Financial Derivatives - Manhattan College：金融衍生工具-曼哈顿学院.pptVIP

Maclachlan, Money Banking Spring 2006 Financial Derivatives Chapter 13 Week 2 Definition A derivative is a financial instrument whose value depends on (or derives from) the value of another instrument (the underlying). Example: the value of a stock option depends on the value of the underlying stock. Three Basic Types of Derivatives Futures/Forwards Options Swaps Derivatives can be created through combining the basic types, e.g., swaptions, futures options. Forward Contracts Began as a way for farmers to hedge risk. Suppose price of wheat could be $10 a bushel or $20 a bushel, depending on the weather. How could farmer hedge? Currency and interest rate forward contracts. Futures Contracts Standardized. Exchange traded and insured. Marked to market, margin requirements. Highly liquid. Open outcry /media/sounds1.wav Comparison Forward Contracts Customized Arranged by bankers. Subject to counterparty risk Illiquid Futures Standardized Exchange traded Insured, margin requirements Liquid Marked to market Hillary Clinton’s 1979 Investment in Cattle Futures Its a mockery of the profession to say you took a thousand dollars and made a hundred thousand, says Joe Gressel, a 19-year veteran of the Mercs trading pits. Around here, he adds, in a sentiment echoed by some of his colleagues, were flabbergasted that shes bamboozled the people of New York state. Options Right but not the obligation to buy (sell) an underlying instrument at a prespecified price. Call vs. put. Strike (or exercise) price. Price of underlying vs. price of option. Hockey stick diagrams. Swaps Swaps originated in the early 1980’s to hedge interest rate risk. The notional principal outstanding of swaps and other over-the-counter (OTC) derivatives, stood at $197 trillion at the end of December 2003. Swaps Allows a floating rate borrower to get a fixed rate obligation. Longshore Construction can only get a loan from the bank at a floating rate. Sallie Mae c