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Foreign exchange options: An international guide to currency options, trading and practice (Second edition)

Alan Hicks, Inventure Ltd

 - the benefits of using options to hedge foreign exchange risk
 - detailed examination of both the OTC market and the main exchange listing
 - specific coverage of pricing, trading risk and market practice
 - trading and hedging practices of major international banks
 - expanded analysis of 'exotic' options

Since the first edition of Foreign Exchange Options in 1993, trading in foreign exchange options has undergone rapid expansion and now accounts for a daily turnover of some $100 billion world-wide. This revised and expanded second edition takes into account recent changes in both market practice and regulatory requirements and contains many new explanatory diagrams and practical examples.

As with the first edition, the emphasis is on practicality, taking the reader through the basics, clarifying jargon when and where appropriate. This book will be invaluable for accountants, auditors, experienced practitioners and those entering the world of currency options for the first time.

ISBN 1 85573 253 X
ISBN-13: 978 1 85573 253 7
May 1998
560 pages  244 x 172mm  hardback  
£170.00 / US$290.00 / €205.00

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About the author

Alan Hicks began his banking career with Royal Bank of Canada, with subsequent moves to Fidelity Bank, Chase Manhattan and Standard Chartered Bank. In 1996, Alan formed his own company - Options Training and Consulting Limited - offering advice, training, education and support in all aspects of options. Also in 1996, he entered into an alliance with Inventure Ltd and conducts all UK training and consulting business under the Inventure
Ltd name.

Titles which may also be of interest:
Managing currency risk using foreign exchange options

Contents

The basics
 - Definition
 - Premium
 - Call and Put
 - Exercise
 - Option style
 - Strike
 - Intrinsic value

The marketplace
 - Over-the-counter (OTC)
 - Exchange listed
 - Summary
 - Comparison (OTC versus exchange)

Option characteristics
 - FX position
 - Long Call (bought Call)
 - Long Put (bought Put)
 - Call and Put together (straddle)
 - Short options
 - Underlying position

Put-call parity
 - Synthetic options
 - Put-Call parity - working example
 - Other synthetics

Option combinations
 - Exchange strategies
 - OTC strategies

Option pricing
 - Pricing factors
 - Volatility
 - Intrinsic value
 - Time value
 - Pricing terms
 - Pricing systems
 - Pricing summary

Option trading risk
 - Delta
 - Gamma
 - Vega
 - Theta
 - Rho (and phi)
 - Lanbda
 - Beta
 - Omega

Hedging and trading a portfolio of options
 - Delta-neutral concept
 - Option replication
 - Naked hedging
 - Gamma neutrality
 - Gamma versus theta trading
 - Volatility trading
 - Aspects of the rho
 - Proximity of expiry effects

OTC market practice
 - Volatility quoting
 - Exercise procedure
 - Other practices

Management control of active portfolio
 - Delta
 - Gamma
 - Vega
 - Theta
 - Gamma, vega and theta controlled together
 - Rho control
 - Maturity concentration control
 - Total book size
 - Premium payment control
 - Intra-day control
 - Omega control

Regulatory controls
 - Capital Adequacy Directive
 - Bank of England Reporting Guidelines, April 1984
 - The London Code of Conduct
 - Foreign exchnge associations
 - Other countries

Terms and conditions covering foreign exchange options
 - London Interbank Currency Options Market (LICOM) Terms
 - International Currency Options Market (ICOM) Terms
 - International Swap Dealers' Association (ISDA)
 - Market preference
 - Master agreements - summary
 - 1997 International Currency Options Market (ICOM) Terms
 - Market Practice
 - Schedule of Certain Matters to be Agreed
 - The Barrier Option Appendum
 - Impact of 1997 ICOM

Counterparty credit risk
 - Foreign exchange limits
 - Netting
 - Option counterparty risk factor
 - Margins
 - Master agreement terms and conditions
 - Conclusion

Exotic options and the future
 - Bermudan (mid-Atlantic or window) options
 - Chooser options
 - Power options
 - Comapund options
 - Forward start (delayed, deferred start) options
 - Average rate (Asian, AVRO) options
 - Barrier (trigger) options
 - Digital ( binary, bet) options
 - Contingent (pay later) options
 - Lookback (optimal, minimum / maximum) options
 - Cliquet options
 - Ladder (ratchet) options
 - Shout options
 - Multi-factor options
 - The future

Glossary

Appendices
 - Exchange market specifications
 - Bank of England guidelines
 - Accounting practice
 - International OTC market terms and conditions