Determination of Forward
and Futures Prices
Chapter 5
Fundamentals of Futures and Options Markets, 7th Ed, Ch 5, Copyright John C. Hull 2010
1
Consumption vs Investment Assets
Investment
assets are assets held by
significant numbers of people purely for

Introduction to Binomial
Trees
Chapter 12
Fundamentals of Futures and Options Markets, 7th Ed, Ch 12, Copyright John C. Hull 2010
1
A Simple Binomial Model
A
stock price is currently $20
In three months it will be either $22 or $18
Stock Price = $22
Stoc

Valuing Stock Options:
The Black-Scholes-Merton
Model
Chapter 13
Fundamentals of Futures and Options Markets, 7th Ed, Ch 13, Copyright John C. Hull 2010
1
The Black-Scholes-Merton
Random Walk Assumption
Consider
a stock whose price is S
In a short perio

Swaps
Chapter 7
Options, Futures, and Other Derivatives, 7th Ed, Ch 7, Copyright John C. Hull 2010
1
Nature of Swaps
A swap is an agreement to
exchange cash flows at specified
future times according to certain
specified rules
Options, Futures, and Other D

Introduction
Chapter 1
Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010
1
The Nature of Derivatives
A derivative is an instrument whose value
depends on the values of other more
basic underlying variables.
A derivativ

Securitization and the
Credit Crisis of 2007
Chapter 8
Fundamentals of Futures and Options Markets 7th Ed, Ch 8, Copyright John C. Hull 2010
1
Securitization
Strong demand for residential morgages
Morgage-Backed Security (MBS) market
Portfolios of mortg

Fundamentals of Futures and Options Markets, 7th Ed, Ch
20, Copyright John C. Hull 2010
Chapter 1 Introduction
This book addresses derivatives markets; how they work, can be used and what determines prices in
them. A derivative is an instrument whos

Question 1:
Suppose S&P 500 index currently stands at 1,000. The dividend yield on index is 1% per
annum (and thus 0.25% for 3 months). The 3-month Futures price of S&P 500 is 1,100.
One futures contract on S&P 500 index has a value of $250 times the inde

Assignments
Note: The individual assignment is due on March 8th. Each question has one point, with a
total of 15 points.
Question 1:
Suppose S&P 500 index currently stands at 1,000. The dividend yield on index is 4% per
annum (and thus 1% for 3 months). T

Chapter 7
Question
Companies X and Y have been offered the following rates per annum on a $5 million 10year investment:
Company X
Company Y
Fixed Rate
8.0%
8.8%
Floating Rate
LIBOR
LIBOR
Company X requires a fixed-rate investment; company Y requires a flo

Problems for Chapter 11, 12, and 13
Problem 11.10.
Suppose that put options on a stock with strike prices $30 and $35 cost $4 and $7,
respectively. How can the options be used to create (a) a bull spread and (b) a bear
spread? Construct a table that shows

Valuing Stock Options:
The Black-Scholes-Merton
Model
Chapter 13
Fundamentals of Futures and Options Markets, 7th Ed, Ch 13, Copyright John C. Hull 2010
1
The Black-Scholes-Merton
Random Walk Assumption
Consider
a stock whose price is S
In a short perio

Mechanics of Futures
Markets
Chapter 2
Fundamentals of Futures and Options Markets, 7th Ed, Ch 2, Copyright John C. Hull 2010
1
Futures Contracts
Available
on a wide range of underlyings
Exchange traded
Specifications need to be defined:
What can be de