Derivatives

631 views
587 views

Published on

Presentation on Derivatives market

0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
631
On SlideShare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
46
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide
  • a
  • a
  • Derivatives

    1. 1. 2nd topic
    2. 2. DERIVATIVE MKT  Instrument which derives its value from some underlying assets. These underlying assets could be equities, debt,, currencies and even indices  Spot market is a securities market in which security are sold for cash and delivered immediately
    3. 3. INDEX  Barometer to check the movement of stock  Is a basket of identified stock and its value is computed by taking the weighted average of the price of the constituent stock of index
    4. 4. FORWARDS  It is contract between 2 parties to buy or sell an asset at a certain future date Expiry for certain price that is pre decided on the date of contract  Important conditions in fwd contract: Time of delivery Qty/volume of underlying assets Fwd price
    5. 5. SETTLEMENT OF CONTRACT  Physical settlement Spot price > than fwd price Spot price < fwd price Spot price = fwd price  Cash settlement No delivery of goods only margin involved
    6. 6. FUTURES  Similar to fwd contracts  Agreement between 2 parties  Buyer agrees to buy an asset from seller on future date @ a predetermined price. However, futures contract is not a private contract since it gets traded on a recognized Exchange  All terms except price are decided by exchange
    7. 7. ROLE OF CLEARING CORPORATION  Futures contract are through recognized stock exchange both buyer and seller are protected against counterparty risk by an entity called CC  If any of the party defaults cc comes in to picture to fulfill the obligation thereby protecting them from counterparty risk
    8. 8. MARGIN MONEY to be able to guarantee the fulfillment of the obligations under the contract, the cc holds an amount as a security from both the parties  Initial margin Money deposited by both the buyer and seller to assure the trade
    9. 9. MONEYNESS OF THE OPTION Call (buy) mkt movement upwards Put (sell) mkt movement downwards In the money Mkt price> strike price Mkt price< strike price At the money Mkt price= strike price Mkt price= strike price Out of the money Mkt price<strike price Mkt price>strike price
    10. 10. INTRINSIC VALUE  Price difference between underlying security and the strike price Time value • Price of the option exceeds its intrincic value. Time value premium of an option declines as the expiration date approaches. Option pricing • IV+TV= OP
    11. 11. FACTOR INFLUENCING PRICE OF AN OPTION  UNDERLYING STOCK  STRIKE PRICE OF THE OPTION ITSELF  TIME REMAINING UNTIL THE OPTION EXPIRES  VOLATILITY OF UNDERLYING STOCKS
    12. 12. BLACK SHOLES OPTION PRICING MODEL  FIRST OPTION PRICING MODEL  SIMILAR TO EUROPEAN STYLE  MODIFIED TO AMERICAN STYLE  MODEL FOR PRICING OPTIONS BEFORE OPTION WERE TRADED  PREMIUM  SPECULATIVE AND RISKY  OPTION SELLER IS OPTION WRITER (GAIN IS LTD AND LOSS IS UNLTD)  OPTION BUYER LOSS IS LTD TO PREMIUM & GAIN IS UNLTD CHARACTERISTICS OF OPTION
    13. 13. MOTIVES OF DERIVATIVES  HEDGING  SPECULATORS  ARBITRAGE – RISK FREE SPECULATION
    14. 14. FEATURES OF DERIVATIVES  UNDERLYING ASSETS  DELIVERY  SPECULATIVE  SETTLEMENT (COMPULSORILY SETTLED)
    15. 15. TRADING PROCESS  BUYER PURCHASE ORDER BROKE R SELLER EXCHANGE SETTLEMENT AND PAYMENT SETTLEMENT AND PAYMENT TRANSACTION THROUGH TRADING SOFTWARE BROKE R SALES ORDER EXCHAN GE
    16. 16. UNDERLYING ASSETS OF DERIVATIVES  COMMODITY  STOCK  CURRENCY  INTEREST RATES  BARTER  COMMODITY SWAPS ARE RARE  CURRENCY SWAPS (xchange currencies at future date)  INTEREST RATE SWAPS SWAP
    17. 17. FEATURES OF SWAP  NEGOTIATED CONTRACTS  INTERMEDIARY  COMBINATION OF FORWARD CONTRACTS  SETTLEMENT
    18. 18. ADVANTAGES OF DERIVATIVES  RISK MITIGATION  REARRANGEMENT OF RISK  EASE IN TRADING  INVESTMENT  MONEY FLOWS  EQULIBRIUM
    19. 19. DISADVANTAGE OF DERIVATIVES  RISK SPECULATION  MARKET MOVEMENTS  HOT MONEY  TIMED SETTLEMENT  ACCOUNTING AMBIGUITIES
    20. 20. DERIVATIVE MARKET WORLD WIDE  EUREX- F&O XCHANGE  CHOICE FOR TRADING AND CLEARING OF DERIVATIVES  OFFERS OPEN,SIMPLE DEMOCRATIC AND COST EFFECTIVE ACCES FROM ANY PT OF THE GLOBE  700 LOCATIONS
    21. 21. NASDAQ Largest US electronic change 3200 companies listed Derivatives in India 1875 mumbai-1st commodity xchange CC -1918 Oilseeds future mkt 1900 then wheat then rawjutes so on… India original home for options-1898
    22. 22.  NCDEX -2003 55 COMMODITIES  MCX-7000 CR  NABARD,NSE,BANKS,INSURANCE COMPANIES ETC..  BSE AND NSE  Stock market futures and index futures

    ×