Project Report on Derivatives | Introduction to Futures & Options | Faculty: Dr. Sharif N. Ahkam 1.0INTRODUCTION In recent times the Derivative markets have gained importance in terms of their vital role in the economy. The purpose of this report to get an orientation to the derivatives and develop a basic understanding of what it is and how does it work. Derivatives are financial instruments‚ which derive their value from an underlying asset. The underlying
Premium Futures contract Call option Option
Case Carine Frank Johnson‚ who owns the Johnson Family Farm‚ was considering whether or not to hedge his corn crop prior to the planting season for the upcoming year. He had three choices: first‚ not hedging at all; second‚ hedging using traded future contracts; third‚ hedging using Cargill’s Pacer product. If Frank chose to not hedge‚ the total cost of this choice is the elevator operator’s profit and the transportation costs (which totally Frank set the basis as 0.15). And the benefit is that there
Premium Futures contract
Oil Price Analysis: The Impact Of Supply & Demand By Greg McFarlane It’s easy to curse and moan when gas seems expensive. The oil companies are abusing the helpless customers who are effectively indentured to them‚ and can name their own prices thanks to a system of collusion and profiteering. Something‚ probably involving legislation‚ ought to be done. Except the truth lies elsewhere. In the long run‚ oil is about as purely elastic a commodity as there is‚ every movement on the production and consumption
Premium Petroleum Peak oil Futures contract
cheapest to deliver? Explain in detail. The conversion factor‚ for any particular bond deliverable into a futures contract is a number by which the bond future delivery settlement price is multiplied‚ to arrive at the delivery price for that bond. Conversion factor relates all outstanding deliverable government bonds and notes in terms of the nominal 6% bond specified in the contract. The formula to find conversion factor is as follows: Conversion factors were developed by the CBOT in 1970’s
Premium Futures contract
Assume no hedging: Estimated cost is : • 25000*1000*1.22 = $30.5 million • 25000*1000*1.01 = $25.25 million (windfall of $5.25 million) • 25000*1000*1.48 = $37 million (“surprise” of $6.5 million) Assume 100% forward hedge at $1.22 • 25000*1000*1.22 = $30.5 million locked in Assume Call option • Premium = (25000*1.22*.05) = $1.525 million o If rate is $1.01 then option is not exercised & cost is: 25000*1000*1.01 = $25.25 + premium
Premium United States dollar Currency Dollar
Describe the general characteristics of a future contract. How does a clearinghouse facilitate the trading of financial futures contracts? 2. How does the price of a financial futures contract change as the market price of the security it represents changes? Why? 3. Explain why some futures contracts may be more suitable than others for hedging exposure to interest rate risk. 4. Will speculators buy or sell Treasury bind futures contracts if they expect interest rates to increase
Premium Futures contract Short Hedge
temperament and have prospered—some by reinventing systems‚ others by getting back to basics. Whether a novice trader‚ a professional‚ or somewhere in-between‚ these books will provide the advice and strategies needed to prosper today and well into the future. For a list of available titles‚ visit our Web site at www.WileyFinance.com. A MARKETPLACE BOOK McMillan on Options Second Edition Lawrence G. McMillan John Wiley & Sons‚ Inc. Copyright © 2004 by Lawrence G. McMillan. All rights
Premium Futures contract Option Derivatives
question to debate in class is: If the team is on a losing streak‚ are the players still assets? As long as they generate future economic benefits‚ they remain assets whose measurement and probability may not warrant capitalisation as assets.) (b) Operating lease. For the lessee (tenant)‚ the future benefits that he or she has control over are the benefits under a contract specifying the rights to benefits‚ e.g. the right to use a motor vehicle for a month. According to AASB 117‚ there is no intent
Premium Contract Lease Asset
Trading volatility is nothing new for option traders. Most option traders rely heavily on volatility information to choose their trades. For this reason‚ the Chicago Board Options Exchange (CBOE) Volatility Index‚ more commonly known by its ticker symbol VIX‚ has been a popular trading tool for option and equity traders since its introduction in 1993. Until recently‚ traders used regular equity or index options to trade volatility‚ but many quickly realized that this was not the best method. On Feb
Premium Chicago Board Options Exchange Option Options
1.High Color Detergent is issuing new shares of stock which will trade on NASDAQ. If Sue purchases 300 of these shares‚ the trade will occur in which one of the following markets? Primary 2. Wilson just placed an order with his broker to purchase 500 of the outstanding shares of GE. This purchase will occur in which one of the following markets? Secondary 3.Hi-Tek Shoes is a private firm that has decided to issue shares of stock to the general public. This stock issue will be referred to as a(n):
Premium Financial markets Futures contract Short