Fundamentals of futures and Options Markets, 7th Ed, Ch 1, Copyright (c) John C. Hull 2010 Derivatives are Used to hedge risks to speculate (take a view on the future direction of the market) to lock in an arbitrage profit to change the nature of an investment without incurring the costs of selling one portfolio and buying another. Futures Contracts are traded using the open outcry system where traders physically meet on the floor of the exchange Increasingly this is being replaced by electronic trading.
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Fundamentals of futures and Options Markets, 7th Ed, Ch 1, Copyright (c) John C. Hull 2010 Derivatives are Used to hedge risks to speculate (take a view on the future direction of the market) to lock in an arbitrage profit to change the nature of an investment without incurring the costs of selling one portfolio and buying another. Futures Contracts are traded using the open outcry system where traders physically meet on the floor of the exchange Increasingly this is being replaced by electronic trading.
Fundamentals of futures and Options Markets, 7th Ed, Ch 1, Copyright (c) John C. Hull 2010 Derivatives are Used to hedge risks to speculate (take a view on the future direction of the market) to lock in an arbitrage profit to change the nature of an investment without incurring the costs of selling one portfolio and buying another. Futures Contracts are traded using the open outcry system where traders physically meet on the floor of the exchange Increasingly this is being replaced by electronic trading.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
Fundamentals of futures and Options Markets, 7th Ed, Ch 1, Copyright (c) John C. Hull 2010 Derivatives are Used to hedge risks to speculate (take a view on the future direction of the market) to lock in an arbitrage profit to change the nature of an investment without incurring the costs of selling one portfolio and buying another. Futures Contracts are traded using the open outcry system where traders physically meet on the floor of the exchange Increasingly this is being replaced by electronic trading.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
To hedge risks To speculate (take a view on the future direction of the market) To lock in an arbitrage profit To change the nature of a liability To change the nature of an investment without incurring the costs of selling one portfolio and buying another
buy or sell an asset at a certain time in the future for a certain price By contrast in a spot contract there is an agreement to buy or sell the asset immediately (or within a very short period of time)
important alternative to exchanges It is a telephone and computer-linked network of dealers who do not physically meet Trades are usually between financial institutions, corporate treasurers, and fund managers
certain asset by a certain date for a certain price (the strike price) A put option is an option to sell a certain asset by a certain date for a certain price (the strike price)
from Britain in 3 months and decides to hedge using a long position in a forward contract An investor owns 1,000 Microsoft shares currently worth $28 per share. A two-month put with a strike price of $27.50 costs $1. The investor decides to hedge by buying 10 contracts
that a stock price will increase over the next 2 months. The current stock price is $20 and the price of a 2-month call option with a strike of $22.50 is $1 What are the alternative strategies?
If the spot price of gold is S & the futures price is
for a contract deliverable in T years is F, then F = S (1+r )T where r is the 1-year (domestic currency) risk- free rate of interest. In our examples, S=1000, T=1, and r=0.05 so that F = 1000(1+0.05) = 1050
Suppose that: The spot price of oil is US$70 The quoted 1-year futures price of oil is US$80 The 1-year US$ interest rate is 5% per annum The storage costs of oil are 2% per annum Is there an arbitrage opportunity ?
