case10sol

case10sol - Introduction to derivatives Fall 2011 BUSI 588...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Introduction to derivatives, Fall 2011 BUSI 588, Case 10 solutions Solutions to Metastrugentrigen - hedging with futures 1. (*) The following table details the losses incurred in the forward trades over the first three years for Metastrugentrigen. Time Oil price CF from FWD PV(t=5) New FWD price 1 9.1 -1.400 -1.702 9.555 2 4.5 -5.055 -5.852 4.725 3 3.5 -1.225 -1.351 3.675 The losses on the forward contract in period one are equal to the spot price 9 . 1 minus the forward price entered at date 0, 10.5 (= 10(1 . 05)). The losses on the forward contract in period two are equal to the spot price 4 . 5 minus the forward price entered at date 1, 9 . 55 (= 9 . 1(1 . 05)). Indeed, over the first three years this strategy was not looking very profitable for Metastrugen- trigen. On the other hand, one should also note that the sold forward contracts were actually becoming more valuable as the price of oil dropped. In particular, note that the value of the 5-year contracts at date 3 would be V = 14 . 04
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/25/2011 for the course BUSI 588 taught by Professor Staff during the Fall '10 term at UNC.

Page1 / 2

case10sol - Introduction to derivatives Fall 2011 BUSI 588...

This preview shows document pages 1 - 2. Sign up to view the full document.

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