 TABLE of CONTENTS
 Preface
 Chapter 1: Theory of Arbitrage Pricing: Equity Markets
 1.1 A Basic One Period Model
 1.2 Defining the NoArbitrage Condition
 1.2.1 Identifying an Arbitrage Portfolio
 1.2.2 Law of One Price
 1.3 Pricing by Replication
 1.4 Stochastic Discount Factors
 1.4.1 SDF and Risk Neutral Probability
 1.5 Concluding Remarks
 1.6 Questions and Problems
 1.7 Appendix
 1.7.1 Complete Market
 1.7.2 Incomplete Market
 1.7.3 Incomplete Market and Arbitrage Bounds
 1.7.4 The NoArbitrage Condition: Geometric Exposition
 Chapter 2: Arbitrage Pricing Applications: Equity Markets
 2.1 Market Structure and the RiskFree Rate
 2.2 One Period Binomial Model
 2.3 Valuing Two Propositions
 2.4 Forwards: A First Look
 2.4.1 Forward Contract on a Security
 2.4.2 Forward Contract on the Exchange Rate
 2.5 Swaps: A First Look
 2.5.1 Currency Swaps
 2.5.2 Equity (Asset) Swaps
 2.6 General Valuation
 2.6.1 The Riskfree Rate of Interest Implicit in the Market
 2.6.2 The Two Propositions
 2.6.3 Forwards
 2.6.4 Swaps
 2.7 Concluding Remarks
 2.8 Questions and Problems
 Chapter 3: Pricing by Arbitrage: Debt Markets
 3.1 Setting the Framework
 3.2 Arbitrage in the Debt Market
 3.2.1 Distinct Features of the Debt Market
 3.2.2 Defining the NoArbitrage Condition
 3.3 Discount Factors
 3.4 Rates, Discount Factors, and Continuous Compounding
 3.4.1 Continuous Compounding
 3.5 Concluding Remarks
 3.6 Questions and Problems
 3.7 Appendix
 3.7.1 NoArbitrage Condition in the Bond Market
 Chapter 4: Fundamentals of Options
 4.1 Extending the Simple Model
 4.2 Two Types of Options
 4.3 Trading Strategies
 4.4 Payoff Diagrams and Relative Pricing
 4.4.1 Pricing Bounds Obtained by Relative Pricing Results
 4.4.2 PutCall Parity
 4.5 From Payoffs to Portfolios
 4.6 Concluding Remarks
 4.7 Questions and Problems
 4.8 Appendix
 4.8.1 Explanation of Stripay
 4.8.2 Procedural Issues
 Chapter 5: Risk Neutral Probability and SDF
 5.1 Infinite vs. Finite States
 5.2 SDF for an Infinite Omega
 5.3 Risk Neutral Probability and SDF
 5.4 A First Look at Stock Prices
 5.5 The Distribution of the Rate of Return
 5.6 Paths of the Price Process
 5.7 Specifying a Risk Neutral Probability
 5.8 Lognormal Distributions and SDF
 5.9 The Stochastic Discount Factor Function
 5.10 Concluding Remarks
 5.11 Questions and Problems
 Chapter 6: Valuation of European Options
 6.1 Valuing a Call Option
 6.2 Valuing a Put Option
 6.3 Combinations across Time
 6.4 Dividends and Option Pricing
 6.5 Volatility and Implied Volatility
 6.5.1 Estimating Volatility from Historical Data
 6.5.2 Implied Volatility
 6.6 Concluding Remarks
 6.7 Questions and Problems
 6.8 Appendix
 6.8.1 Estimating Implied Volatility Using Trial and Error
 Chapter 7: Sensitivity Measures
 7.1 The Theta Measure
 7.2 The Delta Measure
 7.3 The Gamma Measure
 7.4 The Vega Measure
 7.5 The rho Measure
 7.6 Concluding Remarks
 7.7 Questions and Problems
 7.8 Appendix
 7.8.1 Derivation of Sensitivity Measures
 7.8.2 Sensitivity of Other Options
 7.8.3 Signs of the Sensitivities
 Chapter 8: Hedging with the Greeks
 8.1 Hedging: the General Philosophy
 8.2 Delta Hedging
 8.2.1 Solving for a Delta Neutral Portfolio
 8.3 Delta Neutral Portfolios and the Defintion of Delta
 8.4 General Hedging
 8.5 Optimizing Hedged Portfolios
 8.6 Concluding Remarks
 8.7 Questions and Problems
 Chapter 9: The Term Structure its Estimation & Smoothing
 9.1 The Term Structure of Interest Rates
 9.1.1 Zero Coupon, Spot and Yield Curves
 9.2 Smoothing of the Term Structure
 9.2.1 Smoothing and Continuous Compounding
 9.3 Forward Rates
 9.3.1 Forward Rate: A Classical Approach
 9.3.2 Forward Rate: A Practical Approach
 9.4 A Variable Rate Bond
 9.5 Concluding Remarks
 9.6 Questions and Problems
 9.7 Appendix
 9.7.1 Theories of the Shape of the Term Structure
 9.7.2 Approximating Functions
 Chapter 10: Forwards, Eurodollars and Futures
 10.1 Forward Contracts: A Second Look
 10.2 Valuation of Forward Contracts Prior to Maturity
 10.3 Forward Price of Assets that Pay Known Cash Flows
 10.3.1 Forward Contracts, Prior to Maturity, of Assets that Pay Known Cash Flows
 10.3.2 Forward Price of a Stock that Pays A Known Dividend Yield
 10.4 Eurodollar Contracts
 10.4.1 Forward Rate Agreements (FRA)
 10.5 Futures Contracts: A Second Look
 10.6 Deterministic Term Structure (DTS)
 10.7 Futures Contracts in a DTS Environment
 10.8 Concluding Remarks
 10.9 Questions and Problems
 Chapter 11: Swaps: A Second Look
 11.1 A FixedforFloat Swap
 11.1.1 Valuing an Existing Swap
 11.2 Currency Swaps
 11.3 Commodity and Equity Swaps
 11.4 Forwards and Swaps: A Visualization
 11.5 Concluding Remarks
 11.6 Questions and Problems
 Chapter 12: American Options
 12.1 American Call Options
 12.1.1 Arbitrage Bounds
 12.1.2 Early Exercise Decision
 12.2 American Put Options
 12.2.1 Arbitrage Bounds
 12.2.2 Early Exercise Decision
 12.3 Put Call Parity
 12.4 The Effect of Dividends
 12.4.1 A Call Option
 12.4.2 A Put Option
 12.5 Concluding Remarks
 12.6 Questions and Problems
 Chapter 13: The Binomial Model I
 13.1 Setting the Premises
 13.2 NoArbitrage and SDF
 13.2.1 NoArbitrage
 13.2.2 SDF
 13.3 Valuation
 13.3.1 Valuation with SDF
 13.3.2 Valuation by Replication
 13.4 Numerical Valuation
 13.5 Concluding Remarks
 13.6 Questions and Problems
 Chapter 14: The Binomial Model II
 14.1 Binomial Model and the BlackScholes Formula
 14.1.1 Binomial vs. Lognormal
 14.1.2 Numerical Implementations
 14.1.3 The Effect of Dividends
 14.2 Risk Neutral Probabilities and Price Processes
 14.3 Futures and Forwards: A Symbolic Example
 14.4 Brownian Motion
 4.5 Concluding Remarks
 14.6 Questions and Problems
 14.7 Appendix
 14.7.1 The BlackScholes Formula as a Limit of the Binomial Formula
 Chapter 15: A Second Look at the BlackScholes Formula
 15.1 An Overview
 15.2 The Price Process: A Second Look
 15.2.1 Stochastic Evolution: The Discrete Case
 15.3 Simulation of Stochastic Evolution
 15.4 Stochastic Evolution: Toward a continuous Model
 15.5 Ito's Lemma
 15.5.1 Heuristic Proofs of Ito's Lemma
 15.5.2 Examples Utilizing Ito's Lemma
 15.6 The BlackScholes Differential Equation
 15.6.1 A Second Derivation
 15.7 Reconciliation with RiskNeutral Valuation
 15.8 American vs. European
 15.9 Concluding Remarks
 15.10 Questions and Problems
 15.11 Appendix
 15.11.1 A Change Over an Instant
 15.11.2 The Limit of a Random Variable
 15.11.3 A More Rigorous Insight into Ito's Lemma
 Chapter 16: Other Types of Options
 16.1 American Options, Dividendpaying Stocks and Binomial Models
 16.2 Options on Indixes, Foreign Currency and Futures
 16.2.1 Stock Index Options
 16.2.2 Currency Options
 16.2.3 Options on Futures Contracts
 16.3 Examples of Exotic Options
 16.3.1 Binary (Digital) Options
 16.3.2 Combinations of Binary and Plain Vanilla Options
 16.3.3 Gap Options
 16.3.4 Paylater (cash on delivery) Options
 16.4 Interest Rate Derivatives
 16.4.1 Black's Model
 16.4.2 Black, Derman and Toy Model
 16.5 Concluding Remarks
 16.6 Questions and Problems
 Chapter 17: The End or the Beginning
 References
