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Title      : PDF-37 Derivates
Subject      : Financial Management
copyright © 2018   : Karnataka State Open University
Author      : KSOU
Publisher      : Karnataka State Open University
Chapters/Pages      : 20/188
Total Price      : Rs.      : 137
 
 
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Chapters
     
Futures and Forwards Total views (245)  
Derivatives are instruments in respect of which the trading is carried out as a right on an underlying asset. In normal trading, an asset is acquired or sold. When we deal with Derivatives, the asset itself is not traded, but a right to buy or sell the asset, is traded. Thus a derivative instrument does not directly result in a trade but gives a right to a person which may ultimately result in tra ......
Pages: 6
Price: Rs 0   
 
Forward and Futures- A Quick look Total views (246)  
Forwards and Futures constitute the most basic of derivative instruments. They are widely used and are quite intuitive in nature. The pricing and payoff follow a pattern that can be easily understood. A Forward or Futures contract enables one to enter into an agreement to buy or sell a specified quantity of the underlying asset after a specified time at a specified price. In other words, a Forward ......
Pages: 9
Price: Rs 6.75   
 
Hedging With Futures Total views (244)  
Hedges using Forwards and Futures can be long or short. A long hedge is one that goes long the Forwards or Futures (long means buy). This is entered into by those fearing price rises. By buying the Forward, they seek to freeze the price's upper limit. A short hedge is used by those fearing price falls. A short hedge signifies selling of the Forward or Futures. By selling the Forward or Futures th ......
Pages: 10
Price: Rs 7.5   
 
Pricing of Futures and Arbitrage Conditions Total views (245)  
The basic principle of cost of carry and its application in Forward Futures pricing was introduced in an earlier unit. Operators in a stock exchange should be well-versed with principles governing the pricing of Derivatives, to enable them to use these in the right manner. These postulates in pricing are intricately connected to basis risk and other economic imbalances that might be existent. Man ......
Pages: 10
Price: Rs 7.5   
 
Stock Index Futures Total views (237)  
Stock indices are indicators of the market. There are many types of indices. Broadly these can be classified into price-weighted and market-weighted. The market-weighted indices are the more common and generally considered to be less prone to wild fluctuations. The principle behind the construction of a market-priced Index involves first identifying a given portfolio of stocks that have the maximu ......
Pages: 11
Price: Rs 8.25   
 
Types of Options Total views (237)  
Options have also attracted a lot of criticism for their abject misuse by certain operators. The example of Barings disaster is often quoted for establishing the dangers of this instrument. It should be noted that misuse of a good thing by certain elements should not result in the instrument, which is otherwise useful being dismissed as worthless. Necessary regulatory measures will result in great ......
Pages: 7
Price: Rs 5.25   
 
Pay off of Various Options Total views (237)  
Stock exchanges impose margins on sellers of Options for their positions. These margins could be in the nature of Initial Margin, Maintenance Margin and Mark-to-Market margins. As we will soon see, sellers are exposed to considerable risk in the Option segment and sometimes these can result in total disaster. It is, therefore, imperative that the payoff profile is well understood before a trader e ......
Pages: 11
Price: Rs 8.25   
 
Special Application of Options Total views (238)  
Option positions can be naked or covered. Naked positions are speculative in nature and do not conform to any analytical theory. We are therefore concerned basically with covered positions and combinations, which can stem out of a strategy. The two most common strategies followed by dealers in Options are the Covered Call Strategy and the Protective Put Strategy.
Pages: 12
Price: Rs 9   
 
Options Bounds -Calls Total views (237)  
Arbitrage can be performed by any player in the market and with the force of more and more dealers doing it; prices will stabilize to the correct levels. Options pricing consists of two elements - intrinsic value and time value. Intrinsic value refers to the extent to which the Option is "in the money", and factors in interim dividends. The time value refers to the time available with the buyer ......
Pages: 7
Price: Rs 5.25   
 
Options Bounds- Puts Total views (237)  
We seek to do separate analysis in respect of puts and determine the no-arbitrage maximum and minimum prices. We also then look at the principles governing the determination of bounds of American put prices. It is worthwhile reiterating that Options pricing consists of two elements- intrinsic value and time value. Intrinsic value refers to the extent to which the Option is "in the money", and fac ......
Pages: 7
Price: Rs 5.25   
 
Option Combinations Total views (237)  
The advent of Options has resulted in a number of possibilities for mimicking and creating synthetic portfolios. The pay off profile of Options in combination creates situations very much useful for certain specific trading requirements. Speculators use these combinations for short-term gains. Each of the combinations listed below have various profiles of profitability and risk. They come at a cos ......
Pages: 16
Price: Rs 12   
 
Principles of Option Pricing-Put Call Parity Total views (237)  
The pricing of Options follows certain principles. These principles are based upon no-arbitrage conditions. If disparities exist in prices alert dealers will buy and sell in the market in such a way that they reap risk-free profits. As more and more dealers exploit the disequilibrium, the prices adjust to their correct levels. Several principles have been laid down in this unit based upon these n ......
Pages: 10
Price: Rs 7.5   
 
The Binomial Model for Pricing of Options Total views (237)  
The impact of the stock price on the pricing has also been seen. We have set upper and lower bounds of option prices. Now we have to attempt to pinpoint a price which should be appropriate for an option given the time to maturity, strike price and stock price. For the purpose the Binomial model has been found to be an intuitive explanation of the pricing of Options. While the assumptions of the B ......
Pages: 8
Price: Rs 6   
 
The Black -Scholes Model Total views (237)  
The Black Scholes model is a Nobel-prize winning attempt to define option prices. As we have seen the Binomial approach gives us fair indication of option prices subject to certain conditions. A different approach has been used in formulating the Black Scholes model. The model uses ideas from other sciences in determining the value of the Option. First, share prices have been known to follow the ......
Pages: 9
Price: Rs 6.75   
 
Volatility and Implied Volatility from the Black-Scholes Model Total views (237)  
Among the several inputs into the Black Scholes model volatility is the most crucial. This refers to the extent to which the stock price can change during the tenure of the contract. An option carries greater inherent value with greater volatility. Estimation of volatility is a controversial subject. If volatility is based upon historical data, the implicit assumption is that the future will behav ......
Pages: 7
Price: Rs 5.25   
 
Introduction to Options Greeks and Basic Delta Hedging Total views (239)  
Black Scholes model is an elegant exposition of the determination of option prices. Five specific inputs are required for getting the option price out of the mode!. These are the.stock price, the strike price, the tenure, risk free rate of return and volatile return. The impact of changes in call prices on account of changes in these inputs are determined by Option Greeks. Market analysts and tra ......
Pages: 8
Price: Rs 6   
 
Public- Private Partnerships (PPPs) Total views (237)  
The Fixed Income securities market uses the concept of yield-to-maturity to determine return. The yield-to-maturity (YTM) is the internal rate of rerum of the bond cash flow. The initial price paid for the bond, the periodic coupons and the end price on redemption constitute the bond flows. The market is never able to predict the movement of YTMs across various maturities and across different cre ......
Pages: 11
Price: Rs 8.25   
 
Swaps Total views (239)  
Companies are committed to certain specific liabilities in their everyday management. Occasionally, they. seek to come out of certain risky obligations by exchanging these with others who have a mirror-image requirement. The reasons for this "cleaning -up" could vary from Company to Company. Many reasons exist like seeking to reduce the overall risk exposure, wanting to shift the exposure to a ne ......
Pages: 10
Price: Rs 7.5   
 
Credit Derivatives Total views (237)  
In recent years, banking literature in India has been concentrating on Operational Risk of Banks and the impact of the Basel II norms. While there can be no doubt that this is a crucial feature of Bank management, the development of Credit Derivatives which is becoming increasingly popular abroad does not seem to have captured the imagination of the Indian Banker to a great extent. This paper seek ......
Pages: 8
Price: Rs 6   
 
Risk Management with Derivatives Total views (238)  
Derivatives have a great deal of use in Risk Management. A judicial use of Derivatives in the right proportion enables a Corporate manger to optimize his risk-return matrix. Basic hedging has already been discussed at the appropriate places in earlier Chapters. Here we look at some sophisticated use of Option Greeks to manage risk better. One inherent assumption under most of the models given bel ......
Pages: 11
Price: Rs 8.25   
 


 
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