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 Essay in Futures Contract

FINE-7670 Risk Management and Applications to Energy Organizations

Spring 2014

January 15, 2014

HW#1

PART My spouse and i: Analytical Queries

1 . The cost of gold happens to be $600 every ounce. The forward price for delivery in 12 months is hundreds of dollars. An arbitrageur can take out a loan at 10% per annum. What should the arbitrageur do? Assume that the cost of keeping gold can be zero which gold provides no profits.

2 . About September 12, 2006, an investor owns 75 Intel shares. As suggested in the table below, the share cost is $19. 56 and January put choice with a reach price of $17. 40 costs $0. 475. The investor is usually comparing two alternatives to limit downside risk. The very first is to buy you January put option contract with a strike price of $17. 40. The second consists of instructing a broker to sell the 100 stocks as soon as Intel's price reaches $17. 40. Discuss the advantages and disadvantages from the two tactics.

Strike Price

15. 00

17. 50

20. 00

22. 50

25. 00

Oct Contact

4. 600

2 . three hundred

0. 575

0. 075

0. 025

Jan Call up

4. 950

2 . 775

1 . 175

0. 375

0. a hundred and twenty-five

Apr Call up

5. one hundred and fifty

3. 150

1 . 650

0. 725

0. 275

Oct Place

0. 025

0. 125

0. 875

2 . 950

5. 400.00

Jan Put

0. one hundred and fifty

0. 475

1 . 375

3. 95

5. 400.00

Apr Place

0. 275

0. 725

1 . 700

3. 300

5. 435.00

3. Suppose that in the situation from the table beneath about the location and forward quotes intended for USD/GBP exchange rate, a company treasurer stated: " Let me have £1 million to trade in six months time. If the exchange rate is less than 2 . 02, I want one to give me 2 . 02. When it is greater than installment payments on your 09, Let me accept 2 . 09. In case the exchange charge is among 2 . 02 and installment payments on your 09, Let me sell the sterling pertaining to the exchange rate. ” How could you employ options to satisfy the treasurer?

Spot

1-month forward

3-month forward

6-month forward

Put money

2 . 0558

2 . 0547

2 . 0526

2 . 0483

Offer

2 . 0562

installment payments on your 0552

2 . 0531

2 . 0489

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