Chapter 1
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.1
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.2
Examples of Derivatives
Futures Contracts
Forward Contracts
Swaps
Options
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.3
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.4
Futures Contracts
A
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.5
Board of Trade
Chicago Mercantile Exchange
Euronext
Eurex
BM&F (Sao Paulo, Brazil)
and many more (see list at end of book)
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.6
Futures Price
The
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.7
Electronic Trading
Traditionally
1.8
1.9
Terminology
The
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.10
Example
January:
April:
1.11
1.12
Source: Bank for International Settlements. Chart shows total principal amounts
for OTC market and value of underlying assets for exchange market
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.13
Forward Contracts
Forward
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.14
Spot
Bid
1.8360
Offer
1.8364
1-month forward
1.8372
1.8377
3-month forward
1.8400
1.8405
6-month forward
1.8438
1.8444
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.15
Options
A
1.16
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.17
Strike Price
($)
$15.00
$17.50
$20.00
$22.50
$25.00
Oct
2006
4.650
2.300
0.575
0.075
0.025
Calls
Jan
2007
4.950
2.775
1.175
0.375
0.125
Apr
2007
5.150
3.150
1.650
0.725
0.275
Oct
2006
0.025
0.125
0.875
2.950
5.450
Puts
Jan
2007
0.150
0.475
1.375
3.100
5.450
Apr
2007
0.275
0.725
1.700
3.300
5.450
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.18
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.19
Options vs Futures/Forwards
A
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.20
1.21
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.22
Value of
Holding ($)
35,000
No Hedging
30,000
Hedging
25,000
Stock Price ($)
20,000
20
25
30
35
40
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.23
1.24
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.25
1. Gold: An Arbitrage
Opportunity?
Suppose that:
The spot price of gold is US$600
The quoted 1-year futures price of gold is
US$650
The 1-year US$ interest rate is 5% per
annum
No income or storage costs for gold
Is there an arbitrage opportunity?
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.26
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.27
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.28
1.29
Fundamentals of Futures and Options Markets, 6th Edition, Copyright John C. Hull 2007
1.30