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A short course of lectures
«Derivative Markets»

Spot financial markets Pricing of futures (fair value versus trading price)Clearing houseTerminologyInterest ratesForeign exchange marketFair value pricing of specific futuresCash settlement versus physical settlementOther derivativesOrganisational structure of futures marketsMarket efficiencyCarbon credit derivativesWeather derivativesMathematics of the repurchase agreement marketStrangleHedging with currency futuresInterest rate swapsOptions on specific equitiesDelta hedgingLearning outcomesFloorsStandardised contract between two partiesLearning outcomesFutures trading price versus spot priceDefinitionsExample twoOption specificationsForwards on derivativesExample: OTC marketOptions on specific bondsContextVariations on the themeAssetOptions on foreign exchange (wholesale)The GreeksEquity / share swaps Equity / share warrants (retail options)Convertible bondsListed swapsCredit derivatives Individual bond futuresOptions on derivatives: futuresExample of credit default swapCallable and puttable bonds (bonds with embedded options)Exotic optionsOptions on foreign exchange (retail: warrants)SpeculatorsBibliographyForeign exchange swapsEconomic significance of futures marketsLearning outcomesThe derivative marketsHedging with share index futuresVariations on the themeForwards in the foreign exchange market Public welfareOptions on specific money market instrumentsEquity / share index futuresExpiry dateOptions on bond indicesTime optionsOrganisational structure of swap marketPrice discoveryIndividual equity / share futuresThe financial system in briefForward market: definitionExample of equity / share swapVariations on the themeLearning outcomesExample oneHedging basics and jargonOption strategiesBibliographyOptions on commoditiesOptions on equity / share market instrumentsCurrency futuresMargining and marking to marketRisk management by a futures exchangeCommodity swapsOrganisational structure of forward marketsSpot (current) price of underlying asset and exercise priceInstitutions involved in the repo marketVolatilityCoupon swap: transforming an assetBuyer and sellerForward rate agreements The modelBinomial modelDefinitionNew product developmentExampleStandardised qualityOutputStandardised quantityListed repurchase agreementsEquity / share warrants (call options)Options on debt market instrumentsAn examplePriceComparative advantage currency swapBasis tradingMotivation for interest rate swapsRisk free rateArbitrageursThe basics of options Bond warrants (retail options)Futures definedOptions on derivatives: swapsTime to expirationUltimate lenders and borrowersOptions on foreign exchange CapsRedeemable preference sharesBibliographyCommodity futuresLearning outcomesAllocation of resourcesClosing remarksOrganisational structure of option marketsCurrency swaps BibliographyHedging with futuresSecurities that underlie reposExampleFinancial intermediariesForwards in the debt marketsParticipants in the futures marketHedging using the 3-month JIBAR futureForwards in the share / equity marketShort-term interest rate futuresDebt marketSpot market: definitionSpread tradingSecuritisationFreight (or shipping) derivativesShare / equity marketDescriptionMarket priceLearning outcomesEnergy derivativesForward-forwardsSimple currency swapInvestorsPricingDerivative markets: futuresIntrinsic valueBasisCall option: buy (long call) at expiryDerivative markets: optionsMotivation for reposDerivative markets: swapsPrimary and secondary marketsBond warrants (call options)BibliographyTypes of repurchase agreementsDeliveryBlack-Scholes modelBibliographyCapital formationDefinitionTime valueOther modelsPayoff profiles CompetitionPayoff with futures (risk profile)Example of black-scholes option pricingPut option: buy (long put) at expiryFinancial instrumentsRepurchase agreements Futures on other derivativesForward interest rate contracts Options on equity / share indicesHedgersCoupon swap: transforming a liabilityPut option: sell (write) (short put) at expiryOther futuresDerivative markets: forwardsTypes of futures contractsRepos and the banking sectorDividendsFutures market contractsCoupon swap: comparative advantageCaps and floors An exampleOutright forwards Forward marketsCall option: sell (write) (short call) at expiryOption valuation/pricingForwards in the commodities marketIntrinsic value and time valueOpen interestFunctions/uses of the forward foreign exchange marketMarket liquidityStraddle
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