金融工程讲义1

D. M. Chance
An Introduction to Derivatives and Risk Management, 6th ed.
Ch. 1: 3
Derivative Markets and Instruments


Spot market and derivative Options Definition: a contract between two parties that gives one party, the buyer, the right to buy or sell something from or to the other party, the seller, at a later date at a price agreed upon today Option terminology price/premium call/put exchange-listed vs. over-the-counter options
D. M. Chance
An Introduction to Derivatives and Risk Management, 6th ed.
Ch. 1: 5
Derivative Markets and Instruments (continued)

Futures Contracts Definition: a contract between two parties for one party to buy something from the other at a later date at a price agreed upon today; subject to a daily settlement of gains and losses and guaranteed against the risk that either party might default Exclusively traded on a futures exchange
D. M. Chance
An Introduction to Derivatives and Risk Management, 6th ed.
Ch. 1: 9
Some Important Concepts in Financial and Derivative Markets (continued)
D. M. Chance
An Introduction to Derivatives and Risk Management, 6th ed.
Ch. 1: 11
The Role of Derivative Markets



Risk Management Hedging vs. speculation Setting risk to an acceptable level Price Discovery Operational Advantages Transaction costs Liquidity Ease of short selling Market efficiency

Summary
D. M. Chance An Introduction to Derivatives and Risk Management, 6th ed. Ch. 1: 15
(Return to text slide)
D. M. Chance An Introduction to Derivatives and Risk Management, 6th ed. Ch. 1: 16
An Introduction to Derivatives and Risk Management, 6th ed. Ch. 1: 8
D. M. Chance
Some Important Concepts in Financial and Derivative Markets


Risk Preference Risk aversion vs. risk neutrality Risk premium Short Selling Return and Risk Risk defined The Risk-Return tradeoff (see Figure 1.1, p. 7)
Ch. 1: 10
Fundamental Linkages Between Spot and Derivative Markets


Arbitrage and the Law of One Price Arbitrage defined Example: See Figure 1.2, p. 10 The concept of states of the world The Law of One Price The Storage Mechanism: Spreading Consumption across Time Delivery and Settlement
Ch. 1: 14
Derivatives and Your Career

Financial management in a business Small businesses ownership Investment management Public service
Source of Information on Derivatives
D. M. Chance
An Introduction to Derivatives and Risk Management, 6th ed.
Ch. 1: 7
Derivative Markets and Instruments (continued)


Swaps and Other Derivatives Definition of a swap: a contract in which two parties agree to exchange a series of cash flows Exclusively over-the-counter Other types of derivatives include swaptions and hybrids. Their creation is a process called financial engineering. The Underlying Asset Called the underlying A derivative derives its value from the underlying.
Ch. 1: 1
Important Concepts in Chapter 1



Business risk vs. financial risk Derivatives: deal with risk Risk preferences, risk-return tradeoff, and market efficiency Theoretical fair value Arbitrage, storage, and delivery The role of derivative markets Criticisms of derivatives
(Return to text slide)
D. M. Chance An Introduction to Derivatives and Risk Management, 6th ed. Ch. 1: 17
D. M. Chance
An Introduction to Derivatives and Risk Management, 6th ed.
Ch. 1: 4
Derivative Markets and Instruments (continued)

Forward Contracts Definition: a contract between two parties for one party to buy something from the other at a later date at a price agreed upon today Exclusively over-the-counter

Market Efficiency and Theoretical Fair Value Definition of an efficient market The concept of theoretical fair value
D. M. Chance
An Introduction to Derivatives and Risk Management, 6th ed.
D. M. Chance
An Introduction to Derivatives and Risk Management, 6th ed.
Ch. 1: 13
Misuses of Derivatives

High leverage Inappropriate use
D. M. Chance
An Introduction to Derivatives and Risk Management, 6th ed.
D. M. Chance
An Introduction to Derivatives and Risk Managem 12
Criticisms of Derivative Markets

Speculation Comparison to gambling
D. M. Chance
An Introduction to Derivatives and Risk Management, 6th ed.