FINC3012 Derivative Securities
Currency Hedge Strategy
Describe strategies which would involve the use of derivatives contracts to control
for some of the risks described above. In describing these strategies, refer to
specific derivative contracts and th
1) The payoffs for financial derivatives are linked to
(a) securities that will be issued in the future.
(b) the volatility of interest rates.
(c) previously issued securities.
(d) government regulations specifying allowable rates of return.
(e) none of t
7. Properties of Option Prices
Properties of Option Prices
Outline
Basic properties of options
notation,
factors aecting option prices,
upper and lower bounds,
put-call parity,
early exercise of American options.
1 of 42
Outline
7. Properties of Option Pr
8. Option Pricing Using Binomial Trees
Option Pricing Using Binomial Trees
Outline
Binomial trees
risk neutral probability,
European options,
American options and other path dependent options,
assets paying income.
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Outline
8. Option Pricing Using
The Role of Derivatives in a Portfolio
BUSINESS
SCHOOL
Utility
subjective measure of satisfaction derived from the
consumption of goods and services.
Risk is a disutility
Common properties of rational consumers:
1
insatiability
2
diminishing marginal u
FINC 3012 Derivative Securities
Dr Elvis Jarnecic
BUSINESS
SCHOOL
This Lecture
In this lecture we will cover the following:
- Course administration (UoS outline)
- Overview of Course
- Introduction to Derivatives
Teaching Staff
Lecturer:
- Name: Elvis J
FUNDAMENTALS OF FUTURES AND OPTlONS MARKETS
PRACTICE QUESTIONS
(Answers in Solutions manuaI/Study guide)
C 0 N50 Li DATE
1.8 A stock when it is ﬁrst issued provides funds for a com
pany. is the same true of an exchangetraded stock option
Discuss.
1.9
Ex
2.8
Margin is money deposited by an investor with his or her broker. The balance in the margin account is adjusted daily
to reflect gains and losses on the futures contract.
2.9
(1) if more than $1,500: orange juice falls by more than 10 cents to below 15
Trading Strategies Involving Options
BUSINESS
SCHOOL
1
Overview
How options can be used for hedging a pre-existing position
in the spot market, and for speculating on subsequent spot
movements.
Hedging
- Fiduciary call writing
- Covered call writing
- P
Properties of Stock Options
BUSINESS
SCHOOL
1
Notation
c:
European call option
price
p:
European put option
price
S0 :
Stock price today
K:
Strike price
T:
Life of option
:
Volatility of stock price
C:
American Call option price
P:
American Put op
UPCR Originating process
Division 2 - Originating process
6.2. How proceedings commenced
6.3. Where statement of claim required
6.4. Where summons required
6.2 How proceedings commenced
(1) Subject to these rules, the practice notes and any other rules of
Question 1
Question 2
18
16
14
12
10
Wages Per Hour (USD)
8
6
4
2
0
2
4
6
8
10
12
14
16
18
20
Education (Years)
Correlation [r] = 0.258
The sample correlation indicates that there is a weak positive association between the number of
years of education and
RISK MANAGEMENT PRACTICES IN THE AIRLINE
INDUSTRY
by
Sharon Fernando
PROJECT SUBMITTED IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE DEGREE OF
MASTER OF ARTS
In the
Faculty
of
Business Administration
Financial Risk Management
O Sharon Fernando 2006
S
EXECUTIVE SUMMARY
The purpose of this report is to present strategies coping with Qantas main risks
exposure jet fuel price volatility and foreign exchange risk. Through a thorough
analysis, we identified that the Gulf Coast Jet Fuel (Platts) Futures and
Problem 1.8 A stock when it is first issued provides funds for a company. Is the same
true of an exchange-traded stock option? Discuss.
An exchange-traded stock option provides no funds for the company. It is a security
sold by one investor to another. Th
2.8 Explain how margins protect investors against the possibility of default.
A margin is a sum of money deposited by an investor with his or her broker. It acts as
a guarantee that the investor can cover any losses on the futures contract. The balance
in
Problem 3.8
In the Chicago Board of Trades corn futures contract, the following delivery months
are available: March, May, July, September and December. State the contract that
should be used for hedging when the expiration of the hedge is in:
a) June
b)
6. Introduction to Options
Introduction to Options
Outline
Denitions and payos.
denitions,
dividends and stock splits,
payos.
Option strategies.
spreads,
strangles and straddles,
butteries.
1 of 35
Outline
6. Introduction to Options
Denitions and Payos
De
1. Forward and Futures Markets
Forward and Futures Markets
Outline
Forward contracts
introduction and denitions,
application to hedging and speculating.
Futures contracts
introduction and denitions,
mechanics of futures market and margin account,
applicat
FINC3012 Derivative Securities
Lecture 10 Options on Stock Indices and Currencies
INDEX OPTIONS:
The most popular underlying indices in the U.S. are
o The S&P 100 Index (OEX and XEO)
o The S&P 500 Index (SPX)
o The Dow Jones Index times 0.01 (DJX)
o The
FINC3012 Derivative Securities
Lecture 12 Currency and Interest Rate Swaps
INTEREST RATE SWAPS:
One party B agrees to pay the other party, A, cash flows equal to interest at a
predetermined fixed rate on a notional principal for a number of years
At the
FINC3012 Derivative Securities
Lecture 8 Binomial Option Pricing Model
Replicating Portfolio Valuation:
Derivative assets are, in fact, redundant.
Even if derivatives didnt exist, we could artificially re-create them solely
from the underlying assets.
FINC3012 Derivative Securities
Lecture 9 Valuing Stock Options: Black-Scholes Model
The Black-Scholes Random Walk Assumption:
Consider a stock whose price is S
In a short period of time of length t the change in the stock price is assumed
to be normal w
FINC3012 Derivative Securities
Lecture 4 Currency, Stock Index and Interest Rate Futures
CURRENCY FUTURES:
Exchange Rate Risk:
Risk associated with uncertainty of future currency values
Currency futures represent a vehicle for helping international inve
FINC3012 Derivative Securities
Lecture 5 Mechanics of Options Markets
Option:
A contract between two parties giving the buyer the right but not the obligation to trade an
underlying asset at a specified price on or before a specified date
o Ignoring tran
FINC3012 Derivative Securities
Lecture 3 Using Futures Contracts
Types of Futures Hedges:
Short hedge
Long hedge
Cross hedge
Long Futures Hedge:
Appropriate when you know you will purchase an asset in the future and want
to lock in the price
Short Fut
FINC3012 Derivative Securities
Lecture 7 Trading Strategies Involving Options
Trading Strategies Involving Options:
How options can be used for hedging a pre-existing position in the spot
market, and for speculating on subsequent spot movements.
Hedging
FINC3012 Derivative Securities
Lecture 1 Introduction
Derivative:
An instrument whose value depends on, or is derived from, the value of
another asset
E.g. futures, forwards, swaps, options, exotics
Pricing Linkages:
Linkages exist between spot assets
FINC3012 Derivative Securities
Lecture 11 The Greek Letters and Exotic Options
1. THE GREEK LETTERS:
Example:
A bank has sold for $300,000 a European call option on 100,000 shares of a
nondividend paying stock
S0 =49, K =50, r =5%, =20%, T = 20 weeks, =
FINC3012
DERIVATIVE SECURITIES
FINC3012 extends the derivatives knowledge gained in FINC2012, with a
specific focus on pricing and real-life applications of futures, swaps and
options contracts. The first half of semester focuses on futures pricing and
he