Chap 1

The Nature of Derivatives ,[object Object]

Examples of Derivatives ,[object Object],[object Object],[object Object],[object Object]

Derivatives Markets ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Size of OTC and Exchange Markets (Figure 1.1, Page 3) Source: Bank for International Settlements. Chart shows total principal amounts for OTC market and value of underlying assets for exchange market

Ways Derivatives are Used ,[object Object],[object Object],[object Object],[object Object],[object Object]

Forward Contracts ,[object Object],[object Object]

Foreign Exchange Quotes for GBP June 3, 2003 (See page 4) 1.6100 1.6094 6-month forward 1.6192 1.6187 3-month forward 1.6253 1.6248 1-month forward 1.6285 1.6281 Spot Offer Bid

Forward Price ,[object Object],[object Object]

Terminology ,[object Object],[object Object]

Example (page 4) ,[object Object],[object Object],[object Object]

Profit from a Long Forward Position K Profit Price of Underlying at Maturity, S T

Profit from a Short Forward Position K Profit Price of Underlying at Maturity, S T

Futures Contracts (page 6) ,[object Object],[object Object],[object Object]

Exchanges Trading Futures ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Examples of Futures Contracts ,[object Object],[object Object],[object Object],[object Object]

1. Gold: An Arbitrage Opportunity? ,[object Object],[object Object],[object Object],[object Object],[object Object]

2. Gold: Another Arbitrage Opportunity? ,[object Object],[object Object],[object Object],[object Object],[object Object]

The Forward Price of Gold ,[object Object],[object Object],[object Object],[object Object],[object Object]

1. Oil: An Arbitrage Opportunity? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

2. Oil: Another Arbitrage Opportunity? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Options ,[object Object],[object Object]

American vs European Options ,[object Object],[object Object]

Intel Option Prices (May 29, 2003; Stock Price=20.83); See Table 1.2 page 7 2.85 2.20 1.85 1.15 0.45 0.20 22.50 1.50 0.85 0.45 2.40 1.60 1.25 20.00 Oct Put July Put June Put Oct Call July Call June Call Strike Price

Exchanges Trading Options ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Options vs Futures/Forwards ,[object Object],[object Object]

Types of Traders ,[object Object],[object Object],[object Object],Some of the largest trading losses in derivatives have occurred because individuals who had a mandate to be hedgers or arbitrageurs switched to being speculators (See for example Barings Bank, Business Snapshot 1.2, page 15)

Hedging Examples (pages 10-11) ,[object Object],[object Object]

Value of Microsoft Shares with and without Hedging (Fig 1.4, page 11)

Speculation Example ,[object Object],[object Object]

Arbitrage Example ,[object Object],[object Object],[object Object]

Hedge Funds (see Business Snapshot 1.1, page 9) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Chap 1

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Chap 1