Suppose that you enter into a short futures contract to sell July silver for $5.20 per ounce on theNew York Commodity Exchange. The size of the contract is 5,000 ounces. The initial margin is$4,000, and the maintenance margin is $3,000. What change in the futures price will lead to amargin call? What happens if you do not meet the margin call?
Mark-to-Market Futures Margin Acct A margin call will occur when the margin account balance falls below $3000 Because the position is short, the trader will incur loss, when the price goes down For the margin call to occur, the loss for the trade should be $1000 Because the lot size is 5000 ounces, the price change must be $1000/5000 That ios $0.20 Which means that the price should go up by $0.2, for a total loss of $1000 Then the margin call occurs That means the price should go up from $5.20 to $5.40 If the margin call is not met, the exchange will square off the position
Forward PriceSuppose that you enter into a six-month forward contract on a non-dividend-paying stock whenthe stock price is $30 and the risk-free interest rate (with continuous compounding) is 12% perannum. What is the forward price?
Pricing of FuturesA stock index currently stands at 350. The risk-free interest rate is 8% per annum (withcontinuous compounding) and the dividend yield on the index is 4% per annum. What shouldF0:?353.5176the futures pricefor a four-month contract be?
Pricing & Value of ForwardA one-year long forward contract on a non-dividend-paying stock is entered into when the stockprice is $40 and the risk-free rate of interest is 10% per annum with continuous compounding.a. What are the forward price and the initial value of the forward contract?b. Six months later, the price of the stock is $45 and the risk-free interest rate is still 10%. WhatValue of F = -2.31are theforward price and the value of the forward contract?
Hedging using FuturesA company has a $20 million portfolio with a beta of 1.2. It would like to use futures contracts onthe S&P 500 to hedge its risk. The index is currently standing at 1080, and each contract is fordo if it wants to reduce the beta of the portfolio to 0.6?44.44444delivery of $250 times the index. What is the hedge that minimizes risk?
Optimal No. of Contract 𝑁∗=𝛽 𝑉_𝐴/𝑉_𝐹
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- Summer '16
- Mathematical finance, lower bound