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Financial markets and products 2015

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Описание

Chapter 1 Introduction: Futures and Options Markets 3

Price Discovery 12

Speculation 12

For Your Consideration 12

The Development

of Futures Markets 4

Lack of Adequate Storage 4

Standardization of Quality 4

Variation in Terms of Payment 4

Price Dissemination 5

The Problem of Resale 5

Guaranteed Contract Performance 5

Standardization of Trading Practices 5

What Is a Futures Contract? 5

Forwards vs. Futures 6

Equity Securities (Stocks) vs. Futures 6

Futures Volume and Open Interest 7

Requisites of a Futures Market 9

The Uses of Futures and Options 11

Hedging 11

Carrying of Commodity Positions 11

Arbitrage 12

Position-Taking 12

Chapter 2 Futures Industry Institutions and Professionals 17

Development of U.S. Futures Exchanges 18

The Modern Futures Exchange 18

Exchange Organization

and Administration 19

Exchange Members 19

The Clearinghouse or Clearing Association 20

Operating Structure 20

Original and Variation Margin 20

Guaranty Deposit 21

Clearing Process 22

Deliveries and Cash Settlement 23

utures Commission Merchants

nd introducing Brokers 25

Futures Commission Merchants 25

introducing Brokers 25

Account Executives 25

lommodity Trading Advisors nd Commodity Pool Operators 26

Commodity Trading Advisors (CTAs) 26

Commodity Pool Operators (CPOs) 27

Customers 28

Customer Funds 28

:or Your Consideration 28

Appendix 28

Type of Accounts 28

Basis and Hedging 42

Long the Basis 42

Short the Basis 42

Exchange for Physicals (EFPs) 43

Cross-Hedging 43

Hedging with Options on Futures 44

Hedging Inventory

with a Long Put Position 44

Hedging Inventory

with a Short Call Position 45

Hedging and the Option Delta 46

For Your Consideration 47

Chapter 4 Introduction 51

\pter 3 Hedging with

Futures and Options 35

iasic Concepts 36

Cash and Futures Price Correlation 36

Futures Position as a Temporary Substitute for a Later Cash Transaction 36

Equal and Opposite Positions

in Cash and Futures 37

Examples of Hedging

vith Futures 37

The Selling Hedge 37

The Buying Hedge 38

iasis: Cash/Futures

*rice Relationships 39

ntertemporal Price Relationships 40

Normal, Carrying Charge

or Contango Markets 40

Inverted or Backwardation Markets 40

Convergence 41

An Illustration 41

Exchange-Traded Markets 52

Electronic Markets 53

Over-the-Counter Markets 53

Market Size 54

Forward Contracts 55

Payoffs from Forward Contracts 55

Forward Prices and Spot Prices 56

Futures Contracts 56

Options 57

Types of Traders 59

Hedgers 59

Hedging Using Forward Contracts 59 Hedging Using Options 59

A Comparison 60

Speculators 61

Speculation Using Futures 61

Speculation Using Options 61

A Comparison 62

Arbitrageurs 62

Dangers 63

Summary 64

Chapter 5 Mechanics of

Futures Markets 67

Background 68

Closing Out Positions 69

Specification of a Futures Contract 69

The Asset 69

The Contract Size 69

Delivery Arrangements 70

Delivery Months 70

Price Quotes 70

Price Limits and Position Limits 70

Convergence of Futures Price to Spot Price 70

The Operation of Margin Accounts 71

Daily Settlement 71

Further Details 73

The Clearing House

and Its Members 73

Credit Risk 74

OTC Markets 74

Central Counterparties 74

Bilateral Clearing 74

Futures Trades vs. OTC Trades 75

Market Quotes 76

Prices 76

Settlement Price 76

Trading Volume and Open Interest 76 Patterns of Futures 76

Delivery 78

Cash Settlement 78

Types of Traders and Types of Orders 78

Orders 79

Regulation 79

Trading Irregularities 80

Accounting and Tax 80

Accounting 80

Tax 81

Forward vs. Futures Contracts 81

Profits from Forward

and Futures Contracts 82

Foreign Exchange Quotes 82

Summary 82

Chapter 6 Hedging Strategies

Using Futures 85

Basic Principles 86

Short Hedges 86

Long Hedges 87

Arguments For and Against Hedging 87

Hedging and Shareholders 87

Hedging and Competitors 88

Hedging Can Lead to a

Worse Outcome 88

Basis Risk 89

The Basis 90

Choice of Contract 91

Cross Hedging 92

Optimal Number of Contracts 93

Tailing the Hedge 94

Stock Index Futures 94

Stock Indices 95

Hedging an Equity Portfolio 96

Reasons for Hedging an Equity Portfolio 97

Changing the Beta of a Portfolio 97

Locking in the Benefits of Stock Picking 98

Stack and Roil 98

Summary 100

Appendix 101

Capital Asset Pricing Model 101

Duration 115

Modified Duration 116

Bond Portfolios 117

Convexity 117

Theories of the Term Structure of Interest Rates 118

The Management of Net Interest Income 118

Liquidity 119

Summary 120

Chapter 8 Determination of

Forward and Futures Prices 123

Chapter 7 Interest Rates 105

Types Of Rates 106

Treasury Rates 106

LIBOR 106

The Fed Funds Rate 107

Repo Rates 107

The “Risk-Free” Rate 107

Measuring Interest Rates 107

Continuous Compounding 108

Zero Rates 109

Investment Assets vs.

Consumption Assets 124

Short Selling 124

Assumptions and Notation 125

Forward Price for an

Investment Asset 126

A Generalization 126

What If Short Sales Are Not

Possible? 127

Known Income 128

A Generalization 128

Bond Pricing 109

Bond Yield 109

Par Yield 110

Determining Treasury Zero Rates no

Forward Rates 111

Forward Rate Agreements 113

Valuation 114

Known Yield 129

Valuing Forward Contracts 130

Are Forward Prices and

Futures Prices Equal? 131

Futures Prices of Stock Indices 132

orward and Futures Contracts

on Currencies 133

A Foreign Currency as an Asset Providing a Known Yield 135

Futures on Commodities 136

Income and Storage Costs 136

Consumption Commodities 136

Convenience Yields 137

The Cost of Carry 137

Delivery Options 138

Futures Prices and Expected Future Spot Prices 138

Keynes and Hicks 138

Risk and Return 138

The Risk in a Futures Position 139

Normal Backwardation

and Contango 139

Summary 140

Chapter 9 Interest Rate

Futures 143

Day Count and Quotation Conventions 144

Day Counts 144

Price Quotations of US Treasury Bills 145

Price Quotations of US Treasury Bonds 145

Treasury Bond Futures 145

Quotes 147

Conversion Factors 147

Cheapest-to-Deliver Bond 148

Determining the Futures Price 148

Eurodollar Futures 149

Forward vs. Futures Interest Rates 151 Convexity Adjustment 152

Using Eurodollar Futures to Extend

the LIBOR Zero Curve 152

Duration-Based Hedging Strategies Using Futures 153

Hedging Portfolios of Assets and Liabilities 154

Summary 154

Chapter 10 Swaps 157

Mechanics of Interest

Rate Swaps 158

LIBOR 158

Illustration 158

Using the Swap to Transform a Liability < 160

Using the Swap to Transform

an Asset 160

Role of Financial Intermediary 161

Market Makers 161

Day Count Issues 162

Confirmations 162

The Comparative-Advantage Argument 163

Criticism of the Argument 164

The Nature of Swap Rates 165

Determining LIBOR/Swap

Zero Rates 165

Valuation of interest

Rate Swaps 166

Valuation in Terms of Bond Prices 166 Valuation in Terms of FRAs 167

Term Structure Effects 168