国际金融英文课件：Chapter_07 Futures and Options on Foreign Exchange

1、Chapter Objective:This chapter discusses exchange-traded currency futures contracts, options contracts, and options on currency futures.7Chapter SevenFutures and Options on Foreign Exchange7-0Chapter OutlinelFutures Contracts: PreliminarieslCurrency Futures MarketslBasic Currency Futures Relationshi

2、pslEurodollar Interest Rate Futures ContractslOptions Contracts: PreliminarieslCurrency Options MarketslCurrency Futures Options7-1Chapter Outline (continued)lBasic Option Pricing Relationships at ExpirylAmerican Option Pricing RelationshipslEuropean Option Pricing RelationshipslBinomial Option Pric

3、ing ModellEuropean Option Pricing ModellEmpirical Tests of Currency Option Models7-2Futures Contracts: PreliminarieslA futures contract is like a forward contract:lIt specifies that a certain currency will be exchanged for another at a specified time in the future at prices specified today.lA future

4、s contract is different from a forward contract:lFutures are standardized contracts trading on organized exchanges with daily resettlement through a clearinghouse.7-3Exhibit 7.1 differences between futures and forward contractsFutures Contracts: PreliminarieslStandardizing Features:lContract SizelDe

5、livery MonthlDaily resettlementlInitial performance bond (about 2 percent of contract value, cash or T-bills held in a street name at your brokerage).7-5Exhibit 7.2 CME currency futures specificationsDaily Resettlement: An ExamplelConsider a long position in the CME Euro/U.S. Dollar contract.lIt is

6、written on 125,000 and quoted in $ per .lThe strike price is $1.30 the maturity is 3 months.lAt initiation of the contract, the long posts an initial performance bond of $6,500.lThe maintenance performance bond is $4,000.7-7Daily Resettlement: An ExamplelRecall that an investor with a long position

7、gains from increases in the price of the underlying asset.lOur investor has agreed to BUY 125,000 at $1.30 per euro in three months time.lWith a forward contract, at the end of three months, if the euro was worth $1.24, he would lose $7,500 = ($1.24 $1.30) 125,000.lIf instead at maturity the euro wa

8、s worth $1.35, the counterparty to his forward contract would pay him $6,250 = ($1.35 $1.30) 125,000.7-8Daily Resettlement: An ExamplelWith futures, we have daily resettlement of gains and losses rather than one big settlement at maturity.lEvery trading day:lif the price goes down, the long pays the

9、 shortlif the price goes up, the short pays the longlAfter the daily resettlement, each party has a new contract at the new price with one-day-shorter maturity.7-9Performance Bond MoneylEach days losses are subtracted from the investors account.lEach days gains are added to the account.lIn this exam

10、ple, at initiation the long posts an initial performance bond of $6,500.lThe maintenance level is $4,000.lIf this investor loses more than $2,500 he has a decision to make: he can maintain his long position only by adding more fundsif he fails to do so, his position will be closed out with an offset

11、ting short position.7-10Daily Resettlement: An ExamplelOver the first 3 days, the euro strengthens then depreciates in dollar terms:$1,250$1,250$1.31$1.30$1.27$3,750Gain/LossSettle= ($1.31 $1.30)125,000$7,750$6,500$2,750Account Balance= $6,500 + $1,250On third day suppose our investor keeps his long

12、 position open by posting an additional $3,750.+ $3,750 = $6,500 7-11Daily Resettlement: An ExamplelOver the next 2 days, the long keeps losing money and closes out his position at the end of day five.$1,250$1,250$1.31$1.30$1.27$1.26$1.24$3,750$1,250$2,500Gain/LossSettle$7,750$6,500$2,750 + $3,750 =

13、 $6,500 $5,250$2,750Account Balance= $6,500 $1,2507-12Toting Up lAt the end of his adventures, our investor has three ways of computing his gains and losses:lSum of daily gains and losses $7,500 = $1,250 $1,250 $3,750 $1,250 $2,500 lContract size times the difference between initial contract price a

14、nd last settlement price. $7,500 = ($1.24/ $1.30/) 125,000lEnding balance on account minus beginning balance on account, adjusted for deposits or withdrawals. $7,500 = $2,750 ($6,500 + $3,750)7-13Daily Resettlement: An ExampleTotal loss = $7,500$1,250$1,250$1.31$1.30$1.27$1.26$1.24$3,750$1,250$2,500

15、Gain/LossSettle$7,750$6,500$2,750 + $3,750$5,250$2,750Account Balance= $2,750 ($6,500 + $3,750)$1.30$6,500= ($1.24 $1.30) 125,0007-14Key terms in futures contractslDerivativeslExchange-tradedlContract sizelMaturity date; Delivery monthlInitial performance bond; Maintenance performance bondlDaily res

16、ettlement; Marked-to-marketlReversing tradelClearing houselDaily price limitlSpeculator; HedgerCurrency Futures MarketslThe Chicago Mercantile Exchange (CME) is by far the largest. lOthers include:lThe Philadelphia Board of Trade (PBOT)lThe MidAmerica Commodities ExchangelThe Tokyo International Fin

17、ancial Futures ExchangelThe London International Financial Futures Exchange7-16The Chicago Mercantile ExchangelExpiry cycle: March, June, September, December.lDelivery date third Wednesday of delivery month.lLast trading day is the second business day preceding the delivery day.lCME hours 7:20 a.m.

18、to 2:00 p.m. CST.7-17Reading Currency Futures QuotesOPENHIGHLOWSETTLECHGOPEN INTEuro/US Dollar (CME)125,000; $ per 1.47481.48301.47001.4777.0028Mar172,3961.47371.48181.46931.4763.0025Jun2,266Highest price that dayLowest price that dayClosing priceDaily ChangeNumber of open contractsExpiry monthOpeni

19、ng price7-18Basic Currency Futures RelationshipslOpen Interest refers to the number of contracts outstanding for a particular delivery month.lOpen interest is a good proxy for demand for a contract.lSome refer to open interest as the depth of the market. The breadth of the market would be how many d

20、ifferent contracts (expiry month, currency) are outstanding.7-19Reading Currency Futures QuotesNotice that open interest is greatest in the nearby contract, in this case March, 2008. In general, open interest typically decreases with term to maturity of most futures contracts.OPENHIGHLOWSETTLECHGOPE

21、N INTEuro/US Dollar (CME)125,000; $ per 1.47481.48301.47001.4777.0028Mar172,3961.47371.48181.46931.4763.0025Jun2,2667-20Basic Currency Futures RelationshipsThe holder of a long position is committing himself to pay $1.4777 per euro for 125,000a $184,712.50 position.As there are 172,396 such contract

22、s outstanding, this represents a notational principal of over $31.8 billion!OPENHIGHLOWSETTLECHGOPEN INTEuro/US Dollar (CME)125,000; $ per 1.47481.48301.47001.4777.0028Mar172,3961.47371.48181.46931.4763.0025Jun2,2667-21Reading Currency Futures Quotes1 + i1 + i$F($/)S($/)=Recall from chapter 6, our i

23、nterest rate parity condition:OPENHIGHLOWSETTLECHGOPEN INTEuro/US Dollar (CME)125,000; $ per 1.47481.48301.47001.4777.0028Mar172,3961.47371.48181.46931.4763.0025Jun2,2667-22Reading Currency Futures QuotesFrom March to June 2008 we should expect lower interest rates in dollar denominated accounts: if

24、 we find a lower rate in a euro denominated account, we may have found an arbitrage.OPENHIGHLOWSETTLECHGOPEN INTEuro/US Dollar (CME)125,000; $ per 1.47481.48301.47001.4777.0028Mar172,3961.47371.48181.46931.4763.0025Jun2,2667-23Exhibit 7.4 graph of long and short position in C$ futures contractsEurod

25、ollar Interest Rate Futures ContractslWidely used futures contract for hedging short-term U.S. dollar interest rate risk.lThe underlying asset is a hypothetical $1,000,000 90-day Eurodollar depositthe contract is cash settled.lTraded on the CME and the Singapore International Monetary Exchange.lThe

26、contract trades in the March, June, September and December cycle.7-25Reading Eurodollar Futures Quotes Eurodollar futures prices are stated as an index number of three-month LIBOR calculated as F = 100 LIBOR.The closing price for the June contract is 96.56 thus the implied yield is 3.44 percent = 10

27、0 96.56Since it is a 3-month contract one basis point corresponds to a $25 price change: .01 percent of $1 million represents $100 on an annual basis. OPEN HIGHLOW SETTLE CHGOPEN INTYLDCHGEurodollar (CME)1,000,000; pts of 100%96.5696.5896.5596.56-3.44-Jun1,398,9597-26Options Contracts: Preliminaries

28、lAn option gives the holder the right, but not the obligation, to buy or sell a given quantity of an asset in the future, at prices agreed upon today.lCalls vs. PutslCall options gives the holder the right, but not the obligation, to buy a given quantity of some asset at some time in the future, at

29、prices agreed upon today.lPut options gives the holder the right, but not the obligation, to sell a given quantity of some asset at some time in the future, at prices agreed upon today.7-27Options Contracts: PreliminarieslEuropean vs. American optionslEuropean options can only be exercised on the ex

30、piration date.lAmerican options can be exercised at any time up to and including the expiration date.lSince this option to exercise early generally has value, American options are usually worth more than European options, other things equal.7-28Options Contracts: PreliminarieslIn-the-moneylThe exerc

31、ise price is less than the spot price of the underlying asset.lAt-the-moneylThe exercise price is equal to the spot price of the underlying asset.lOut-of-the-moneylThe exercise price is more than the spot price of the underlying asset.7-29Options Contracts: PreliminarieslIntrinsic ValuelThe differen

32、ce between the exercise price of the option and the spot price of the underlying asset.lSpeculative ValuelThe difference between the option premium and the intrinsic value of the option.Option Premium=Intrinsic ValueSpeculative Value+7-30Currency Options MarketslPHLXlHKFEl20-hour trading day.lOTC vo

33、lume is much bigger than exchange volume.lTrading is in six major currencies against the U.S. dollar.7-31PHLX Currency Option SpecificationsCurrencyContract SizeAustralian dollarAD10,000British pound10,000Canadian dollarCAD10,000Euro10,000Japanese yen1,000,000Swiss francSF10,000http:/ 7-32Basic Opti

34、on Pricing Relationships at ExpirylAt expiry, an American call option is worth the same as a European option with the same characteristics.lIf the call is in-the-money, it is worth ST E.lIf the call is out-of-the-money, it is worthless.CaT = CeT = MaxST - E, 07-33Basic Option Pricing Relationships a

35、t ExpirylAt expiry, an American put option is worth the same as a European option with the same characteristics.lIf the put is in-the-money, it is worth E - ST.lIf the put is out-of-the-money, it is worthless.PaT = PeT = MaxE ST, 07-34Basic Option Profit ProfilesESTProfitlossc0E + c0Long 1 callIf th

36、e call is in-the-money, it is worth ST E. If the call is out-of-the-money, it is worthless and the buyer of the call loses his entire investment of c0.In-the-moneyOut-of-the-moneyOwner of the call7-35Basic Option Profit ProfilesESTProfitlossc0E + c0short 1 callIf the call is in-the-money, the writer

37、 loses ST E. If the call is out-of-the-money, the writer keeps the option premium.In-the-moneyOut-of-the-moneySeller of the call7-36Basic Option Profit ProfilesESTProfitloss p0E p0long 1 putE p0If the put is in-the-money, it is worth E ST. The maximum gain is E p0If the put is out-of-the-money, it i

38、s worthless and the buyer of the put loses his entire investment of p0.Out-of-the-moneyIn-the-moneyOwner of the put7-37Basic Option Profit ProfilesESTProfitloss p0E p0short 1 put E + p0If the put is in-the-money, it is worth E ST. The maximum loss is E + p0If the put is out-of-the-money, it is worth

39、less and the seller of the put keeps the option premium of p0.Seller of the put7-38Example$1.50STProfitloss$0.25$1.75Long 1 call on 1 poundlConsider a call option on 31,250. lThe option premium is $0.25 per lThe exercise price is $1.50 per .7-39Example$1.50STProfitloss$7,812.50$1.75Long 1 call on 31

40、,250lConsider a call option on 31,250. lThe option premium is $0.25 per lThe exercise price is $1.50 per .7-40Example$1.50STProfitloss$42,187.50$1.35Long 1 put on 31,250lConsider a put option on 31,250. lThe option premium is $0.15 per lThe exercise price is $1.50 per euro.What is the maximum gain o

41、n this put option?At what exchange rate do you break even?$4,687.50$42,187.50 = 31,250($1.50 $0.15)/$4,687.50 = 31,250($0.15)/7-41American Option Pricing RelationshipslWith an American option, you can do everything that you can do with a European option AND you can exercise prior to expirythis optio

42、n to exercise early has value, thus:CaT CeT = MaxST - E, 0PaT PeT = MaxE - ST, 07-42Market Value, Time Value and Intrinsic Value for an American CallESTProfitlossLong 1 callThe red line shows the payoff at maturity, not profit, of a call option.Note that even an out-of-the-money option has valuetime

43、 value.Intrinsic valueTime valueMarket ValueIn-the-moneyOut-of-the-money7-43European Option Pricing RelationshipsConsider two investments1Buy a European call option on the British pound futures contract. The cash flow today is Ce2Replicate the upside payoff of the call by 1Borrowing the present valu

44、e of the dollar exercise price of the call in the U.S. at i$ E(1 + i$)The cash flow today is 2Lending the present value of ST at iST(1 + i)The cash flow today is 7-44Exhibit 7.10 equation for a European call option lower boundary European Option Pricing RelationshipsWhen the option is in-the-money both strategies h