Preview

Options and Futures

Satisfactory Essays
Open Document
Open Document
2927 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Options and Futures
Options & Futures
I. Introduction to Derivatives

Prof. Domenico Cuoco

Term 5, 2013

What is a Derivative?
Basic Types of Derivatives
The Market for Derivatives

Outline

1

What is a Derivative?

2

Basic Types of Derivatives

3

The Market for Derivatives

Options & Futures, Prof. Domenico Cuoco, 2013

I. Introduction to Derivatives

2

What is a Derivative?
Basic Types of Derivatives
The Market for Derivatives

What is a Derivative?
Derivatives and Contingent Claims

Contingent claims are financial contracts that entitle the counterparties to payoffs that are contingent on the realization of some underlying random variables.
Examples: lottery tickets, insurance policies, catastrophe bonds.

Derivatives are a special class of contingent claims in which the underlying variable that determines the payoffs to the counterparties is the market price of another traded asset (called the underlying asset).
As a result, the value of a derivative is determined by (i.e., derives from) the value of the underlying asset.

Options & Futures, Prof. Domenico Cuoco, 2013

I. Introduction to Derivatives

3

What is a Derivative?
Basic Types of Derivatives
The Market for Derivatives

Forwards
Futures
Swaps
Vanilla Options

Basic Types of Derivatives

The two basic types of derivatives are:
Forwards
Vanilla options (calls and puts)

Variations of these two basic types include more complicated, but closely related, ones, such as futures, forward rate agreements, swaps, caps, floors, exotic options, credit default swaps and more.

Options & Futures, Prof. Domenico Cuoco, 2013

I. Introduction to Derivatives

4

What is a Derivative?
Basic Types of Derivatives
The Market for Derivatives

Forwards
Futures
Swaps
Vanilla Options

Forwards
Definition

A forward contract is an agreement to trade a specified asset (the underlying) on a specified future date (the delivery date or expiration date) for
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Good Essays

    puts
    • 3105 Words
    • 13 Pages

    puts

    Some like that weed or that dope and some shoot it up in they veins…

    • 3105 Words
    • 13 Pages
    Good Essays
    Read More
  • Better Essays

    Stock Options
    • 1216 Words
    • 5 Pages

    Stock Options

    Many years ago stock options were rarely used as incidental benefits for top executives. Nowadays, compensating employee whit stock options has become an increasingly common practice. Before the year 1996, only the intrinsic value method was used to record these transactions. This method distorted the issuer’s reported financial condition and results of operations, which could lead to inappropriate decisions taken by investors. Followed by the increased use of employee stock options and the surrounding controversy of its recording method, on the year 1996 the fair value method was introduced to be used as an alternative to the intrinsic method and on 2004 the intrinsic value method was completely discontinued. The Fair value method represent a better approach to the benefit of financial statements users given its many advantages.…

    • 1216 Words
    • 5 Pages
    Better Essays
    Read More
  • Satisfactory Essays

    Present Value/ Future Value
    • 475 Words
    • 2 Pages

    Present Value/ Future Value

    Present value is where the value on a set date of a future payment is discounted to reflect the time value of money and other factors. This can also apply to a series of future payments. Present value calculations are commonly utilized in business and economics to provide a way to compare cash flows at different times. Present value can be described as the current worth of a future sum of money or stream of cash flows given a specified rate of return. (http://www.getobjects.com) Future cash flows are discounted at the discount rate. The higher the discounted rate, the lower the present value of the future cash flows. Determining what the appropriate discount rate is, is important to correctly place value future cash flows.…

    • 475 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Finance: Net Present Value and Options Principle Objective
    • 1017 Words
    • 5 Pages

    Finance: Net Present Value and Options Principle Objective

    This study guide will prepare you for the Final Examination you will complete in the final week. It contains practice questions, which are related to each week’s objectives. In addition, refer to each week’s readings and your student guide as study references for the Final Examination.…

    • 1017 Words
    • 5 Pages
    Good Essays
    Read More
  • Good Essays

    Real Options
    • 567 Words
    • 3 Pages

    Real Options

    I would estimate the volatility of the total unpredictability of my real option by doing some research. There are many sites that provide information on expected income. I would find out how much a first year tax accountant would expect to earn. This would be the driving factor in the volatility because the amount I would earn at my current job could be accurately estimated at a full time rate. The present value of the future cash flows could be calculated by using the estimate given for a first year tax accountant. There wouldn’t be any fixed costs to execute the option because there isn’t a fee to pay to drop out of school. The only cost that I could incur would be the tuition money that I may lose and that will be explained in the upcoming paragraph.…

    • 567 Words
    • 3 Pages
    Good Essays
    Read More
  • Good Essays

    Stock Options Paper
    • 418 Words
    • 2 Pages

    Stock Options Paper

    Stock options are a great incentive to get good, smart, and ambitious workers. You look at Coke and Pepsi they offer there delivery drivers, and there salesmen stock options to give them that incentive to sell and delivers those goods. What exactly are stock options is a question many people may ask. Stock options are when a company gives you the right to buy a certain number of shares at an agreed upon price that the employer specifics. Private and public companies both sell shares for many reasons that are all about helping the company grow bigger and richer. It’s about getting those workers that everyone else wants. They want their employers to feel like partners and motivated to work harder so that everyone makes more money. Companies like to offer more types of incentive than just cash, especially if they are a startup business and need to keep cash in hand.…

    • 418 Words
    • 2 Pages
    Good Essays
    Read More
  • Satisfactory Essays

    Option and Risk-free Interest Rate
    • 395 Words
    • 2 Pages

    Option and Risk-free Interest Rate

    Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months.…

    • 395 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Powerful Essays

    Atlantic Computer: a Bundle of Pricing Options
    • 776 Words
    • 4 Pages

    Atlantic Computer: a Bundle of Pricing Options

    Question #2) Think broadly about the top-line revenue implications from each of the four alternative pricing strategies. Approximately how much money over the next three years will be “left on the table” if the firm were to give away the software tool away for free (i.e., status quo pricing) versus utilizing on of the other pricing approaches?…

    • 776 Words
    • 4 Pages
    Powerful Essays
    Read More
  • Satisfactory Essays

    Case Analysis - Atlantic Computer – a Bundle of Pricing Options
    • 1567 Words
    • 7 Pages

    Case Analysis - Atlantic Computer – a Bundle of Pricing Options

    Introduction – Atlantic computer is the largest player in the hi-tech IT hardware industry and a major player in the server market. Based on the fast growth of the internet and with it the proliferation of corporate websites and file sharing systems, huge demand is predicted in the basic server segment market over the next few years. In order to make the most of this opportunity, Atlantic has come put with a new product called Tronn, which when combined with the PESA software, would far outperform any of the comparable products available in the market. Atlantic now has to come up with an effective pricing strategy to successfully capitalize on this opportunity and at the same time overcome strong competition from Ontario Computers, the market leader in the basic server segment.…

    • 1567 Words
    • 7 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Atlantic Computer: a Bundle of Pricing Options
    • 358 Words
    • 2 Pages

    Atlantic Computer: a Bundle of Pricing Options

    The key problem that Atlantic Computers are facing is the increasing market segment of Basic Servers, that is dominated by Ontario due to their pricing advantage. Due to this, Atlantic Computers are required to review their pricing and marketing strategy in order to stay competitive.…

    • 358 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Option and Value
    • 1685 Words
    • 7 Pages

    Option and Value

    1. _____ is the rate of change of delta with respect to the price of the underlying asset.…

    • 1685 Words
    • 7 Pages
    Good Essays
    Read More
  • Good Essays

    Stock Market and Stock Option Plan
    • 965 Words
    • 4 Pages

    Stock Market and Stock Option Plan

    In a typical stock option plan, the employee is offered a specific number of shares which he/she can exercise (buy) at some specified time in the future. The price at which the employee can buy the stock is equal to the market price at the time the stock option was granted (grant price). The employee 's gain is equal to the market value of the stock at the time it is exercised, less the grant price. If the market price of the stock remains the same or decreases relative to the grant price, then the stock option is worthless. Stock options are typically offered to managers, most technical individual contributors and about half of the other professionals. Smaller organizations offer stock options more widely, in some cases to all employees…

    • 965 Words
    • 4 Pages
    Good Essays
    Read More
  • Good Essays

    Atlantic Computer: A bundle of Pricing Options
    • 1076 Words
    • 5 Pages

    Atlantic Computer: A bundle of Pricing Options

    MARKETING CASE STUDY-4 Atlantic Computer: A bundle of Pricing Options Group 3 MBA Class of 2014 Alma Graduate School PRESENTATION OUTLINE Introduction  Overview  Issues  Analysis  Recommendations  Strategic Implications  INTRODUCTION Atlantic Computer has developed a new Tronn server and PESA software tool known as Atlantic Bundle and needs the right market price strategy for this product.  The challenge is to attract customers and outcompete direct and main competitors in terms of prices, performance efficiency, reliability and quality.  The main purpose and focus of this report is to provide a solution to the above challenge by coming up with the right pricing strategy.…

    • 1076 Words
    • 5 Pages
    Good Essays
    Read More
  • Good Essays

    Margin Call
    • 720 Words
    • 3 Pages

    Margin Call

    In society today there seems to be a social stigma surrounding the idea of doing right by our bother’s and sisters. Some would call it having good or bad social responsibility. This of course it derived by an individual’s ethical point-of-view. What some would perceive as doing the right thing, others might feel it is not there responsibility.…

    • 720 Words
    • 3 Pages
    Good Essays
    Read More
  • Best Essays

    Guy Cohen The Bible Of Options Strategies Prentice Hall 2005

    • 103260 Words
    • 841 Pages

    Guy Cohen The Bible Of Options Strategies Prentice Hall 2005

    Upper Saddle River, NJ • Boston • Indianapolis • San Francisco • New York •…

    • 103260 Words
    • 841 Pages
    Best Essays
    Read More

Related Topics