Derivative Markets 2nd Edition Robert L.Mcdonald 原版课件_CH04.ppt

Chapter 4 Introduction toRisk Management Basic Risk Management Firms convert inputs into goods and services output input commodity producer buyer A firm is profitable if the cost of what it produces exceeds the cost of its inputs A firm that actively uses derivatives and other techniques to alter its risk and protect its profitability is engaging in risk management The Producer’s Perspective A producer selling a risky commodity has an inherent long position in this commodity When the price of the commodity , the firm’s profit (assuming costs are fixed) Some strategies to hedge profit Selling forward Buying puts Buying collars Producer: Hedging With a Forward Contract A short forward contract allows a producer to lock in a price for his output Example: a gold-mining firm enters into a short forward contract, agreeing to sell gold at a price of $420/oz. in 1 year Producer: Hedging With a Put Option Buying a put option allows a producer to have higher profits at high output prices, while providing a floor on the price Example: a gold-mining firm purchases a 20-strike put at the premium of $8.77/oz Producer: Insuring by Selling a Call A written call reduces losses through a premium, but limits possible profits by providing a cap on the price Example: a gold-mining firm sells a 420-strike call and receives an $8.77 premium Adjusting the Amount of Insurance Insurance is not free!…in fact, it is expensive There are several ways to reduce the cost of insurance For example, in the case of hedging against a price decline by purchasing a put option, one can Reduce the insured amount by lowering the strike price of the put option. This permits some additional losses Sell some of the gain. This puts a cap on the potential gain The Buyer’s Perspective A buyer that faces price risk on an input has an inherent short position in this commodity When the price of the input , the firm’