CHAPTER 1 Overview
1.
derivatives
2.
Options
3.
Evaluation model

CHAPTER 2 Basic Variables - Interest Rates
1.
Simple interest rate and compound interest rate
2.
internal rate of return
3.
Interest rate term structure
4.
Yield to maturity
5.
Spot interest rate
6.
Leading interest rate
7.
continuous interest rate
8.
Interest rate naming conventions
9.
Interest Rates - Practice

CHAPTER 3 Basic Variables - Volatility
1.
Historical volatility
2.
Statistical correction techniques
3.
Annualized volatility
4.
Volatility-Practice

CHAPTER 4 Stochastic Processes
1.
Markov process
2.
Winner Course
3.
Arithmetic Brownian motion
4.
Geometric Brownian motion

CHAPTER 5 Evaluation Methods I - Black-Scholes-Merton
1.
European stock options
2.
American stock options
3.
Cash dividends

CHAPTER 6 Valuation Methods II - Stock Price N-Term Model
1.
Understanding the Two-Term Stock Price Model
2.
Stochastic Process and the Two-Term Stock Price Model
3.
Cox-Ross-Rubinstein (CRR) two-term model
4.
Other two-term models
5.
Cox-Ross-Rubinstein (CRR) extended ternary model
6.
Other 3-term models
7.
Cash dividends
8.
Call options and put options
9.
Two-term model probability distribution
10.
caution

CHAPTER 7 Evaluation Methods III - Interest Rate N-Term Model
1.
Understanding the Two-Term Interest Rate Model
2.
Stochastic Process and Two-Term Interest Rate Model
3.
Simple leading model
4.
Black-Derman-Toy (BDT) two-term model
5.
Ho and Lee(HL) two-term model
6.
Hull and White (HW) ternary model
7.
bonds
8.
Call options and put options
9.
caution

CHAPTER 8 Evaluation Methods IV - Monte Carlo Model
1.
Stochastic processes and Monte Carlo models
2.
Stock price path
3.
European options
4.
American options
5.
Variance Reduction Techniques
6.
Evaluation using deterministic random variables

CHAPTER 9: VALUATION METHODS V - DIFFERENCE SETTLEMENT VS. FULL-AMOUNT EXCHANGE
1.
If the underlying asset is stock
2.
When the underlying asset is an interest rate

CHAPTER 10 Cash Flow Risk I
1.
Cash Flow and Its Risks
2.
Reflection of cash flow risk
3.
Cash flow selection
4.
Call options and put options

CHAPTER 11 Cash Flow Risk II
1.
difference settlement type
2.
Total exchangeable call option
3.
Total Exchangeable Put Option; Goldman Sachs (GS)
4.
Total exchangeable put option; Tsiveriotis & Fernandes (T&F)
5.
Total Exchangeable Put Option; Expected Present Value (EPV)
6.
Comparison of Evaluation Methods-1
7.
Total Exchangeable Put Option; Modified Goldman Sachs (GS)
8.
Total Exchangeable Put Option; Modified Tsiveriotis & Fernandes (T&F)
9.
Comparison of Evaluation Methods-2

CHAPTER 12 Convertible Securities I - Valuation Methods
1.
Goldman Sachs (GS)
2.
Tsiveriotis & Fernandes (T&F)
3.
Expected Present Value (EPV)
4.
Comparison of Evaluation Methods - 1
5.
Modified Goldman Sachs (GS)
6.
Modified Tsiveriotis & Fernandes (T&F)
7.
Comparison of Evaluation Methods - 2
8.
Valuation considering accounting treatment
9.
caution

CHAPTER 13 Convertible Securities II - Net Settlement Method
1.
Tsiveriotis & Fernandes (T&F)
2.
Expected Present Value (EPV)
3.
Comparison between evaluation methods

CHAPTER 14 Convertible Securities III - Refixing
1.
Basic reflection method
2.
Specific Event Refixing
3.
Refixing Sales Performance
4.
Refixing market fluctuations
5. IPO Refixing
6.
Evaluation Method - 1
7.
Evaluation Method - 2
8.
caution

CHAPTER 15 Convertible Securities IV - Call Options
1.
Evaluation method
2.
Tsiveriotis & Fernandes (T&F)
3.
Expected Present Value (EPV)
4.
Comparison between evaluation methods
5.
Agreement between With/Without and Compound
6.
Other call option valuation methods
7.
caution

CHAPTER 16 Convertible Securities V - Precautions
1.
General Purpose Evaluation
2.
Accounting Objectives Assessment
3. CPS and RCPS
4.
Put option on a third party
5.
dilution
6.
etc

CHAPTER 17 Unusual Options I
1.
Gap option
2.
Clique Options
3.
composite options
4.
Obstacle Options
5.
binary option
6.
Quanto option

CHAPTER 18 Unusual Options II
1.
Lookback option
2.
Asian options

CHAPTER 19 Multi-Underlying Assets
1.
22 models
2.
2N model
3.
3N model
4.
Monte Carlo model
5.
Exchange options
6.
Quanto option
7.
convertible bonds

CHAPTER 20 PRACTICAL CASE
1.
Expected maturity of stock options
2.
When there are both call and put options
3.
Claw Back & Incentive
4.
Simple post-settlement
5.
Complex Drag-Along Claim
6.
Perpetual convertible bonds

[Appendix 1] Finite Difference Method (FDM)
[Appendix 2] A Review of Tsiveriotis & Fernandes (T&F)

References

[Main Content]

· Explanation of practical approaches to interest rates and volatility, the fundamental variables of derivatives.
· Explanation of the major derivative valuation methods: the Black-Scholes-Merton model, the stock price N-term model, the interest rate N-term model, the Monte Carlo model, and the Finite Difference Mehtod model.
· Explain cash flow risk and the various methods for reflecting cash flow risk in fair value assessments.
· Explanation of the major complex financial product valuation methods: the Goldman Sachs model, the Tsiveriotis & Fernandes model, and the Expected Present Value model.
· Explanation of valuation methods for exotic options and options with multiple underlying assets
· Description of evaluation methods for cases experienced by the author in practice

[Comparison with competing books]

· Identify the problems with the Goldman Sachs model and the Tsiveriotis & Fernandes model, which are major methods for evaluating complex financial products, and suggest alternative solutions.
· Present problems in the current evaluation process and suggest alternative solutions for some issues.
· Distinguish between total exchange transactions and net settlement transactions, and suggest optimal evaluation methods for each transaction type.
· Describe the process of evaluating a gross exchange transaction using the net settlement method, and provide a detailed explanation of the process of matching the results with those evaluated using the gross exchange method.
· Explains the All Path technique, Sub Tree technique, Backward Elimination technique, Forward Probability technique, etc. related to the Path Dependent option.