Midterm-Review - Finance 436 Futures and Options Review...

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1 Finance 436 – Futures and Options Review Notes for Midterm Exam Chapter 1 1. Derivative securities: concepts 2. Futures and forward contracts: definitions and comparison Exchange trading; contract size, delivery; default risk; marking to market 3. Options: concepts 4. Players in options and futures markets Hedgers: reduce price risk (uncertainty) Speculators: bet on price movement Arbitrageurs: look for risk-free profit 5. Applications 6. Examples discussed in class and assignments Chapter 2 1. Specification of futures contracts Opening vs. closing a futures position Long vs. short a futures position Underlying asset Contract size (will be given if needed) Delivery month; Daily price limit; Position limit Settlement price: concepts Open interest: concepts and calculations 2. Convergence of futures price to spot price: concepts and proof 3. Margins: concepts and calculations Initial margin; Maintenance margin; Margin call; Variation margin 4. Marking to market process: concepts and calculations 5. Orders and applications Market order; Limit order; Stop (stop-loss) order Stop-limit order; Day order; Open order 6. Cash settlement: concepts 7. Forward contracts: profit/loss diagrams 8. Examples discussed in class and assignments Chapter 3 1. Hedging: concepts Long hedging vs. short hedging 2. Basis risk: definitions and applications 3. Cross hedging Hedge ratio: definition, estimation, and implication Minimum variance hedge ratio: minimize the variance Optional number of contracts 4. Hedging with stock index futures: concepts and calculations 5. Examples discussed in class and assignments
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2 Chapter 4 1. Types of interest rates 2. Measuring interest rates: concepts and calculations 3. Zero rates: concepts 4. Forward rates: concepts and calculations 5. Term structure theories 6. Examples discussed in class and assignments Chapter 5 1. Investment assets vs. consumption assets
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Midterm-Review - Finance 436 Futures and Options Review...

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