FBE459_0_Introduction

FBE459_0_Introduction - Lecture Outline: FBE 459 Financial...

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1 FBE 459 – Financial Derivatives Prof. Pedro Matos Lecture 0: Introduction Overview of Derivatives • Overview of Derivatives • Syllabus and Course Overview Readings: HULL chapter 1 - Overview of Derivatives: . What are derivatives and who uses them? . How are derivatives traded? Lecture Outline: 2 - Course Introduction: . Syllabus and course details Economist_OTCDerivatives_16Nov09.pdf Are derivatives the finest accomplishment in Finance? … 1973: 1997:
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2 Or perhaps not? … 2003: 1998: -> I will let you decide !!! … 2008: . LTCM: hedge fund founded by John Meriwether, Myron Scholes and Robert C. Merton . First years: returns of over 40% . In 1998: lost $4.6 billion following the Russian financial crisis What Are Derivatives? Suppose you decide to buy a new car … You choose the car specification and dealer offers you a price of $20,000 1 – Place order today and take delivery in 3 months 6 1 – Place order today and take delivery in 3 months -> you have entered into a forward contract If car price falls to $18,000 in 3m If car price rises to $22,000 in 3m What Are Derivatives? 2 – You don’t have the loan arranged and offer the dealer a $500 (non-returnable) deposit to keep the car for 3 months and hold the price -> you have entered into an option contract you have the right but not the obligation to buy the 7 you have the right but not the obligation to buy the car in 2 weeks if price jumps to $22,000 tomorrow, how much can you sell your option on the car to a friend? If car price falls to $18,000 in 2w If car price rises to $22,000 in 2w What Are Derivatives? $ Gains/Losses 8 Asset Value at Maturity (Future car price)
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3 What Are Derivatives? Derivative is a financial contract, between two or more parties, which is derived from the future value of an underlying asset 9 … in our example, underlying asset = the car What Are Derivatives? Main types of derivatives:
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This note was uploaded on 02/23/2011 for the course FBE 459 taught by Professor Matos during the Spring '08 term at USC.

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FBE459_0_Introduction - Lecture Outline: FBE 459 Financial...

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