Futures, Swaps, and Risk Management推荐.docxVIP

Chapter23: Futures, Swaps, and Risk ManagementChapter Openerp. 784THE PREVIOUS CHAPTER provided a basic introduction to the operation of futures markets and the principles of futures pricing. This chapter explores both pricing and risk management in selected futures markets in more depth. Most of the growth has been in financial futures, which dominate trading, so we emphasize these contracts.?Hedging Investing in an asset to reduce the overall risk of a portfolio. refers to techniques that offset particular sources of risk, rather than as a more ambitious search for an optimal risk-return profile for an entire portfolio. Because futures contracts are written on particular quantities such as stock index values, foreign exchange rates, commodity prices, and so on, they are ideally suited for these applications. In this chapter we will consider several hedging applications, illustrating general principles using a variety of contracts. We also show how hedging strategies can be used to isolate bets on perceived profit opportunities.?We begin with foreign exchange futures, where we show how forward exchange rates are determined by interest rate differentials across countries, and examine how firms can use futures to manage exchange rate risk. We then move on to stock-index futures, where we focus on program trading and index arbitrage. Next we turn to the most actively traded markets, those for interest rate futures. We also examine commodity futures pricing. Finally, we turn to swaps markets in foreign exchange and fixed-income securities. We will see that swaps can be interpreted as portfolios of forward contracts and valued accordingly.23.1 Foreign Exchange FuturesThe MarketsExchange rates between currencies vary continually and often substantially. This variability can be a source of concern for anyone involved in international business. A U.S. exporter who sells goods in England, for example, will be paid in British pounds, and the dollar value of those pounds depe