JOHNHULLJOHNHULL期权与期货市场期权与期货市场基本原理第七版基本原理第七版pptpptThe Nature of DerivativesA derivative is an instrument whose value depends on the values of other more basic underlying variables2Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Examples of DerivativesFutures ContractsForward ContractsSwapsOptions3Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Ways Derivatives are UsedlTo hedge riskslTo speculate (take a view on the future direction of the market)lTo lock in an arbitrage profitlTo change the nature of a liabilitylTo change the nature of an investment without incurring the costs of selling one portfolio and buying another4Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Futures ContractslA futures contract is an agreement to buy or sell an asset at a certain time in the future for a certain pricelBy contrast in a spot contract there is an agreement to buy or sell the asset immediately (or within a very short period of time)5Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Exchanges Trading FutureslCBOT and CME (now CME Group)lIntercontinental ExchangelNYSE Euronext lEurex lBM&FBovespa (Sao Paulo, Brazil)land many more (see list at end of book)6Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Futures PricelThe futures prices for a particular contract is the price at which you agree to buy or selllIt is determined by supply and demand in the same way as a spot price7Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Electronic TradinglTraditionally futures contracts have been traded using the open outcry system where traders physically meet on the floor of the exchangelIncreasingly this is being replaced by electronic trading where a computer matches buyers and sellers8Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Examples of Futures ContractsAgreement to:lbuy 100 oz. of gold US$1050/oz. in December lsell 62,500 1.5500 US$/ in March lsell 1,000 bbl. of oil US$75/bbl. in April9Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010TerminologylThe party that has agreed to buy has a long positionlThe party that has agreed to sell has a short position10Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010ExamplelJanuary: an investor enters into a long futures contract to buy 100 oz of gold $1050 in AprillApril: the price of gold $1065 per oz What is the investors profit?11Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Over-the Counter MarketslThe over-the counter market is an important alternative to exchangeslIt is a telephone and computer-linked network of dealers who do not physically meetlTrades are usually between financial institutions, corporate treasurers, and fund managers12Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Size of OTC and Exchange Markets(Figure 1.2, Page 4) Source: Bank for International Settlements. Chart shows total principal amounts for OTC market and value of underlying assets for exchange market13Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Forward ContractslForward contracts are similar to futures except that they trade in the over-the-counter marketlForward contracts are popular on currencies and interest rates14Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Foreign Exchange Quotes for USD/GBP exchange rate on July 17, 2009 (See page 5)BidOfferSpot1.63821.63861-month forward1.63801.63853-month forward1.63781.63846-month forward1.63761.638315Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010OptionslA call option is an option to buy a certain asset by a certain date for a certain price (the strike price)lA put option is an option to sell a certain asset by a certain date for a certain price (the strike price)16Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010American vs European OptionslAn American option can be exercised at any time during its lifelA European option can be exercised only at maturity 17Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Google Option Prices (July 17, 2009; Stock Price=430.25); See page 6 18Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Exchanges Trading OptionslChicago Board Options ExchangelInternational Securities ExchangelNYSE EuronextlEurex (Europe)land many more (see list at end of book)19Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Options vs Futures/ForwardslA futures/forward contract gives the holder the obligation to buy or sell at a certain pricelAn option gives the holder the right to buy or sell at a certain price20Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Hedge Funds (see Business Snapshot 1.1, page 10) lHedge funds are not subject to the same rules as mutual funds and cannot offer their securities publicly. lMutual funds must ldisclose investment policies, lmakes shares redeemable at any time,llimit use of leverageltake no short positions. lHedge funds are not subject to these constraints.21Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Three Reasons for Trading Derivatives:Hedging, Speculation, and ArbitragelHedge funds trade derivatives for all three reasons lWhen a trader has a mandate to use derivatives for hedging or arbitrage, but then switches to speculation, large losses can result. (See SocGen, Business Snapshot 1.2) 22Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Hedging Examples (Example 1.1 and 1.2, page 11)lA US company will pay 10 million for imports from Britain in 3 months and decides to hedge using a long position in a forward contractlAn investor owns 1,000 Microsoft shares currently worth $28 per share. A two-month put with a strike price of $27.50 costs $1. The investor decides to hedge by buying 10 contracts 23Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Value of Microsoft Shares with and without Hedging (Fig 1.4, page 12)24Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Speculation Example (pages 14)lAn investor with $2,000 to invest feels that a stock price will increase over the next 2 months. The current stock price is $20 and the price of a 2-month call option with a strike of $22.50 is $1lWhat are the alternative strategies? 25Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010Arbitrage Example (pages 15-16)lA stock price is quoted as 100 in London and $162 in New YorklThe current exchange rate is 1.6500lWhat is the arbitrage opportunity?26Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 20101. Gold: An Arbitrage Opportunity?lSuppose that:lThe spot price of gold is US$1000lThe quoted 1-year futures price of gold is US$1100lThe 1-year US$ interest rate is 5% per annumlNo income or storage costs for goldlIs there an arbitrage opportunity? 27Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 20102. Gold: Another Arbitrage Opportunity?lSuppose that:lThe spot price of gold is US$1000lThe quoted 1-year futures price of gold is US$990lThe 1-year US$ interest rate is 5% per annumlNo income or storage costs for goldlIs there an arbitrage opportunity?28Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010The Futures Price of Gold If the spot price of gold is S & the futures price is for a contract deliverable in T years is F, then F = S (1+r )Twhere r is the 1-year (domestic currency) risk-free rate of interest.In our examples, S=1000, T=1, and r=0.05 so thatF = 1000(1+0.05) = 105029Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 20101. Oil: An Arbitrage Opportunity?Suppose that:lThe spot price of oil is US$70lThe quoted 1-year futures price of oil is US$80lThe 1-year US$ interest rate is 5% per annumlThe storage costs of oil are 2% per annumlIs there an arbitrage opportunity?30Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 20102. Oil: Another Arbitrage Opportunity?lSuppose that:lThe spot price of oil is US$70lThe quoted 1-year futures price of oil is US$65lThe 1-year US$ interest rate is 5% per annumlThe storage costs of oil are 2% per annumlIs there an arbitrage opportunity?31Fundamentals of Futures and Options Markets, 7th Ed, Ch 1, Copyright John C. Hull 2010结束结束