Ebook Fixed income analysis (2/E): Part 2
➤ Gửi thông báo lỗi ⚠️ Báo cáo tài liệu vi phạmNội dung chi tiết: Ebook Fixed income analysis (2/E): Part 2
Ebook Fixed income analysis (2/E): Part 2
CHAPTERINTEREST RATE DERIVATIVE INSTRUMENTSI.INTRODUCTIONIn (his chapter we turn our attention to financial contracts that are popularly referred to a Ebook Fixed income analysis (2/E): Part 2as interest rate derivative instruments because they derive their value from some cash market instrument or reference interest rate. These instruments include futures, forwards, options, swaps, caps, and floors. In this chapter we will discuss the basic features of these instruments and in the next Ebook Fixed income analysis (2/E): Part 2we will sec how the}' are valued.Why would a portfolio manager be motivated to use interest rate derivatives rather than the corresponding cash marketEbook Fixed income analysis (2/E): Part 2
instruments. There arc three principal reasons for doing this when there is a well-developed interest rate derivatives market for a particular cash mCHAPTERINTEREST RATE DERIVATIVE INSTRUMENTSI.INTRODUCTIONIn (his chapter we turn our attention to financial contracts that are popularly referred to a Ebook Fixed income analysis (2/E): Part 2interest rate risk exposure of a portfolio than to make the adjustment in rhe corresponding cash market. Second, portfolio adjustments typically can be accomplished faster in the interest rate derivatives market than in the corresponding cash market. Finally, interest rate derivative may be able to Ebook Fixed income analysis (2/E): Part 2absorb a greater dollar transaction amount without an adverse effect on the price of the derivative instrument compared to the price effect on the casEbook Fixed income analysis (2/E): Part 2
h market instrument; that is, the interest rate derivative may be more liquid than the cash market. To summarize: There are three potential advantagesCHAPTERINTEREST RATE DERIVATIVE INSTRUMENTSI.INTRODUCTIONIn (his chapter we turn our attention to financial contracts that are popularly referred to a Ebook Fixed income analysis (2/E): Part 2es a party to the agreement cither to buy or sell something at a designated future date at a predetermined price. Futures contracts arc products created by exchanges. Futures contracts based on a financial instrument or a financial index arc known as financial futures. Financial futures can be class Ebook Fixed income analysis (2/E): Part 2ified as (1) stock index futures, (2) interest rate futures, and (3) currency futures. Our focus in this chapter is on interest rate futures.A. MechanEbook Fixed income analysis (2/E): Part 2
ics of Futures TradingA futures contract is an agreement between a buyer (seller) and an established exchange or its clearinghouse in which the buyer CHAPTERINTEREST RATE DERIVATIVE INSTRUMENTSI.INTRODUCTIONIn (his chapter we turn our attention to financial contracts that are popularly referred to a Ebook Fixed income analysis (2/E): Part 2ch360Chapter 13 Interest Rate Derivative Instruments361rhe parries agree ro transact in rhe future is called the futures price. The designated date at which the parties must transact is called the settlement date or delivery date.1Liquidating a Position Most financial futures contracts have settleme Ebook Fixed income analysis (2/E): Part 2nt dates in the months of March, June, September, and December. This means that at a predetermined time in the contract settlement month the contractEbook Fixed income analysis (2/E): Part 2
stops trading, and a price is determined by the exchange for settlement of the contract. The contract with the closest settlement date is called the nCHAPTERINTEREST RATE DERIVATIVE INSTRUMENTSI.INTRODUCTIONIn (his chapter we turn our attention to financial contracts that are popularly referred to a Ebook Fixed income analysis (2/E): Part 2rom settlement is called the most distant futures contract.A party to a futures contract has two choices on liquidation of the position. First, the position can be liquidated prior to the settlement date. For this purpose, the part}' must take an offsetting position in the same contract. For the buy Ebook Fixed income analysis (2/E): Part 2er of a futures contract, this means selling the same number of the identical futures contracts; for the seller of a futures contract, this means buyiEbook Fixed income analysis (2/E): Part 2
ng the same number of identical futures contracts.The alternative is to wait until the settlement date. At that time the party' purchasing a futures cCHAPTERINTEREST RATE DERIVATIVE INSTRUMENTSI.INTRODUCTIONIn (his chapter we turn our attention to financial contracts that are popularly referred to a Ebook Fixed income analysis (2/E): Part 2he underlying at the agreed-upon price. For some interest rate futures contracts, settlement is made in cash only. Such contracts are referred to as cash settlement contracts.2The Role of the Clearinghouse Associated with every' futures exchange is a clearinghouse, which performs several functions. Ebook Fixed income analysis (2/E): Part 2One of these functions is to guarantee that the two parties to the transaction will perform.When an investor takes a position in the futures market, tEbook Fixed income analysis (2/E): Part 2
he clearinghouse takes rhe opposite position and agrees to satisfy' the terms set forth in the contract. Because of the clearinghouse, the investor neCHAPTERINTEREST RATE DERIVATIVE INSTRUMENTSI.INTRODUCTIONIn (his chapter we turn our attention to financial contracts that are popularly referred to a Ebook Fixed income analysis (2/E): Part 2the relationship between the two parties ends. The clearinghouse interposes itself as the buyer for every sale and the seller for every purchase. Thus investors arc free to liquidate their positions without involving the other party in the original contract, and without worrying that the other party Ebook Fixed income analysis (2/E): Part 2' may default. This is the reason that we define a futures contract as an agreement between a party and a clearinghouse associated with an exchange. BEbook Fixed income analysis (2/E): Part 2
esides its guarantee function, the clearinghouse makes it simple for parties to a futures contract to unwind their positions prior to the settlement dCHAPTERINTEREST RATE DERIVATIVE INSTRUMENTSI.INTRODUCTIONIn (his chapter we turn our attention to financial contracts that are popularly referred to a Ebook Fixed income analysis (2/E): Part 2fied by the exchange. This amount is called initial margin and is required as deposit for the contract. The initial margin may be in the form of an interest-bearing security' such as a Treasury bill. As the price of the futures contract fluctuates, the value of rhe margin account changes. Marking to Ebook Fixed income analysis (2/E): Part 2 market means effectively replacing the initiation price with a current settlement price. The contract thus has a new settlement price. At rhe end ofEbook Fixed income analysis (2/E): Part 2
each trading day', the exchange determines the current settlement price for the futures contract. This price is used to mark to market the investor’s CHAPTERINTEREST RATE DERIVATIVE INSTRUMENTSI.INTRODUCTIONIn (his chapter we turn our attention to financial contracts that are popularly referred to a Ebook Fixed income analysis (2/E): Part 2tions of how the margin account changes as the futures price changes, see Don M. Chance, Analyiù of Derivarivei for the CFA362Fixed Income AnalysisMaintenance margin is the minimum level (specified by the exchange) to which the margin account may fall IO as a result ol an unfavorable price movement Ebook Fixed income analysis (2/E): Part 2before the investor is required Io deposit additional margin. The additional margin deposited is called variation margin, and it is an amount necessarEbook Fixed income analysis (2/E): Part 2
y to bring the account back to its initial margin level. 1'his amount is determined from the process of marking the position to marker. Unlike initialCHAPTERINTEREST RATE DERIVATIVE INSTRUMENTSI.INTRODUCTIONIn (his chapter we turn our attention to financial contracts that are popularly referred to a Ebook Fixed income analysis (2/E): Part 2arty to a futures contract who is required to deposit variation margin fails to do so within 24 hours, rhe futures position is closed out.Although there arc initial and maintenance margin requirements for buying securities on margin, the concept of margin differs for securities and futures. When sec Ebook Fixed income analysis (2/E): Part 2urities arc acquired on margin, rhe difference between the price of the security and the initial margin is borrowed from the broker. The security purcEbook Fixed income analysis (2/E): Part 2
hased serves as collateral lor the loan, and the investor pays interest. For futures contracts, the initial margin, in effect, serves as “good faith" CHAPTERINTEREST RATE DERIVATIVE INSTRUMENTSI.INTRODUCTIONIn (his chapter we turn our attention to financial contracts that are popularly referred to a Ebook Fixed income analysis (2/E): Part 2t, is an agreement for rhe future delivery of something at a specified price at the end of a designated period of time. Futures contracts arc standardized agreements as to the delivery date (or month) and quality of the deliverable, and arc traded on organized exchanges. A forward contract differs i Ebook Fixed income analysis (2/E): Part 2n that it is usually nonstandardized (that is, the terms of each contract are negotiated individually between buyer and seller), there is no clearinghEbook Fixed income analysis (2/E): Part 2
ouse, and secondary markets are often non-existent or extremely thin. Unlike a futures contract, which is an exchange-traded product, a forward contraCHAPTERINTEREST RATE DERIVATIVE INSTRUMENTSI.INTRODUCTIONIn (his chapter we turn our attention to financial contracts that are popularly referred to a Ebook Fixed income analysis (2/E): Part 2t to interim cash flows as additional margin may be required in the case of adverse price movements, or as cash is withdrawn in the case of favorable price movements. A forward contract may or may not be marked to market, depending on (he wishes of (he lwo parlies. For a forward contract (hat is not Ebook Fixed income analysis (2/E): Part 2 marked to market, there are no interim cash flow effects because no additional margin is required.Finally, (he parties in a forward contract are expoEbook Fixed income analysis (2/E): Part 2
sed Io credit risk tiecause either party may default on its obligation. This risk is called counterparty risk. This risk is minimal in the case of futGọi ngay
Chat zalo
Facebook