FINA 3104:
Investment Analysis and Portfolio Management
Lecture 20 –
Futures Markets (continued)
Darwin Choi
November 23, 2011
Recap from Last Lecture
•
Motivating Futures Contracts
•
Hedging and speculating
•
Forward & Futures Contracts
•
Types of Assets Traded
•
Payoffs on Futures Contracts
•
Mechanics of Futures Trading
•
Margin and mark
‐
to
‐
market
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Outline of Today’s Lecture
•
Determinants of Futures Prices
•
Spot
‐
Futures Parity Theorem
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Hedge Pricing Example
•
Suppose that today:
You own an S&P 500 index fund worth $900.
The fund pays $20 in dividends per year.
You sell a one
‐
year futures contract for $925.
•
Suppose that in one year:
The fund could be worth $885, $925, or $965.
What is the ROI on this riskless hedge?
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