Derivatives： a financial instrument (contract), performance, underlying asset
Type of Derivatives
1.Forward commitment & Contingent claim: Forward commitment (forward, futures and swap contracts); Contingent claim (option contracts)
2. Exchange-traded & Over-the-counter traded: Exchange-traded：（A-> Clearinghouse -> B）; OTC traded：（A->B）
Contingent claim:
Long：指获得一个权利; Short：指卖出一个权利; Call：指买入标的物的权利; Put：指卖出标的物的权利
Forward contract: private agreement, set price and future date;
Futures contract： agreement,specific quantity of an underlying asset, at a set price, at a future date
Standardization: quality and quantity, delivery time and the manner
Clearinghouse: Each exchange has a clearing house, counterparty, counterparty default risk, reverse positions
Futures contract: Margin; Daily Price Limit; Marking to market.
Swap Contracts: series of cash flows on periodic settlement dates
Three types of swap contracts- Interest Rate Swaps : Counterparties, Pay-fixed side, Pay-floating side
Option: An option gives its owner the right, but not the obligation, to buy or sell an underlying asset on or before a future date (the expiration date) at a predetermined price (the exercise price or strike price)
Moneyness: In the money, At the money, Out of the money
Intrinsic Value:
Intrinsic value of call option: C=max[0, S-X]
Intrinsic value of put option: P=max[0, X-S]
Time Value
Option value=intrinsic value + time value
The contract value is zero to both parties at initiation.
Replication: replicate the payoffs on one asset or portfolio with those of a different asset or portfolio
.Forward Price = price that would not permit profitable riskless arbitrage in frictionless markets
FP=S0＋Carrying Costs－Carrying Benefits
Valuation of a forward contract: at some time during the life of the contract
The value of a futures contract is zero at contract inception.
V (long) = current futures price − futures price at the last mark-to-market time
A swap contract: interest rate swaps, currency swaps and equity swaps.
Equivalence of swaps to bonds: issuing a fixed-rate bond and using the proceeds to buy a floating-rate bond.
A Bond : Bondholder/lender, Maturity date,Term to maturity(tenor), Par value/face value/ maturity value/principal/redemption value, Coupon rate, Payments currency
Trust deed: legal contract that describes the form of the bond, the obligations of the issuer, and the rights of the bondholders.
Other legal and regulatory issue addressed in a trust deed include: Legal information, Any assets (collateral), Any additional features that increase the probability of repayment (credit enhancements), Covenants, Tax
Principal repayment structures:Plain vanilla bond/bullet bonds, Amortizing loan, Coupon payment structures, Floating-Rate Notes (FRN), Deferred coupon bonds/split coupon bond, Zero-coupon bonds, Step-up coupon bonds
Global Fixed-Income Markets: Government and government-related sector, Corporate sector, Securitized sector
Primary market:
Public offering: Underwritten offering:, Best efforts offering, Auction, Shelf registration
Private placement
Secondary markets
Exchange market, OTC Dealer Market (largest) , Electronic Trading Network (growth)
Trade settlement
Sovereign bonds: national governments, free of default risk
Agency/quasi-government bonds
Bond Valuation Process:
Yield to Maturity (YTM)
Mac D: 以折现现金流为权重的现金流回流的平均时间
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