Hedging Strategies Using
Futures
Chapter 3
Fundamentals of Futures and Options Markets, 8th Ed, Ch3, Copyright John C. Hull 2013
1
Long & Short Hedges
A perfect hedge is one that completely eliminates
the risk. Perfect hedges are rare.
The objective of he

Interest Rates
Chapter 4
Fundamentals of Futures and Options Markets, 8th Ed, Ch 4, Copyright John C. Hull 2013
1
Discount Factors
The value of what $1 in the future would be in
todays money is called the discount factor.
The notion of discount factors is

Swaps
Chapter 7
Options, Futures, and Other Derivatives, 8th Ed, Ch 7, Copyright John C. Hull 2013
1
Nature of Swaps
A swap is an over-the-counter agreement to
exchange cash flows at specified future times
according to certain specified rules
The calculat

Mechanics of Options
Markets
Chapter 9
Fundamentals of Futures and Options Markets, 8th Ed, Ch 9, Copyright John C. Hull 2013
1
Types of Options
Options are fundamentally different from forward
and futures contracts.
An option gives the holder of the opti

Trading Strategies
Involving Options
Chapter 11
Fundamentals of Futures and Options Markets, 8th Ed, Ch 11, Copyright John C. Hull 2013
1
Strategies to be Considered
Bond plus option to create principal protected
note
Stock plus option
Two or more options

Helmut-Schmidt-Universitt
Universitt der Bundeswehr Hamburg
Lehrstuhl fr Angewandte Stochastik und
Risikomanagement
Prof. Dr. Gabriel Frahm
Finanz- und Versicherungsmathematik
Frhjahrstrimester 2013
bungsblatt 4
Aufgabe 4.1: A bank quotes you an interest

CHAPTER 6
Interest Rate Futures
Practice Questions
Problem 6.8.
The price of a 90-day Treasury bill is quoted as 10.00. What continuously compounded
return (on an actual/365 basis) does an investor earn on the Treasury bill for the 90-day
period?
The cash

CHAPTER 4
Interest Rates
Practice Questions
Problem 4.8.
The cash prices of six-month and one-year Treasury bills are 94.0 and 89.0. A 1.5-year bond
that will pay coupons of $4 every six months currently sells for $94.84. A two-year bond that
will pay cou

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CHAPTER 13
Wiener Processes and Its Lemma
Practice Questions
Problem 13.1.
What would it mean to assert that the temperature at a certain place follows a
Markov process? Do you think that tempe

CHAPTER 4
Test Bank
1. An interest rate is 15% per annum when expressed with annual compounding. What is the equivalent
rate with continuous compounding?
i=ln(1+HPY)=ln(1.15)
i=13.98%
2. An interest rate is 8% per annum when expressed with continuous comp

Interest Rates
Chapter 4
Fundamentals of Futures and Options Markets, 8th Ed, Ch 4, Copyright John C. Hull 2013
1
Discount Factors
The value of what $1 in the future would be in
todays money is called the discount factor.
The notion of discount factors is

Mechanics of Futures
Markets
Chapter 2
Fundamentals of Futures and Options Markets, 8th Ed, Ch 2, Copyright John C. Hull 2013
1
Futures Contracts
Available on a wide range of underlyings
Exchange traded
Specifications need to be defined:
What can be deliv

A investment asset
Chapter 5
is an asset that is held for investment purposes by
sa
t at s e d o
est e t pu poses
significant numbers of investors
such as stock, bonds, gold and silver
Do
D not h
have to be held exclusively for investment. For
b h ld
l i

Chapter 7
3
1
Mechanics of interest rate swaps
The comparative-advantage argument
The nature of swap rates
Determining the LIBOR/swap zero rates
Valuation of interest rate swaps
Currency swaps
Valuation of currency swaps
Credit risk
Other types of swaps
2

Chapter 4
For any given currency, many different types
of i t
f interest rates are regularly quoted.
t t
l l
t d
These include mortgage rates, deposit rates,
prime borrowing rates, and so on.
The higher the credit risk, the higher the
g
,
g
interest rate

Mechanics of Futures Markets
Available on a wide range of assets
g
Exchange traded
Specifications need to be defined:
S
ifi ti
d t b d fi d
Chapter 2
What can be delivered,
Where it can be delivered, &
When it can be delivered
Settled daily
1
3
Backgroun

All That Glitters: The Effect of Attention and
News on the Buying Behavior of Individual
and Institutional Investors
Brad M. Barber
Graduate School of Management, University of California, Davis
Terrance Odean
Haas School of Business, University of Califo

Properties of Stock
Options
Chapter 10
Fundamentals of Futures and Options Markets, 8th Ed, Ch 10, Copyright John C. Hull 2013
1
Factors Affecting Option Prices
There are six factors affecting the price of a stock
option:
1. The current stock price, S0
2.

Introduction
Chapter 1
Fundamentals of Futures and Options Markets, 8th Ed, Ch 1, Copyright John C. Hull 2013
1
The Nature of Derivatives
A derivative is an instrument whose value
depends on the values of other more
basic underlying variables (underlying

Determination of Forward
and Futures Prices
Chapter 5
Fundamentals of Futures and Options Markets, 8th Ed, Ch 5, Copyright John C. Hull 2013
1
Outlines
How forward prices and futures prices are
related to the spot price of the underlying
asset?
The forwar

Chapter 1
3
1
A derivative can be defined as a financial
instrument whose value depends on (or
derives from) the values of other, more basic,
underlying variables, such as interest rate,
d l
bl
h
exchange rate, index, stock, commodities.
The major types