The Purposes and Benefits of Derivatives aRisk allocation transfer and

The purposes and benefits of derivatives arisk

This preview shows page 41 - 76 out of 76 pages.

5 –The Purposes and Benefits of Derivatives a.Risk allocation, transfer, and managementb.Information discoveryc.Operational advantagesd.Market efficiency
Image of page 41
Risk allocation, transfer, and management
Image of page 42
Information discovery
Image of page 43
Operational advantages Derivatives have lower transaction costs than the underlying Derivative markets also typically have greater liquidity Derivative markets increase the ease with which one can go short
Image of page 44
Market efficiency • Derivatives increase the market efficiency
Image of page 45
6 – Criticisms and Misuses of Derivatives 1. Speculation and Gambling 2. Destabilization and Systematic Risk
Image of page 46
7 – Elementary Principles of Derivative Pricing 1.Storage2.Convenience Yield3.Arbitrage Law of one price An asset should be traded at same price even in different markets •What is the Definition of Arbitrage?•How does Arbitrage Contribute to Market Efficiency?
Image of page 47
Practice Questions
Image of page 48
Practice Questions
Image of page 49
Practice Questions
Image of page 50
Practice Questions 4:
Image of page 51
Practice Questions 5 :
Image of page 52
Practice Questions 6:
Image of page 53
Practice Questions 7 :
Image of page 54
Practice Questions 8:
Image of page 55
Practice Questions 9 :
Image of page 56
Practice Questions 10:
Image of page 57
Practice Questions 11:
Image of page 58
Practice Questions 12:
Image of page 59
Practice Questions 13:
Image of page 60
Image of page 77

You've reached the end of your free preview.

Want to read all 76 pages?

Other Related Materials

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture