Introduction
Chapter 1
Options, Futures, and Other Derivatives, 4th edition 1999 by John C. Hull
1.2
Options, Futures, and Other Derivatives, 4th edition 1999 by John C. Hull
1.3
Examples of Derivatives
Swaps Options Forward Contracts Futures Contracts
Options, Futures, and Other Derivatives, 4th edition 1999 by John C. Hull
1.4
Derivatives Markets
Exchange Traded
standard products trading floor or computer trading virtually no credit risk
Over-the-Counter
non-standard products telephone market some credit risk
Options, Futures, and Other Derivatives, 4th edition 1999 by John C. Hull
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1.6
Forward Contracts
A forward contract is an agreement to buy or sell an asset at a certain time in the future for a certain price (the delivery price) It can be contrasted with a spot contract which is an agreement to buy or sell immediately
Options, Futures, and Other Derivatives, 4th edition 1999 by John C. Hull
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1.8
1.9
Terminology
The party that has agreed to buy has what is termed a long position The party that has agreed to sell has what is termed a short position
Options, Futures, and Other Derivatives, 4th edition 1999 by John C. Hull
1.10
Example (page 3)
On January 20, 1998 a trader enters into an agreement to buy 1 million in three months at an exchange rate of 1.6196 This obligates the trader to pay $1,619,600 for 1 million on April 20, 1998 What are the possible outcomes?
Options, Futures, and Other Derivatives, 4th edition 1999 by John C. Hull
1.11
Options, Futures, and Other Derivatives, 4th edition 1999 by John C. Hull
1.12
Options, Futures, and Other Derivatives, 4th edition 1999 by John C. Hull
1.13
Futures Contracts
Agreement to buy or sell an asset for a certain price at a certain time Similar to forward contract Whereas a forward contract is traded OTC a futures contract is traded on an exchange
Options, Futures, and Other Derivatives, 4th edition 1999 by John C. Hull
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1.15
1.16
Options, Futures, and Other Derivatives, 4th edition 1999 by John C. Hull
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1.18
1.19
1.20
Options
A call option is A put is an an option to buy option to sell a a certain asset certain asset by by a certain a certain date date for a for a certain certain price price (the strike (the strike price) price)
Options, Futures, and Other Derivatives, 4th edition 1999 by John C. Hull
1.21
Options, Futures, and Other Derivatives, 4th edition 1999 by John C. Hull
1.22
1.23
Options, Futures, and Other Derivatives, 4th edition 1999 by John C. Hull
1.24
40
50
60 70 80
1.25
Options, Futures, and Other Derivatives, 4th edition 1999 by John C. Hull
1.26
Types of Traders
Hedgers Speculators Arbitrageurs Some of the large trading losses in derivatives occurred because individuals who had a mandate to hedge risks switched to being speculators
Options, Futures, and Other Derivatives, 4th edition 1999 by John C. Hull
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1.28
1.29
Options, Futures, and Other Derivatives, 4th edition 1999 by John C. Hull
1.30