L23_CIRO - Review Currency and interest rate futures...

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1 Currency and interest rate options 1 Review Currency and interest rate futures Distinctions between forward and futures Description of future contracts Margin requirement of future contracts Interest rate futures contracts Term structure on interest rates Currency and interest rate options 2 Today Currency and interest rate options Terminologies Development of options Descriptions of option contracts Pricing option contracts (brief) introduction to swaps
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2 Currency and interest rate options 3 Options The right, but not the obligation, to buy (or to sell) an underlying financial asset or commodity at a given price on (or before) a specified date. Currency and interest rate options 4 Options The right, but not the obligation, to buy (or to sell) an underlying financial asset or commodity at a given price on (or before) a specified date. Call: right, not the obligation, to buy Put: right, not the obligation, to sell
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3 Currency and interest rate options 5 Options The right, but not the obligation, to buy (or to sell) an underlying financial asset or commodity at a given price on (or before) a specified date. Call: right, not the obligation, to buy Put: right, not the obligation, to sell European: exercised only at maturity American: exercised any time until maturity Currency and interest rate options 6 Options The right, but not the obligation, to buy (or to sell) an underlying financial asset or commodity at a given price on (or before) a specified date. Underlying asset: Currency options:
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4 Currency and interest rate options 7 Options The right, but not the obligation, to buy (or to sell) an underlying financial asset or commodity at a given price on (or before) a specified date. Underlying asset: Currency options: options on spot: spot foreign exchange options on futures: currency futures Currency and interest rate options 8 Options The right, but not the obligation, to buy (or to sell) an underlying financial asset or commodity at a given price on (or before) a specified date. Underlying asset: Currency options: options on spot: spot foreign exchange options on futures: currency futures Interest rate options: interest rate futures
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5 Currency and interest rate options 9 Examples The right to buy € 1 million for $1.10 per € from today until expiration on Dec 15, 2001. Currency and interest rate options 10 Examples The right to buy € 1 million for $1.10 per € from today until expiration on Dec 15, 2001. An American call option on spot €
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6 Currency and interest rate options 11 Examples The right to buy € 1 million for $1.10 per € from today until expiration on Dec 15, 2001. An American call option on spot € An American put option on spot US$.
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L23_CIRO - Review Currency and interest rate futures...

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