Lecture 13_Derivative securities - Forwards and futures

Lecture 13_Derivative securities - Forwards and futures -...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Financial Markets and Institutions Session 10 Derivative securities Introduction to derivatives Forwards and Futures
Background image of page 1

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

View Full DocumentRight Arrow Icon
Agenda Introduction to derivative instruments General features Forward/futures; options; swaps Forward and futures Hedging Margins
Background image of page 2
Derivatives A derivative instrument is a financial contract the value of which is derived from the value of another (underlying) asset, such as currency, bond, equity or commodity. 3 main types of derivative instrument: Forward/futures Options Swaps (also credit derivatives)
Background image of page 3

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

View Full DocumentRight Arrow Icon
The idea is the following: You contract today on amount, prices, future date(s) of transaction, etc. Transactions take place at future dates under conditions specified in the contract Profits and losses are function of underlying asset value -> derivative security is valued at agreement date according to the underlying asset characteristics
Background image of page 4
Features common to all derivatives Derivatives include the following specifications: Dates: delivery dates (if more than 1) and maturity Underlying asset: asset that is delivered at due date(s) (e.g., stock, currency, interest rate) Notional amount: amount on which payments are calculated (e.g., 10 stocks, 1m, $10m). The notional is not paid for interest rate derivatives (e.g., swaps) Price of the asset at delivery (e.g., 10/stock, 1.30$/ , 4%)
Background image of page 5

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

View Full DocumentRight Arrow Icon
A forward contract is a contract that commits the user to buying or selling an assetat a specific priceon a specific future date A futurescontract is a forward traded in organised markets, guaranteed by clearing houses, requiring initial and maintenance margins, and marked to market.
Background image of page 6
Forward/futures contracts Stock forward/futures : buy or sell a particular stock index in the future at an agreed price. Contracts exist for most major indexes, including
Background image of page 7

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

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 23

Lecture 13_Derivative securities - Forwards and futures -...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online