Derivativemarkets(U-2009)

Derivativemarkets(U-2009) - PROF.MENACHEMBRENNER...

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1 PROF. MENACHEM BRENNER   STERN SCHOOL OF BUSINESS NEW YORK UNIVERSITY   FUTURES AND   OPTIONS C15.0043
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2 CONTENTS PREVIEW:  DERIVATIVE MARKETS AND INSTRUMENTS      I.      THE STRUCTURE OF FUTURES         MARKETS    II.      PRICING OF FUTURES CONTRACTS      III.      HEDGING WITH FUTURES            CONTRACTS
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3 OBJECTIVES : 1. LEARN THE STRUCTURE OF THE MARKETS AND THE PROPERTIES OF THE INSTRUMENTS  TRADED IN THESE MARKETS.      THIS KNOWLEDGE IS IMPORTANT FOR  2. UNDERSTANDING THE POTENTIAL BENEFITS OF    THESE INSTRUMENTS IN RISK MANAGEMENT   AND 1. UNDERSTANDING HOW THESE INSTRUMENTS  ARE PRICED
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4 DERIVATIVE SECURITIES FINANCIAL INSTRUMENTS WHOSE VALUE IS DERIVED  FROM OTHER ASSETS OR DEPENDS ON OTHER  VARIABLES  DISCUSS    FUTURES MARKETS (FORWARDS)   OPTIONS MARKETS
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5 MENACHEM BRENNER 
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6 FORWARD CONTRACTS   FORWARD  CONTRACT IS AN AGREEMENT  BETWEEN TWO PARTIES TO TRADE ON A GIVEN  FUTURE DATE A GIVEN COMMODITY, OR UNDERLYING  ASSET, AT A PRESPECIFIED PRICE (OR FUNCTION)  BASIC CONCEPTS : UNDERLYING ASSET - GOLD SPOT (CASH) PRICE  -  900 DELIVERY PRICE        -  910 DELIVERY DATE         -  12/15 FORWARD PRICE       -  910
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7 FUTURES CONTRACTS   FUTURES  CONTRACT IS THE SAME AS A FORWARD CONTRACT EXCEPT:  IT IS A  STANDARDIZED  CONTRACT TRADING ON A  FUTURES EXCHANGE
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8 MENACHEM BRENNER  
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9 A.  FORWARD AND FUTURES CONTRACTS   IN ANY ECONOMY OR BUSINESS THERE IS  UNCERTAINTY ABOUT FUTURE PRICES OF  COMMODITIES OR FINANCIAL ASSETS THE DESIRE TO REDUCE THAT RISK OR ELIMINATE  IT COULD BE IN MANY CASES MET BY THE SPOT  MARKET.  BUT, THE COST MAY BE PROHIBITIVE.   (THE SPOT NON-EXISTENT). THE ALTERNATIVE IS A  DEFERRED DELIVERY       CONTRACT
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10 FORWARD CONTRACTS     TWO PARTIES - BUYER AND SELLER     SELLER COMMITS TO DELIVER DESIGNATED          ASSETS AT A PRESPECIFIED PRICE IN A          PRESPECIFIED QUANTITY ON A GIVEN DATE         (SEE EXAMPLE ON NEXT PAGE)     OTHER DELIVERY  CONDITIONS  BUYER ALSO COMMITS      NEITHER  PARTY CAN WALK AWAY FROM THE         CONTRACT         VALUE OF COMMITMENT IS, BY CONVENTION,         ZERO WHEN INITIATED, BUT MAY CHANGE OVER         TIME     FORWARD PRICE  IS DETERMINED GIVEN ABOVE          CONDITIONS
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11    EXAMPLE:   BUY: 120 OUNCES OF GOLD   TERMS:      1. QUANTITY                 120 OZ.
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