Lecture16 - Overview: Derivative Securities Lecture 16:...

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

View Full Document Right Arrow Icon
1 1 Lecture 16: Futures, Swaps and Risk Management ECON435: Financial Markets and the Macroeconomy Anton Korinek Spring 2011 2 Overview: Derivative Securities Derivative Securities (or “derivatives”): price depends on (derives from) another security, e.g. stocks also called “contingent” securities useful for both hedging and speculation Main Categories: Options Forwards/Futures Swaps 3 Forwards and Futures = = deferred delivery contracts: obligation to buy or sell (i.e. long or short) at a specified price at a specified date Forwards: traded informally, over-the-counter Futures: traded in formal exchanges, with a clearinghouse that imposes margins 4 Foreign Exchange (Forex) Futures = obligation to buy/sell another currency at a specified exchange rate in the future hedge against exchange rate fluctuations traded at Chicago Mercantile Exchange (CME International Monetary Market) London International Financial Futures Exchange (LIFFE) 5 Interest Rate Parity = arbitrage condition that holds in well-functioning markets Two strategies with identical payoffs: earning interest r USD on a USD balance and converting to a foreign currency using a forex future (at rate F 0 ) converting to a foreign currency now (at rate E
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 12/21/2011 for the course ECON 435 taught by Professor Staff during the Spring '11 term at University of Maryland Baltimore.

Page1 / 3

Lecture16 - Overview: Derivative Securities Lecture 16:...

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