Managing financial risk with derivatives and its applications.

5
Managing financial risk with derivatives and its applications

Transcript of Managing financial risk with derivatives and its applications.

Page 1: Managing financial risk with derivatives and its applications.

Managing financial risk with derivatives and its applications

Page 2: Managing financial risk with derivatives and its applications.

Hedging with derivatives

• Future & Forward Contracts

• Interest Rate instruments: Cap, Floor, Collar.

• SWAPS

• Option Contracts: Put & Call

Page 3: Managing financial risk with derivatives and its applications.

Future & Forward Contracts

• Future Contracts:-Legal standarized agreement to buy/sell a commodity at a specific time in the future.

-Margin established up front

-« Marking-to- Market »

• Foward Contracts:-Customized agreement & traded over-the-counter

-Specified with 4 variables: underlier, notional amount, delivery price & settlement date.

-May be cashed settled

Page 4: Managing financial risk with derivatives and its applications.

Futures Contract Applications

Example of a raw material transformation company

Material 100,000 ounces of silver

Spot price $ 13/ounceSix-months future price

$ 11/ounce

Long position

Use: Need 100,000 ounces of silver in 6 monhs.

Goal: Lock price at $11/ounce

Short position

Use: Sell 100,000 ounces of silver in 6 months.

Goal: Ensure receiving $11/ounce in 6 months

Page 5: Managing financial risk with derivatives and its applications.

Forward Contracts

• Four variables:- Underlier:

oil-Notional amount (n): 250,000 barrels.-Delivery price (k):

$ 40 U.S./barrel-Settlement date:

in 3 months

• Goal: Exchange 250,000 barrels of crude oil for $ 40 U.S. /barrel in 3 months.

Forward market value given by n(s-k) where s is the spot price.


FINANCIAL DERIVATIVES · 2019. 6. 22. · 112 Financial Derivatives and Risk Management Chapter 4 RISK MANAGEMENT IN DERIVATIVES 4.0 RISK IN DERIVATIVES Though the derivatives are

FINANCIAL DERIVATIVES · 2019. 6. 22. · 112 Financial Derivatives and Risk Management Chapter 4 RISK MANAGEMENT IN DERIVATIVES 4.0 RISK IN DERIVATIVES Though the derivatives are

Recap Risk Management Managing Credit Risk Managing Market Risk Managing Liquidity Risk.

Recap Risk Management Managing Credit Risk Managing Market Risk Managing Liquidity Risk.

Risk Mgmt for Derivatives

Risk Mgmt for Derivatives

Derivatives and hedging risk

Derivatives and hedging risk

Credit Derivatives in Banking Useful Tools for Managing Risk

Credit Derivatives in Banking Useful Tools for Managing Risk

Derivatives and Systemic Risk: Netting, Collateral, …users.wfu.edu/blissrr/PDFs/Bliss-Kaufman - 2005, JFS - Derivatives...Derivatives and Systemic Risk: Netting, Collateral, and

Derivatives and Systemic Risk: Netting, Collateral, …users.wfu.edu/blissrr/PDFs/Bliss-Kaufman - 2005, JFS - Derivatives...Derivatives and Systemic Risk: Netting, Collateral, and

Managing Oil Price Risk With Derivatives

Managing Oil Price Risk With Derivatives

Managing a Portfolio of Weather Derivatives

Managing a Portfolio of Weather Derivatives

managing risk with derivatives

managing risk with derivatives

MANAGING INTEREST RATE RISK THROUGH HEDGING WITH DERIVATIVES · MANAGING INTEREST RATE RISK THROUGH HEDGING WITH DERIVATIVES 2014 NASCUS Summit September 10, 2014 Travis Goodman,

MANAGING INTEREST RATE RISK THROUGH HEDGING WITH DERIVATIVES · MANAGING INTEREST RATE RISK THROUGH HEDGING WITH DERIVATIVES 2014 NASCUS Summit September 10, 2014 Travis Goodman,

Chapter 18 Managing Financial Risk with Derivatives

Chapter 18 Managing Financial Risk with Derivatives

Managing counterparty risk 7 th Annual International Conference, “Russian Derivatives Market” Moscow, 11 September 2012.

Managing counterparty risk 7 th Annual International Conference, “Russian Derivatives Market” Moscow, 11 September 2012.

MANAGING RISK WITH FERTILISER DERIVATIVES - … · MANAGING RISK WITH FERTILISER DERIVATIVES: ... Commodity Index® and S&P World Commodity ... Nitrogen Fertiliser solution derived

MANAGING RISK WITH FERTILISER DERIVATIVES - … · MANAGING RISK WITH FERTILISER DERIVATIVES: ... Commodity Index® and S&P World Commodity ... Nitrogen Fertiliser solution derived

Risk Management and Derivatives

Risk Management and Derivatives

Using derivatives to manage financial market risk and ... · Using derivatives to manage financial market risk and credit risk ... Case study: ALCO 1 CDO . Please ... Credit derivatives

Using derivatives to manage financial market risk and ... · Using derivatives to manage financial market risk and credit risk ... Case study: ALCO 1 CDO . Please ... Credit derivatives

Pricing Derivatives Credit Risk

Pricing Derivatives Credit Risk

Uses of Derivatives for Risk Management Charles Smithson Copyright 2004 Rutter Associates, LLC Assessing, Managing and Supervising Financial Risk The World.

Uses of Derivatives for Risk Management Charles Smithson Copyright 2004 Rutter Associates, LLC Assessing, Managing and Supervising Financial Risk The World.

Managing the Newest Derivatives Risks - polytechniqueeuroschoolmathfi/crouhy.pdf · Managing the Newest Derivatives Risks ... – Separate between the risk factors ... Dynamic management

Managing the Newest Derivatives Risks - polytechniqueeuroschoolmathfi/crouhy.pdf · Managing the Newest Derivatives Risks ... – Separate between the risk factors ... Dynamic management

Derivatives and Risk F.M.

Derivatives and Risk F.M.

Derivatives and Risk Management MBAB 5P44 ŒMBAneumann.hec.ca/pages/hatem.ben-ameur/RiskManagement.pdf · Hatem Ben Ameur Derivatives and Risk Management Brock University ŒMBA Derivatives

Derivatives and Risk Management MBAB 5P44 ŒMBAneumann.hec.ca/pages/hatem.ben-ameur/RiskManagement.pdf · Hatem Ben Ameur Derivatives and Risk Management Brock University ŒMBA Derivatives