Preface

Part I:  Foundations of Derivatives, Asset Pricing, and Risk

Chapter 1

Introduction to Derivatives and Risk Management
Introduces how and why derivatives are important for risk management, classifies the different types of risk, and how GenAI and AI is used in the study of risk management. Possible career choices are also enumerated.

Chapter 2

Derivative Markets
Defines the derivative market, its size and structure, and the role it plays in todays risk management environment. Also provided is an overview of the regulations affecting derivatives and the future of the market.

Chapter 3

Option Contract Basics
The chapter presents the terminology of traded options including coverage of the put-call-parity theorem.

Chapter 4

Asset Prices and Return
This chapter develops a uniform approach for measuring the statistical characteristics of traded instruments. The discussion begins with asset price formation. We provide the implications of efficient market hypothesis in modeling return behavior. The chapter concludes with the development of the four moments to measure the statistical properties of return.

Chapter 5

Volatility Measures and Market Expectation
The chapter focuses on the development of asset volatility. Discussion focuses on historical, realized, and implied volatility.

Part II:  Data Science and Machine Learning

Chapter 6

Machine Learning in Asset Prediction
The chapter introduces machine learning techniques for financial econometrics. After a brief overview of OLS regression we develop the theoretical underpinnings of neural networks to for asset prediction.

Chapter 7

AI Model Validation and Explainability
The chapter develops a neural networks models to estimate systematic risk, and predict end-of-day and high-frequency stock prices. Model validation, transparency, and explainability are emphasied.

Part III:  Option Pricing Models and Directional Trading

Chapter 8

The Binomial Option Pricing Model
This chapter presents the single- and multi-period Binomial Option Pricing Model. 

Chapter 9

The Black-Scholes Option Pricing Model
This chapter presents Black-Scholes Option Pricing Model. Computational differences between the Binomial approach and the Black-Scholes pricing model are provided..

Chapter 10

Option Greeks
Development of option Greeks and a detailed calculation-based approach to estimate implied volatility are presented. The discussion is enhanced to support preparation for all qualifying examinations: Actuarial Society examination, FRM and PRM.

Chapter 11

Trading Strategies and VaR
A description and definition of the basic option strategies for both call and put contracts.  Includes coverage of covered calls and puts for portfolio insurance. This chapter continues with the development of many of the well-known option spread strategies. Close linkage to real-time applications using WinORS.  Spreads include various versions of butterflies, guts, condors, straddles and more.  Applicable for both individual securities and portfolios. The chapter concludes with a discussion asset-based value-at-risk.

Part IV:  Stock Indices, Currencies, and Real Options

Chapter 12

Options on Stock Indices and Currencies
This chapter is in development

Chapter 13

Real Options and Asset Risk Management
This chapter is in development

Part V:  Futures Markets

Chapter 14

The Foundation of Modern Futures Markets
The chapter presents and discusses the contemporary futures markets. References and comparisons are provided for both the global and domestic futures markets. The discussion continues with the development of futures pricing theories. 

Chapter 15

Machine Learning in Equity Futures
This is an applications-based chapter linked to simulation and back-testing algorithms within WinORS.  There is a strong focus on the calculation of real-time hedge ratios for equity portfolios.  State-of-the-art non-Gaussian risk-adjusted performance measures are introduced with calculation based examples.

Chapter 16

Machine Learning in Fixed Income Futures
The WinORS bond valuation system focus on the portfolio valuation of risk-mitigating trading bonds across a number of different markets.  Markets covered include Treasuries, munis, corporate and zero-coupon.  Full coverage across a wide-number of analytical measures with supporting graphical output. Fixed income hedge methods provide a robust approach to the theory and approach of risk mitigating fixed income portfolios

Chapter 17

The Single Stock Futures Market
The chapter focuses on the Single Stock Futures Exchange. Linkages to both single stock futures, exchange for physicals and exchange traded futures for equity and fixed income instruments is provided.

Part VI:  Crypto and Credit Derivatives

Chapter 18

Crypto-Currency Derivatives
The chapter discusses the origins of cryto-currency and their rise in today’s investment portfolios. 

Chapter 19

Swaps, Interest Rate, and Credit Derivatives
The chapter presents a detailed discussion on the valuation and use of swap agreements. In addition to providing an overview of the swaps market, interest rate swaps and associated option derivatives, or swaptions, are exemplified by practical applications. The chapter closes with a look at credit default swap contracts. 

Part VII:  Automated Trading for Risk Management

Chapter 20

Automated Trading with AI and Neuroeconomics
This chapter presents an introduction of how operational artificial intelligence in the form of artificial neural networks are used to predict near high-frequency and end-of-day stock prices for the purpose of optimizing risk-adjusted trading profitability. Special emphasis is place on how to minimize wrong directional trade rules. 

Chapter 21

Automated Trading: Policies and Performance Measurement
An examination of the external and internal policies that guide the operation of the fully accessible WINKS automated trading system.  The chapter includes a detailed examination of real-time and historical risk-adjusted performance for both individual securities and all managed portfolios.  ESG and sector  performance reports are also provided.

Copyright

ISBN: 978-0-9908843-0-9, The NKD Group, Inc., 2010-2026, All Rights Reserved