Ch. 6. Options. 6.1. Basic terminology. 6.2. The Black-Scholes option pricing formula. 6.3. Options with nonzero underlying payouts. 6.4. Put-call parity. 6.5. Modern Greeks. 6.6. Options leverages. 6.7. Summary -- ch. 7. Functions of financial derivatives. 7.1. Hedging. 7.2. Speculating. 7.3. Options trading strategies. 7.4. Summary and conclusions -- pt. III. General discussions and lessons from the crisis. ch. 8. The Japanese economy and financial markets. 8.1. The Japanese stock exchanges. 8.2. The Japanese economic recovery and financial markets. 8.3. The Kobe earthquake. 8.4. The Japanese government and its financial markets. 8.5. Summary -- ch. 9. General discussions. 9.1. What Mr. Leeson did. 9.2. The Nikkei-225 index vs its futures. 9.3. Double leverages. 9.4. To save the "magic straddles". 9.5. Economic recession, interest rate, and bond prices. 9.6. Did the Kobe earthquake bring Barings down? 9.7. Summary. This is the first systematic source which tries to explain how and why the 233-year old and the world's oldest merchant bank went into bankruptcy in a few days. It includes three parts with 10 chapters. Part I first describes what happened, then traces back the birth and historical glory of the Barings Bank and family, and finally describes how it was sold to the Internationale Nederlanden Groep (ING). As many terms of financial derivatives are used in the first part, we try to provide an easy and systematic way to clarify the related financial derivatives products in Part II. This part first gives a general discussion of financial derivatives and a brief review of the historical development, growth, and magnitude of the financial derivatives markets. It then concentrates on futures and options in two chapters. Finally, we explain the hedging and speculating functions of financial derivatives and how they can be used in combination to achieve particular objectives. Part III provides necessary information on the Japanese financial markets and then analyzes how a single trader could have so much power as to bring about Barings fall. Finally, we try to provide the lessons from this event pt. I. The fall of the world's oldest merchant bank. ch. 1. The event that shocked the world. 1.1. Bank crisis shocked the world financial markets. 1.2. Mr. Nicholas Leeson. 1.3. Rescue failed -- ch. 2. the history of a great power. 2.1. The birth of a great power. 2.2. Toward greater power. 2.3. The first crisis. 2.4. After the first crisis -- ch. 3. "Go Dutch". 3.1. The business structure of Barings. 3.2. Potential buyers. 3.3. ING -- the new boss. 3.4. Near the end of the crisis -- pt. II. Financial derivatives. ch. 4. An introduction to financial derivatives. 4.1. The traditional markets. 4.2. What are derivative assets? 4.3. Basic building units. 4.4. Historical development. 4.5. Magnitude and growth of financial derivatives markets. 4.6. The institutions involved. 4.7. Summary -- ch. 5. Forwards and futures. 5.1. Forwards. 5.2. Futures. 5.3. Futures prices. 5.4. Risks of trading futures. 5.5. Futures leverage. 5.6. Summary.
