{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Ch15 - Options on Stock Indices and Currencies Chapter 15...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Click to edit Master subtitle style  7/7/11  Options, Futures, and Other Derivatives,  7th  Options on Stock Indices and Currencies Chapter 15 11
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
 7/7/11  Options, Futures, and Other Derivatives,  7th  Index Options (page 317-327) The most popular underlying indices in the U.S. are The S&P 100 Index (OEX and XEO) The S&P 500 Index (SPX) The Dow Jones Index times 0.01 (DJX) The Nasdaq 100 Index Contracts are on 100 times index; they are settled in cash; OEX is American; the XEO and all other are European 22
Background image of page 2
 7/7/11  Options, Futures, and Other Derivatives,  7th  Index Option Example Consider a call option on an index with a strike price of 900 Suppose 1 contract is exercised when the index level is 880 What is the payoff? 33
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
 7/7/11  Options, Futures, and Other Derivatives,  7th  Using Index Options for Portfolio Insurance Suppose the value of the index is  S 0  and the  strike price is  K If a portfolio has a  β  of 1.0, the portfolio  insurance is obtained by buying 1 put option  contract on the index for each 100 S 0   dollars  held If the  β  is not 1.0, the portfolio manager  44
Background image of page 4
 7/7/11  Options, Futures, and Other Derivatives,  7th  Example 1 Portfolio has a beta of 1.0 It is currently worth $500,000 The index currently stands at 1000 What trade is necessary to provide insurance against the portfolio value falling below $450,000? 55
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
 7/7/11  Options, Futures, and Other Derivatives,  7th  Example 2 Portfolio has a beta of 2.0 It is currently worth $500,000 and index stands at 1000
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}