BFF5915 Options, Futures and Risk Management
Week 6: Options Markets
Reading: Sundaram and Das Ch 7
1
Learning objectives
Understand option payoffs.
Understand the use of options.
Learn about institutional features of options markets.
2
Outline
Introd

BFF5915 Tutorial 4
Pricing of Forwards and Futures
Q1) True or false: The theoretical forward price decreases with maturity. That is, for
example, the theoretical price of a three-month forward must be greater than the
theoretical price of a six-month for

BFF5915 Tutorial 5
Hedging with futures and forwards
Q1.
a. What is meant by basis risk?
b. What is the minimum-variance hedge ratio? What are the variables that determine this?
c. The correlation between changes in the price of the underlying and a futur

BFF5915Tutorial12
InterestratederivativesII
Question1(SDChapter23)
a. Explainwhyaswapisacollectionofforwardrateagreements(FRA).
b. Whatistherelationshipofaswaptofixedandfloatingratebonds
Question2
OnAugust13ofYear1,anAustraliabankhasaswapcontractonitsbook

BFF5915Tutorial12
InterestratederivativesII
Suggestedsolutions
Q1.
a. Aswapisanagreementunderwhichonepartypaysafixedratetotheother
party who pays a floating rate in return on aseries of reset dates. On each
date,therefore,thereisanagreementtoexchangeafloa

BFF5915 Tutorial 3
The mechanics of forward and futures contracts
Suggested solutions
Q.1
a. Differences between futures and forwards can be summarised by the following table:
Criterion
Futures
Forwards
Buyer-seller interaction
Via exchange. Therefore Dir

BFF5915 Tutorial 6
Interest rate forwards and futures
Suggested solutions
Question 1
FRA terminology:
(a) The payoff from an FRA is the dollar amount received at maturity of the FRA.
For example, if we are long an FRA at a strike interest ra

Question 1
Correct
Mark 0.50 out of 0.50
Flag question
Question text
If your directional view is that stock prices are going to fall, you should
Select one:
a. Buy put options.
b. Sell call options.
c. Sell stock now.
d. All of the above are profitable st

On March 1 the spot price of a commodity is $20 and the July futures price is $19. On June 1 the
spot price is $24 and the July futures price is $23.50. A company entered into a futures contracts on
March 1 to hedge the purchase of the commodity on June 1

Suggested Solutions
Q.1
a) A market gap or jump" is a discontinuous price movement. The BlackScholes model
assumes prices follow a geometric Brownian motion (GBM) process, and one of the
requirements of GBM is that realized price pa

BFF5915 Tutorial 2
Basics of derivatives
Suggested solution
Question 1
A derivative security is a financial security whose value depends on (or derives from)
other, more fundamental, underlying variables such as the price of a stock, a commodity
price, an

BFF5915 Options, Futures and Risk Management
Tutorial 1
Suggested Solution
Part 1
Problem 1.
a) The rate with a continuous compounding is
0.14
4 ln1
0.1376 or 13.76% p.a.
4
b) The rate with annual compounding is
4
0.14
1
1 0.1475 or 14.75% p.a.
4

NBER WORKING PAPER SERIES
SHOULD WE FEAR DERIVATIVES?
Rene M. Stulz
Working Paper 10574
http:/www.nber.org/papers/w10574
NATIONAL BUREAU OF ECONOMIC RESEARCH
1050 Massachusetts Avenue
Cambridge, MA 02138
June 2004
Ren M. Stulz is the Reese Professor of Ba

MONASH
BUSINESS
SCHOOL
ACF 5957- S2, 2016
AUDITING & ASSURANCE
Star Lab Sessions
LEARNING OBJECTIVES AND KEY QUESTIONS
Who are the 4 parties involved in the Confirmation process?
What account/transaction is being verified?
Which assertions are being verif

BFF5915 Tutorial 5
Hedging with futures and forwards
Suggested solutions
Q1
a. In the context of hedging, basis risk arises when we look to offset an existing risk arising
from a particular spot exposure using an instrument (say, a futures or a forward co

BFF5915 Tutorial 10
Option hedging and the Greek letters
Suggested solution
Q.1 A delta of 0.7 means that, when the price of the stock increases by a small amount, the
price of the option increases by 70% of this amount. Similarly, when

BFF5915 Tutorial 6
Interest rate forwards and futures
Question 1.
Explain the difference between the following terms:
(a) Payoff to an FRA.
(b) Price of an FRA.
(c) Value of an FRA.
Question 2
(a) You enter into an FRA of notional 6 million

16/03/2016
Learning objectives
BFF5915 Options, Futures and Risk Management
Understand option payoffs.
Understand the use of options.
Week 6: Options Markets
Learn about institutional features of options markets.
Reading: Sundaram and Das Ch 7
1
2
Opti

16/03/2016
Lecture Objectives
BFF5915 Options, Futures and Risk Management
Understand key option strategies.
Learn how to draw payoff diagrams.
Week 7: Option Trading Strategies
Learn how to implement these strategies.
Reading: Sundaram and Das Ch 8
1

The Pricing of Options and Corporate Liabilities
Author(s): Fischer Black and Myron Scholes
Source: Journal of Political Economy, Vol. 81, No. 3 (May - Jun., 1973), pp. 637-654
Published by: University of Chicago Press
Stable URL: http:/www.jstor.org/stab

16/03/2016
Outline
BFF5915 Options, Futures and Risk Management
Lecture 8. Option Pricing The Black-Scholes Model
Introduction.
The Black-Scholes Assumptions and Formula.
Numerical example.
Interpreting the Black-Scholes formula.
Working with Black-S

BFF5902 Introduction to Risk Principles
Assignment 1 Marking Guide & Feedback Sheet
Name:
Marking Guide
C
Mark
Special Note: No assignment will be marked if it is not
accompanied with the official assignment cover sheet or is
incorrectly filled out or uns

Interest Rates,
Compounding
Frequency, Bond Pricing
Based on Chapter 4- Hulls
Fundamentals of Futures and
Options Markets
1
Measuring Interest Rates
The compounding frequency used
for an interest rate is the unit of
measurement
The difference between quar

Suggested solution
Question 1.
a) A forward contract is the obligation to perform a purchase or sale of an underlying
asset (e.g., a stock) in the future. An option is the right, but not the obligation, to buy
or sell the asset. An option is evident

BFF5915 Tutorial 7 Options markets
Question 1
a) What is the main difference between a forward and an option?
b) Why is being long a put option somewhat analogous to being in a short stock position?
c) Explain why an option is like an insurance contr