Interest Rate Compounding
Risk-Free Interest Rates
Interest rates an investor earned on treasury securities.
May be too low to be a good proxy for the risk-free rate
Employee Stock Option (ESO)
Over the course of employment, a company generally
issues ESOs to an employee which can be exercised
at a particular price set on the grant day.
What is a Derivative?
A derivative is a financial instrument whose value is based on the value of other
Type of contracts
Types of underlying assets
o Investment assets
Lecture 4 Notes
Futures and Forward: Hedging
Hedging strategies: long, short, cross
Examples and applications
Quiz next Wednesday
- By combining a short position and long position, you can hedge your risk and have a
certain amount of h
Futures and Forward: Basics
What drives the gains from trade?
Reading: Chapter 2
- Definition: a binding agreement to buy/sell an underlying asset at a predetermined date
in the future, at a price