Derivative Markets 2nd Edition Robert L.Mcdonald 原版课件_CH05.pptVIP

Chapter 5 Financial Forwards and Futures Introduction Financial futures and forwards On stocks and indexes On currencies On interest rates How are they used? How are they priced? How are they hedged? Alternative Ways to Buy a Stock Four different payment and receipt timing combinations Outright purchase: ordinary transaction Fully leveraged purchase: investor borrows the full amount Prepaid forward contract: pay today, receive the share later Forward contract: agree on price now, pay/receive later Payments, receipts, and their timing Pricing Prepaid Forwards If we can price the prepaid forward (FP), then we can calculate the price for a forward contract F = Future value of FP Three possible methods to price prepaid forwards Pricing by analogy Pricing by discounted present value Pricing by arbitrage For now, assume that there are no dividends Pricing Prepaid Forwards (cont’d) Pricing by analogy In the absence of dividends, the timing of delivery is irrelevant Price of the prepaid forward contract same as current stock price (where the asset is bought at t = 0, delivered at t = T) Pricing by discounted preset value (a: risk-adjusted discount rate) If expected t=T stock price at t=0 is E0(ST), then  Since t=0 expected value of price at t=T is Combining the two, Pricing Prepaid Forwards (cont’d) Pricing by arbitrage Arbitrage: a situation in which one can generate positive cash flow by simultaneously buying and selling related assets, with no net investment and with no risk ? free money!!! If at time t=0, the prepaid forward price somehow exceeded the stock price, i.e., , an arbitrageur could do the following Since, this sort of arbitrage profits are traded away quickly, and cannot persist, at equilibrium we can expect: Pricing Prepaid Forwards (cont’d) What if there are dividends? Is still valid? No, because the holder of the forward will not receive dividends that will be paid to the holder of the stock ? For discrete dividends Dti at times ti,