Bài giảng Essentials of Investments - Chapter 17 Futures Markets and Risk Management

INVESTMENTS | BODIE, KANE, MARCUS Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin CHAPTER 17 Futures Markets and Risk Management INVESTMENTS | BODIE, KANE, MARCUS 19-2 • Forward – a deferred-delivery sale of an asset with the sales price agreed on now. • Futures - similar to forward but feature formalized and standardized contracts. • Key difference in futures – Standardized contracts create liquidity – Marked to market – Exchange mitigates credit risk Futures and Forwards INVESTMENTS | BODIE, KANE, MARCUS 19-3 • A futures contract is the obligation to make or take delivery of the underlying asset at a predetermined price. • Futures price – the price for the underlying asset is determined today, but settlement is on a future date. • The futures contract specifies the quantity and quality of the underlying asset and how it will be delivered. Basics of Futures Contracts INVESTMENTS | BODIE, KANE, MARCUS 19-4 Basics of Futures Contracts • Long – a commitment to purchase the commodity on the delivery date. • Short – a commitment to sell the commodity on the delivery date. • Futures are traded on margin. • At the time the contract is entered into, no money changes hands. INVESTMENTS | BODIE, KANE, MARCUS 19-5 Basics of Futures Contracts • Profit to long = Spot price at maturity - Original futures price • Profit to short = Original futures price - Spot price at maturity • The futures contract is a zero-sum game, which means gains and losses net out to zero. INVESTMENTS | BODIE, KANE, MARCUS 19-6 Figure 19.2 Profits to Buyers and Sellers of Futures and Option Contracts INVESTMENTS | BODIE, KANE, MARCUS 19-7 Figure 19.2 Conclusions • Profit is zero when the ultimate spot price, PT equals the initial futures price, F0 . • Unlike a call option, the payoff to the long position can be negative because the futures trader cannot walk away from the contract if it is not profitable. INVESTMENTS | BODIE, KANE, MARCUS 19-8 Existing Contracts • Futures contracts are traded on a wide variety of assets in four main categories: 1. Agricultural commodities 2. Metals and minerals 3. Foreign currencies 4. Financial futures INVESTMENTS | BODIE, KANE, MARCUS 19-9 Trading Mechanics • Electronic trading has mostly displaced floor trading. • CBOT and CME merged in 2007 to form CME Group. • The exchange acts as a clearing house and counterparty to both sides of the trade. • The net position of the clearing house is zero. INVESTMENTS | BODIE, KANE, MARCUS 19-10 • Open interest is the number of contracts outstanding. • If you are currently long, you simply instruct your broker to enter the short side of a contract to close out your position. • Most futures contracts are closed out by reversing trades. • Only 1-3% of contracts result in actual delivery of the underlying commodity. Trading Mechanics INVESTMENTS | BODIE, KANE, MARCUS 19-11 Figure 19.3 Trading without a Clearinghouse; Trading with a Clearinghouse INVESTMENTS | BODIE, KANE, MARCUS 19-12 • Marking to Market - each day the profits or losses from the new futures price are paid over or subtracted from the account • Convergence of Price - as maturity approaches the spot and futures price converge Margin and Marking to Market INVESTMENTS | BODIE, KANE, MARCUS 19-13 • Initial Margin - funds or interest-earning securities deposited to provide capital to absorb losses • Maintenance margin - an established value below which a trader’s margin may not fall • Margin call - when the maintenance margin is reached, broker will ask for additional margin funds Margin and Trading Arrangements INVESTMENTS | BODIE, KANE, MARCUS 19-14 Trading Strategies Speculators • seek to profit from price movement – short - believe price will fall – long - believe price will rise Hedgers • seek protection from price movement – long hedge - protecting against a rise in purchase price – short hedge - protecting against a fall in selling price INVESTMENTS | BODIE, KANE, MARCUS 19-15 • Basis - the difference between the futures price and the spot price, FT – PT • The convergence property says FT – PT= 0 at maturity. Basis and Basis Risk INVESTMENTS | BODIE, KANE, MARCUS 19-16 • Before maturity, FT may differ substantially from the current spot price. • Basis Risk - variability in the basis means that gains and losses on the contract and the asset may not perfectly offset if liquidated before maturity. Basis and Basis Risk INVESTMENTS | BODIE, KANE, MARCUS 19-17 Spot-futures parity theorem - two ways to acquire an asset for some date in the future: 1. Purchase it now and store it 2. Take a long position in futures •These two strategies must have the same market determined costs Futures Pricing INVESTMENTS | BODIE, KANE, MARCUS 19-18 Spot-Futures Parity Theorem • With a perfect hedge, the futures payoff is certain -- there is no risk. • A perfect hedge should earn the riskless rate of return. • This relationship can be used to develop the futures pricing relationship. INVESTMENTS | BODIE, KANE, MARCUS 19-19 Hedge Example: Section 19.4 • Investor holds $1000 in a mutual fund indexed to the S&P 500. • Assume dividends of $20 will be paid on the index fund at the end of the year. • A futures contract with delivery in one year is available for $1,010. • The investor hedges by selling or shorting one contract . INVESTMENTS | BODIE, KANE, MARCUS 19-20 Hedge Example Outcomes Value of ST 990 1,010 1,030 Payoff on Short (1,010 - ST) 20 0 -20 Dividend Income 20 20 20 Total 1,030 1,030 1,030 INVESTMENTS | BODIE, KANE, MARCUS 19-21 Rate of Return for the Hedge %3 000,1 000,1)20010,1( )( 0 00     S SDF INVESTMENTS | BODIE, KANE, MARCUS 19-22 The Spot-Futures Parity Theorem fr S SDF   0 00 )( Rearranging terms 0 000 )1()1( S Dd drSDrSF ff   INVESTMENTS | BODIE, KANE, MARCUS 19-23 Arbitrage Possibilities • If spot-futures parity is not observed, then arbitrage is possible. • If the futures price is too high, short the futures and acquire the stock by borrowing the money at the risk free rate. • If the futures price is too low, go long futures, short the stock and invest the proceeds at the risk free rate. INVESTMENTS | BODIE, KANE, MARCUS 19-24 Spread Pricing: Parity for Spreads 1 2 12 01 02 )( 2 1 (1 )( ) (1 )( ) (1 )( ) ( ) T f T f T T f r dF ST r dF ST r dF FT T        INVESTMENTS | BODIE, KANE, MARCUS 19-25 Spreads • If the risk-free rate is greater than the dividend yield (rf > d), then the futures price will be higher on longer maturity contracts. • If rf < d, longer maturity futures prices will be lower. • For futures contracts on commodities that pay no dividend, d=0, F must increase as time to maturity increases. INVESTMENTS | BODIE, KANE, MARCUS 19-26 Figure 19.6 Gold Futures Prices INVESTMENTS | BODIE, KANE, MARCUS 19-27 Futures Prices vs. Expected Spot Prices • Expectations • Normal Backwardation • Contango • Modern Portfolio Theory INVESTMENTS | BODIE, KANE, MARCUS 19-28 Figure 19.7 Futures Price Over Time, Special Case