A Rational Prismatic Hull Approach for Planing Hull Analysis
Hull der
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Transcript of Hull der
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1.1
Introduction
What are Derivatives?
• Derivatives are zero net supply bilateral contracts deriving their values from some underlying asset, reference rate, or index.
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1.2
Examples of Derivatives
• Futures Contracts
• Forward Contracts
• Swaps
• Options
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1.3
Ways Derivatives are Used• To hedge risks• To speculate (take a view on the future
direction of the market)• To lock in an arbitrage profit• To change the nature of a liability• To change the nature of an investment
without incurring the costs of selling one portfolio and buying another
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1.4
Forward Contracts• Obligates one party to buy (the long position) and the
other party to sell (the short position) an asset or commodity in the future for an agreed-upon price.
• Physical delivery contract• Cash-settled contract• Trade only in an over-the-counter (OTC) market• communication among traders is over the phone• Examples:• buy 5,000 oz. of gold @ US$400/oz. in one year• sell £1,000,000 @ 1.5000 US$/£ in six months• earn a 4% rate of interest on a US$ deposit for a 3-
month period starting in six months
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1.5
How a Forward Contract Works• The contract is a private agreement between
two counterparties• Normally, the price in the contract is chosen
so that the contract’s initial market value is zero– => no money changes hands when first
negotiated & the contract is settled at maturity– Think about a forward contract as the decision to
delay the sale or purchase of an asset three months, for example, from today.
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1.6
Futures Contracts• Like a forward:
– Obligates one party to buy (the long position) and the other party to sell (the short position) an asset or commodity in the future for an agreed-upon price.
• Physical delivery contract• Cash-settled contract
• Unlike a forward:– Trade on a futures exchange and are subject to daily
settlement
• Evolved out of forwards and possess many of the same characteristics
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1.7
Exchanges Trading Futures
• Chicago Board of Trade
• Chicago Mercantile Exchange
• LIFFE (London)
• Eurex (Europe)
• BM&F (Sao Paulo, Brazil)
• TIFFE (Tokyo)
• and many more (see list at end of book)
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1.8
Options
• An option gives its owner the right to purchase or sell an asset on or before some date in the future.
– Call versus Put options
– American and European Options
– Physical delivery versus cash-settled options
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1.9
Exchanges Trading Options
• Chicago Board Options Exchange
• American Stock Exchange
• Philadelphia Stock Exchange
• Pacific Exchange
• LIFFE (London)
• Eurex (Europe)
• and many more (see list at end of book)
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1.10
Main Differences between Options and Futures: Hedging Strategies
Feature Futures (or Forwards)
Options
Type of strategy Symmetric Asymmetric
Up-f ront costs $0.00 Option premium
Flexibility Less than option More than f utures
Contract obligation w.r.t. transacting
Obligated to buy or sell at predetermined price
Have the right to buy or sell at predetermined price
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1.11
OTC vs. Exchange-Traded Derivatives:Contract Characteristics
Exchange-Traded• Terms specified by “listing
agents” (i.e. exchange)• The main non-standard
item in most exchange-traded derivatives is the price, which is determined in the market place
– Pure open outcry (CME)– Physical delivery mkt (CBOE)– Electronic dealer market
(AMEX)– Electronic limited order book
(Sydney Futures Exch.)
OTC• Specific terms defined
exclusively by the two counterparties
• General terms set forth in pro forma documentation called “master agreements”
– Can be customized through annexes to master agreements
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1.12
OTC vs. Exchange-Traded Derivatives:Market Characteristics
Exchange-Traded• Organized market with
specific and detailed trading rules
• Exchange defines the rules of the game and enforces them
• Highly transparent• Quotes and prices are
available very rapidly by numerous services
OTC• Deals are negotiated in
opaque “market”• Dealer market where
brokers and dealers make two-way markets
• Sometimes brokered• Often lacks
“transparency”, esp. for customized and new transaction prices
• “Plain vanilla” products are more standardized
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1.13
Types of Traders• Hedgers
– mainly interested in protecting themselves against adverse price changes
– want to avoid risk• Speculators
– hope to make money in the markets by betting on the direction of prices
– “accept” risk• Arbitrageurs
– arbitrage involves locking into riskless profit by simultaneously entering into transactions in two or more markets
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1.14
Hedging Examples• A US company will pay £10 million for
imports from Britain in 3 months and decides to hedge using a long position in a forward contract
• An investor owns 1,000 Microsoft shares currently worth $73 per share. A two-month put with a strike price of $63 costs $2.50. The investor decides to hedge by buying 10 contracts
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1.15
Speculation Example
• An investor with $4,000 to invest feels that Amazon.com’s stock price will increase over the next 2 months. The current stock price is $40 and the price of a 2-month call option with a strike of 45 is $2
• What are the alternative strategies?
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1.16
Arbitrage Example
• A stock price is quoted as £100 in London and $172 in New York
• The current exchange rate is 1.7500
• What is the arbitrage opportunity?
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1.17
1. Gold: An Arbitrage Opportunity?
• Suppose that:– The spot price of gold is US$390– The quoted 1-year futures price of gold
is US$425– The 1-year US$ interest rate is 5% per
annum• Is there an arbitrage opportunity?
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1.18
2. Gold: Another Arbitrage Opportunity?
• Suppose that:– The spot price of gold is US$390– The quoted 1-year futures price
of gold is US$390– The 1-year US$ interest rate is
5% per annum• Is there an arbitrage opportunity?
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1.19
The Futures Price of Gold If the spot price of gold is S & the futures price is
for a contract deliverable in T years is F, then
F = S (1+r )T
where r is the 1-year (domestic currency) risk-free rate of interest.
In our examples, S=390, T=1, and r=0.05 so that
F = 390(1+0.05) = 409.50
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1.20
Derivative Resources on the Web
• Exchange information and contract specifications are available for all major exchanges
• Real-time pricing and volume data
• Educational tools
• Futures Exchange or Gov’t Agency Internet Site
• New York Mercantile Exchangehttp://www.nymex.com
• Kansas City Board of Tradehttp://www.kcbt.com
• Chicago Mercantile Exchangehttp://www.cme.com
• Chicago Board of Tradehttp://www.cbot.com
• Chicago Board Options Exchangehttp://www.cboe.com
• Minneapolis Grain Exchangehttp://www.mgex.com
• New York Cotton Exchangehttp://www.nyce.com
• Coffee, Sugar & Cocoa Exchangehttp://www.csce.com
• CFTC http://www.cftc.gov
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1.21
Forward, Futures, and Swaps
• The first section of the course will cover forward, futures and swaps.
• Relevant Chapters in Textbook (4th edition)– Mechanics of Futures and Forward Markets (Ch.
2)– The Determination of Forward and Futures Prices
(Ch. 3)– Hedging Strategies using Futures (Ch. 4)– Interest-Rate Futures (Parts of Ch. 5)– Swaps (Ch. 6)