Lecture #24 - Ec 136, Financial Economics Lecture 24...

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Ec 136, Financial Economics Lecture 24 December 1
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Outline for today 1. Forwards and futures 2. Forward pricing 3. Options www.econ.berkeley.edu/~szeidl/ec136/ec136index.htm Readings: BKM Chapter 22.1-22.4 Problem set 8 : due December 3.
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1. Forwards and futures Derivative some other asset ( underlying security). Forward contract: arrangement for future delivery of asset at agreed upon price. Consider farmer whose crop will be available in September = ) exposed to price risk. { Enter in forward contract for 1 bushel, delivery Sept, at forward price F T 0 to be paid on T { Spot price of wheat: S 0 today S T in Sept position Farmer short zero F T 0 ± S T Dealer long zero S T ± F T 0 No payments today.
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Basic concepts Long versus short: - appreciation of underlying asset. Open versus close position: 1. When enter forward contract, have an open position. 2. If enter o±setting forward contract for same
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This note was uploaded on 09/02/2010 for the course ECON 136 taught by Professor Szeidl during the Fall '08 term at University of California, Berkeley.

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Lecture #24 - Ec 136, Financial Economics Lecture 24...

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