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Unformatted text preview: Recap Hedging using futures Lecture 10  Hedging with futures BUSI 588, Fall 2011 Diego Garc a KenanFlagler Business School UNC at Chapel Hill September 28th, 2011 c Diego Garc a, BUSI 588, KenanFlagler, Fall 2011 Lecture 10  Hedging with futures 1 / 25 Recap Hedging using futures Outline 1 Recap Homework 4 2 Hedging using futures Metastrugentrigen Common hedging questions Handouts today: Class slides. Case 10 solutions. Homework 4 solutions. 2010 MBA783 final exam (solutions for last day of class). c Diego Garc a, BUSI 588, KenanFlagler, Fall 2011 Lecture 10  Hedging with futures 2 / 25 Recap Hedging using futures Where are we? I. Static trades . Trades with options. Putcall parity. Futures and oneperiod binomial (trinomial). II. Dynamic trades . Binomial and BlackScholes. Using and interpreting the binomial and BlackScholes models. III. Applications . Hedging using futures. Capital structure and options (risky debt and convertibles). Real options (projects as options). c Diego Garc a, BUSI 588, KenanFlagler, Fall 2011 Lecture 10  Hedging with futures 3 / 25 Recap Hedging using futures On the final Closedbook 3hour inclass exam. Copy/paste from cases/homeworks. It will be easier than in 2010. Its a race against each other. My job is to make the race fair. You can use a computer. Only preprogrammed Excel will be a barebones BlackScholes calculator (with , , vega, . . . ). My goal is to get you to hug me after the exam. Meaning you had a good time. I do not mean it literally. c Diego Garc a, BUSI 588, KenanFlagler, Fall 2011 Lecture 10  Hedging with futures 4 / 25 Recap Hedging using futures Preparing for the final Read over slides Reproduce examples. Go over homeworks (* and **). Go over cases: $$s: 26, 8, 1013. Go over the 2010 final. c Diego Garc a, BUSI 588, KenanFlagler, Fall 2011 Lecture 10  Hedging with futures 5 / 25 Recap Hedging using futures Gamma Rule of thumb: options are tough to replicate when they are atthemoney and close to maturity. c Diego Garc a, BUSI 588, KenanFlagler, Fall 2011 Lecture 10  Hedging with futures 6 / 25 Recap Hedging using futures Straddles value c Diego Garc a, BUSI 588, KenanFlagler, Fall 2011 Lecture 10  Hedging with futures 7 / 25 Recap Hedging using futures Straddles replication Delta of straddle N ( x )  {z }  call + ( N ( x ) 1)  {z }  put = 2 N ( x ) 1 Cash position K (1 + r f ) T t N ( x T t )  {z } borrow call + K (1 + r f ) T t (1 N ( x T t ))  {z } lend put = 2 K (1 + r f ) T t h N ( x T t ) . 5 i Whether we are long or short depends on N ( x ) 1 / 2 0....
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This note was uploaded on 11/25/2011 for the course BUSI 588 taught by Professor Staff during the Fall '10 term at UNC.
 Fall '10
 Staff
 Derivatives, Hedging

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