Summary

Derivatives Summary (BS3385) (Grade: 75%)

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Module
Derivatives (BS3385)

Institution
Aston University, Birmingham (Aston)

The course Derivatives at Aston University is an important course for students studying finance, economics, and related fields. This course provides students with a detailed understanding of derivatives, their uses, and the associated risks. The summary of this course begins with an introduction...

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Uploaded on February 19, 2023
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Written in 2022/2023
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Notes

Topic 1: Futures markets and trading
Visualisation :

Short F orward Contract :
P rofit(Loss) = #shares ∗ (contract price − share price)
Share price is at expiration.

Example : 340 shares ∗ ($3, 375 − $3, 280) = +$32, 300
Long F orward Contract :
P rofit(Loss) = #shares ∗ (share price − contract price)

Notes 1

, Share price is at expiration.

Example : 12, 000 barrels ∗ ($67 − $24) = +$372, 000
Margin Call :
Happens if the Margin Account falls below Maintenance margin
Cashflow in margin account (for each contract):

P rofit(Loss) = #contracts ∗ (share price −
contract price) = (Initial margin −
maintenance margin)
Solve for share price.

Example : 15, 000 pounds ∗ (Ft − $1.6) = −$1, 500 →
Ft = $1.5
Withdrawal of $X for Y contracts:

P rofit(Loss) = #contracts ∗ (share price −
contract price) = X
Y
Solve for share price.

Topic 2: Futures Pricing and Hedging
F orward P rice : F = (S − I) ∗ e(r−q)T
S : Current P rice
r : Riskfree Compounded Interest Rate
q : Dividend Yield on Stock Index
X
T = time in years = 12
I = P resent Value of all relevant dividend payments
P resent Value of all relevant dividend payments : I = ∑ vi ∗
−rT
e
v = value of dividend i
P erfect Hedge : Uncertainty about performance of investment is
completely eliminated.

Notes 2

, Imperfect Hedge : Hedging error can be either positive or negative,
which makes is possible for the Imperfec to have a better outcome.

Imperfect Hedge still has some price risk.

Topic 3: Options Markets and Trading

Topic 4: Principles of Options Pricing
Shortcuts :

Notes 3

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