Chapter 1 Web Extension 1A An Overview of Derivatives.

Slides:

Advertisements

Similar presentations

Chapter Outline Hedging and Price Volatility Managing Financial Risk

Advertisements

Futures Markets and Risk Management

Chapter 13 Financial Derivatives © 2005 Pearson Education Canada Inc.

Chapter 10 Derivatives Introduction In this chapter on derivatives we cover: –Forward and futures contracts –Swaps –Options.

©2007, The McGraw-Hill Companies, All Rights Reserved Chapter Ten Derivative Securities Markets.

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin Chapter Ten Derivative Securities Markets Dr. Ahmed Y Dashti.

©2009, The McGraw-Hill Companies, All Rights Reserved 8-1 McGraw-Hill/Irwin Chapter Ten Derivative Securities Markets.

© 2008 Pearson Education Canada13.1 Chapter 13 Hedging with Financial Derivatives.

AN INTRODUCTION TO DERIVATIVE SECURITIES

Risk Management in Financial Institutions (II) 1 Risk Management in Financial Institutions (II): Hedging with Financial Derivatives Forwards Futures Options.

AN INTRODUCTION TO DERIVATIVE INSTRUMENTS

Copyright © 2002 Pearson Education, Inc. Slide 9-1.

Chapter 9. Derivatives Futures Options Swaps Futures Options Swaps.

Chapter 13 Financial Derivatives. © 2004 Pearson Addison-Wesley. All rights reserved 13-2 Hedging Hedge: engage in a financial transaction that reduces.

Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin Chapter Ten Derivative Securities Markets.

Economics 330 Money and Banking Lecture 18 Prof. Menzie Chinn TAs: Chikako Baba, Deokwoo Nam.

OPTIONS, FUTURES, AND OTHER DERIVATIVES Chapter 1 Introduction

 2002, Prentice Hall, Inc. Ch. 21: Risk Management.

Foreign Currency Options A foreign currency option is a contract giving the option purchaser (the buyer) –the right, but not the obligation, –to buy.

Chapter 13 Financial Derivatives. Copyright © 2002 Pearson Education Canada Inc Spot, Forward, and Futures Contracts A spot contract is an agreement.

© 2008 Pearson Education Canada13.1 Chapter 13 Hedging with Financial Derivatives.

Hedging Strategies Using Derivatives. 1. Basic Principles Goal: to neutralize the risk as far as possible. I. Derivatives A. Option: contract that gives.

Chapter 11 Futures, Options, and Swaps: Managing Risk © 2000 South-Western College Publishing.

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Futures Markets CHAPTER 16.

CHAPTER 10 OPTIONS. DIFFERENCES BTW OPTIONS AND FUTURES, – AN OPTION CONTRACT PERMITS THE BUYER TO CHOOSE WHETHER OR NOT EXERCISE THE OPTION. IN FUTURES.

Chapter Eight Risk Management: Financial Futures, Options, and Other Hedging Tools Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.

Paola Lucantoni Financial Market Law and Regulation.

Derivatives. What is Derivatives? Derivatives are financial instruments that derive their value from the underlying assets(assets it represents) Assets.

1 Chapter 11 Hedging, Insuring, Diversifying. 2 Contents 1. Forward and Futures to Hedge Risk 2. Swap Contracts 3. Hedging, Matching Assets to Liabilities.

Chapter 14 Financial Derivatives. © 2013 Pearson Education, Inc. All rights reserved.14-2 Hedging Engage in a financial transaction that reduces or eliminates.

13-1 Hedging Hedge: engage in a financial transaction that reduces or eliminates risk Basic hedging principle: Hedging risk involves engaging in a financial.

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 9 Derivatives: Futures, Options, and Swaps.

CMA Part 2 Financial Decision Making Study Unit 5 - Financial Instruments and Cost of Capital Ronald Schmidt, CMA, CFM.

SECTION IV DERIVATIVES. FUTURES AND OPTIONS CONTRACTS RISK MANAGEMENT TOOLS THEY ARE THE AGREEMENTS ON BUYING AND SELLING OF THESE INSTRUMENTS AT THE.

© 2004 Pearson Addison-Wesley. All rights reserved 13-1 Hedging Hedge: engage in a financial transaction that reduces or eliminates risk Basic hedging.

0 Forwards, futures swaps and options WORKBOOK By Ramon Rabinovitch.

The Currency Futures and Options Markets

“A derivative is a financial instrument that is derived from some other asset, index, event, value or condition (known as the underlying asset)”

Chapter Nine Foreign Currency Transactions and Hedging Foreign Exchange Risk McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All.

1 Derivatives Topic #4. Futures Contracts An agreement to buy or sell an asset at a certain time in the future for a certain price Long and Short positions.

Derivatives  Derivative is a financial contract of pre-determined duration, whose value is derived from the value of an underlying asset. It includes.

FINANCIAL DERIVATIVES PRESENTED TO: SIR ILYAS RANA PRESENTED BY: TAQDEES TAHIR.

Introduction: Derivatives Options - a contract that gives buyer the right (not obligation) to purchase or sell something at a later time. Forward/Futures.

Introduction to Swaps, Futures and Options CHAPTER 03.

11.1 Options and Swaps LECTURE Aims and Learning Objectives By the end of this session students should be able to: Understand how the market.

SWAPS: Total Return Swap, Asset Swap and Swaption

Introduction The Nature of Derivatives A derivative is an instrument whose value depends on the values of other more basic underlying variables. Or A.

Copyright © 2009 Pearson Prentice Hall. All rights reserved. Chapter 10 Derivatives: Risk Management with Speculation, Hedging, and Risk Transfer.

Foreign Exchange Derivative Market  Foreign exchange derivative market is that market where such kind of financial instruments are traded which are used.

Chapter 3 Accounting for Foreign Currency Friday, June 24,

Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill /Irwin 10-1 Chapter Ten Derivative Securities Markets.

Futures Markets and Risk Management

Introduction Chapter 1 Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright © John C. Hull 2010.

FUTURES AND DERIVATIVES

CISI – Financial Products, Markets & Services

FINANCIAL DERIVATIVES/SNSCT/MBA

Derivative Markets and Instruments

Financial Derivatives

Introduction to Financial Risk Management

Example of a call option

Derivative Financial Instruments

Currency Forwards.

Interest Rate Future Options and Valuation Dmitry Popov FinPricing

Module 8: Futures, Forwards, and Swaps

Risk Management with Financial Derivatives

Derivative Financial Instruments

Risk Management with Financial Derivatives

Derivatives and Risk Management

Derivatives and Risk Management

Presentation transcript:

Chapter 1 Web Extension 1A An Overview of Derivatives

Topics in Web Extension Overview of derivatives Forward contracts Futures contracts Options Swaps

Forward Contracts 2 parties to contract, each with a basic position: One party is “long” (buy). Obligates party to buy the underlying asset at some fixed price at a specified date in the future. One party is “short” (sell). Obligates party to sell the underlying asset at some fixed price at a specified date in the future. Terms Forward price Delivery date (expiration date) Forward contracts are common for currencies.

Hedging Risk with Forward Contracts US wine importer might plan on purchasing French wine with euros in the fall. Could lock in the currency exchange rate for the fall by taking a long position in a euro currency forward contract. US computer manufacturer might plan on selling computers to German company in fall, with the payment in euros. Could lock in exchange rate by taking a short position in euro forward contract. Both parties have reduced risk by locking in the exchange rate.

Problems with Forward Contracts Forward contracts are made directly between two parties, so there is the possibility of default (although banks often are one of the parties in each transaction, in effect acting as “middlemen”). Forward contracts are often designed for a specific need, so there is not a standardized contract, which makes it difficult to have a secondary market. Futures contract solve these problems.

Futures Contracts Similar to forwards, except: Marking-to-market Many more assets- agriculture, livestock, metals, indexes, currencies, interest rates, energy Standardized contracts that trade on exchanges, such as CBOT

Options Basic Positions Call / Put Long / Short (writer) Terms Exercise Price Expiration Date (can let expire unexercised) Assets- Stocks, indexes, currency, and futures CBOE

Swaps Two parties agree to “swap” some particular obligation (usually associated with debt) Swap payments in one currency for payments in another currency Swap floating-rate payments for fixed-rate payments