CH18DerivativesandRiskManagement(财务管理,英文版).pptxVIP

Derivative securities Fundamentals of risk management Using derivatives to reduce interest rate risk;If volatility is due to systematic risk, it can be eliminated by diversifying investors’ portfolios. ;Increase their use of debt. Maintain their optimal capital budget. Avoid financial distress costs. Utilize their comparative advantages in hedging, compared to investors. Reduce the risks and costs of borrowing.;Reduce the higher taxes that result from fluctuating earnings. Initiate compensation programs to reward managers for achieving stable earnings.;An option is a contract that gives its holder the right, but not the obligation, to buy (or sell) an asset at some predetermined price within a specified period of time.;It does not obligate its owner to take any action. It merely gives the owner the right to buy or sell an asset.;Call option: An option to buy a specified number of shares of a security within some future period. Put option: An option to sell a specified number of shares of a security within some future period. Exercise (or strike) price: The price stated in the option contract at which the security can be bought or sold.;Option price: The market price of the option contract. Expiration date: The date the option matures. Exercise value: The value of a call option if it were exercised today = Current stock price - Strike price.;Covered option: A call option written against stock held in an investor’s portfolio. Naked (uncovered) option: An option sold without the stock to back it up. In-the-money call: A call option whose exercise price is less than the current price of the under-lying stock.;Out-of-the-money call: A call option whose exercise price exceeds the current stock price. LEAPS: Long-term Equity AnticiPation Securities are similar to conventional options except that they are long-term options with maturities of up to 2 1/2 years.;Stock Price Call Option Price $25 $ 3.00 30 7.50 35 12.00 40 16.50 45