Derivatives A derivative is an instrument whose value

파생상품(Derivatives) 자신의 가치가 다른 기초자산(들)이나 변수(들) 의 가치에 의하여 정해지는 금융수단. A derivative is an instrument whose value depends on the values of other more basic underlying variables 3

Basic notation ST = 만기시점의 기초자산가격 K = 행사가격(exercise(strike) price) C = call option premium P = put option premium 10

Profit from a Long Forward Position Profit K ST 11

Profit from a Short Forward Position Profit ST K 12

Basic Positions of Options l Long call l Long put l Short call l Short put 13

Profit from option positions Buy a call for C (long call position). 만기 profit = = 14

Profit from option positions (계속) Profit from short call = Profit from long put = Profit from short put = 15

Profit from long call position Profit from buying one e. Bay European call option: option premium = $5, strike price = $100, option life = 2 months 30 Profit 20 10 0 -5 70 80 90 100 110 120 130 ST 16

Profit from short call Profit from writing one e. Bay European call option: option premium = $5, strike price = $100 Profit ($) 5 0 -10 120 130 70 80 90 100 ST -20 -30 17

Profit from long put Profit from buying an IBM European put option: option premium = $7, strike price = $70 30 Profit ($) 20 10 0 -7 40 50 60 70 80 90 100 ST 18

Profit from short put Profit from writing an IBM European put option: option premium = $7, strike price = $70 Profit ($) 7 0 40 50 60 70 80 90 100 ST -10 -20 -30 19

Building blocks of options What is the option position in each case? Profit K ST 20

Payoffs from naked options What is the option position in each case? Payoff K K ST ST 21

Exercise 2 Can you decompose the following financial products into more basic underlying and derivative products? Callable Bond Convertible Bond BW(Bond with Warrants) 23

Types of all futures & options contracts in KRX Stock Commodity Stock index Bond & Interest rate Currency

Underlying Assets l Stock Index – KOSPI 200, Star Index l Stock – individual stocks l Bond – 3, 5, 10 -year Gov’t Bonds l Currency – U$, Yen, Euro l Commodity – Gold, Lean Hog 25

KOSPI 200 Futures Underlying Asset Contract Size Contract Months Trading Hours KOSPI 200 Index times KRW 500, 000 The four consecutive near months from the quarterly cycle (3, 6, 9. 12) 09: 00 ~ 15: 15 (09: 00 ~ 14: 50 on the last trading day) Tick Size & Value 0. 05 point, representing a value of KRW 25, 000 Last Trading Day Second Thursday of the contract month Final Settlement Day The following day of the last trading day Final Settlement Cash Daily Price Limit 10% of the previous closing price Circuit Breakers When the lead month contract hits ± 5% of the previous closing price for 1 minute, and the difference between the current price and theoretical price is ± 3% or more, the trading of all contracts are halted for next five minutes. For the next ten minutes following the cooling-off period, orders are collected and then matched at a single price. Listing date 03 -May-96 26

KOSPI 200 Option Underlying Asset Contract Size Contract Months Trading Hours KOSPI 200 Index KOSPI 200 Option Price times KRW 100, 000 The three consecutive near months from the quarterly cycle (3, 6, 9, 12) + one nearest month 09: 00 ~ 15: 15 (09: 00 ~ 14: 50 on the last trading day) Tick Size & Value 0. 05 point(KRW 5, 000) ≥ 3 of premium, 0. 01 point otherwise Last Trading Day Second Thursday of the contract month Final Settlement Day The following day of the last trading day Final Settlement Cash Daily Price Limit 15% of the previous closing price Exercise Style European Listing date 07 -July-97 27