary Economics, 2001, 48, 25–54.
Biography
David H. Goldenberg is an independent researcher, New York , USA.
