Category Archives: DERIVATIVES MANAGING FINANCIAL RISK

Derivatives Assignment Help

Derivatives Assignment & Homework Help An instrument whose cost is derived from one or more underlying instruments or assets or is dependent upon another. The derivative is simply an agreement between a couple of parties. Its worth is set by changes in the said asset. The most typical assets include bonds,stocks,  currencies,commodities and indexes. Options and futures are few most used types of derivatives

Pricing Stock Options

Pricing Stock Options Much of what was discussed about index options also applies to stock options. The factors that affect option prices are listed below. The Stock Price The payoff from a call option will be the amount by which the stock prices exceeds the strike price. Call option, therefore, becomes more valuable as the stock price increases and less valuable as the stock prices decreases. Put options, there

Pricing Options

Pricing Options An option buyer has the right but not the obligation to exercise on the seller. The worst that can happen to a buyer is the loss of the premium paid by him. His downside is limited to this premium, but his upside is potentially unlimited. This optionality has a value expressed in terms of the option price. Just lies in other free markets. it is the supply and demand in the secondary market that

Payoff Profile for Buyer of Put Options (Long Put)

Payoff Profile for Buyer of Put Options: Long Put A put option gives the buyer the right to sell the underlying asset at the strike price specified the option. The profit loss that the buyer makes on the option depends on the spot price of the underlying. If upon expiration the spot price is below the strike price, he makes a profit. The lower the spot price, the more is the profit he makes. If the spot price o

Options Payoffs

Options Payoffs A pay off for derivative contracts is the likely profit loss that would accrue to the market participate with change in the price of the underlying asset. The nationality characteristic of option is a non linear payoff for options. In simple words, it means that the losses for the buyer of option are limited. However, the profits are potentially unlimited. For a writer, the pay off exactly the opp

Futures and Options

Futures and Options Options are different from futures in several respects. At a practical level, the option buyer pays of the option in full at the time it is purchased. After this, he only has an upside. There is possibility of the options position generating any further loss to him (other than the funds already paid for the option). In contrast, futures are free to enter into but can generate very large losses

OPTIONS CONTRACTS

OPTIONS CONTRACTS Options are fundamentally different from forward and futures contracts. An option gives the holder of the option the right to do something. The holder does not have to necessarily exercise this right. In contrast; in a forward or futures contract, the two parties have committed themselves to doing something. Whereas it costs nothing (except margin requirements) to enter into a futures contract

Pricing Stock Futures

Pricing Stock Futures A futures contract on a stock gives its owner the right and obligation buy or sell the stocks. Like index futures stock futures are also cash settled; there is no delivery the underlying stocks. Just as in the case of index futures the main difference between can more and stock futures are that: (i) There are no costs of storage involved in holding stock, (ii) Stocks come with a dividend s

Pricing Equity Index Futures

Pricing Equity Index Futures A futures contract on the stock market gives its owner the right and obligation to buy or sell the portfolio of stocks characterized by the index. Stock index futures are cash settled there is no delivery of the underlying stocks. The main differences between commodity and equity index futures are that: (i) There are no costs of storage involved in holding equity and (ii) Equity com

Pricing Futures

Pricing Futures The pricing of futures is illustrated below with reference to (1) The Cost of Carry Model. (2) pricing equity index futures and (3) Pricing stock futures. The Cost of Carry Model The cost of carry model explains the dynamics of pricing that constitute the estimation of the fair value of futures. The fair value calculation of futures is used to decide the no arbitrage limits on the price of a futu