Thị trường tài chính và các định chế tài chính_ Chapter 13

Background on Financial Futures A financial futures contract is a standardized agreement to deliver or receive a specified amount of a specified financial instrument at a specified pri

Chapter 13

Financial Futures Markets

Chapter Outline

 Interpreting financial futures tables

 Valuation of financial futures

futures contracts

Chapter Outline (cont’d)

Globalization of futures markets

Background on Financial Futures

 A financial futures contract is a standardized

agreement to deliver or receive a specified amount of a specified financial instrument at a specified price and

date

 The buyer of a futures buys the instrument while the seller

delivers the instrument

 Futures are traded on organized exchanges

 The exchanges clear, settle, and guarantee all transactions

that occur on the exchange

 Futures are regulated by the Commodity Futures

Trading Commissions (CFTC)

 Approves futures contracts and imposes regulations

Background on Financial Futures

(cont’d)

such as T-bills, T-notes, T-bonds, and

Eurodollar CDs

 Settlement dates are in March, June,

September, and December

 Most financial futures are traded on the

Chicago Board of Trade or the Chicago

Mercantile Exchange

Background on Financial Futures

(cont’d)

 Purpose of trading financial futures

 Traded either to speculate on prices of securities or to hedge existing exposure to security price movements

the price of futures contracts over time

 Day traders attempt to capitalize on price movements during a

single day

 Position traders maintain their futures positions for longer

periods of time

movements in interest rates or stock prices

Background on Financial Futures

(cont’d)

 Electronic trading

 The Chicago Mercantile Exchange established

GLOBEX that compliments its floor trading

 Allows for around the clock and weekend trading

 The Chicago Board Options Exchange implemented

a fully electronic futures exchange in 2004

Background on Financial Futures

(cont’d)

 Steps involved in trading futures

 Members of a futures exchange are either:

customers and are often employed by brokerage firms

Background on Financial Futures

(cont’d)

 Steps involved in trading futures (cont’d)

 Customers must establish margin deposits with their brokers

 Initial margin is typically between 5 and 18 percent of a futures’

full value

 A futures contract price is “marked to market” daily

 Customers may receive a margin call if the value moves in an unfavorable direction

 A market order is executed at the prevailing price of the

futures contract

 A limit order is executed only if the price is within the limit

specified

Background on Financial Futures

(cont’d)

 Steps involved in trading futures (cont’d)

 How orders are executed

 Brokerage firms communicate customers’ order to telephone stations located near the trading floor

 Floor brokers accommodate orders

 When two traders on the floor reach an agreement through open outcry, the information is transmitted to the customers

 Floor brokers receive transaction fees in the form of a ask spread

bid- The futures exchange acts as a clearinghouse

Interpreting Financial Futures

Tables

 The Wall Street Journal provides a

comprehensive summary of trading activity on various financial futures contracts

 Example of Treasury bill futures quotations:

  Open High Low Settle Change Settle Change Open Sept 2005 93.80 94.05 93.80 94.05 +.28 5.95 –.28 2,519

Characteristic of

Futures Contract Treasury Bond Futures Treasury Note Futures

Size $100,000 face value $100,000 face value

Deliverable grade Treasury bonds maturing at least 15

years from date of delivery is not callable; coupon rate is 8%

Treasury notes maturing at least 6.5 years but not more than 10 years from the first day of the delivery month; coupon rate is 6%

Price quotation In points ($1,000) and thirty-seconds

of a point In points ($1,000) and thirty-seconds of a point

Minimum price

fluctuation One thirty-second (1/32) of a point, or $31.25 per contract One thirty-second (1/32) of a point, or $31.25 per contract

Daily trading limits Three points ($3,000) per contract

above or below the previous day’s settlement price

Three points ($3,000) per contract above or below the previous day’s settlement price Settlement months March, June, September, December March, June, September,

December

Valuation of Financial Futures

 The price of a financial futures contract generally

reflects the expected price of the underlying security as

of the settlement date

 As the market price of the financial asset changes, so will the value of the contract

 Factors that influence the expected price of the asset influence the futures’ price:

 The current price of the asset

 Economic or market conditions

 Impact of the opportunity cost

 Investors who buy stock index futures instead of the stock

index do not receive any dividends

 Investors who buy stock index futures put up a much smaller investment

Explaining Price Movements of

Bond Futures Contracts

 Participants in the Treasury bond futures market

closely monitor the same economic indicators

monitored by participants in the Treasury bond market:

Speculating with Interest Rate

Futures

 Involves trading T-bill futures

 The position taken depends on interest rate

expectations

 If interest rates are expected to decline, purchase T-bill futures

 If interest rates are expected to increase, sell T-bill futures

 The maximum possible loss when purchasing futures is the amount to be paid for the securities

Speculating with Interest Rate

Speculating on Increasing

Interest Rates

An investor anticipates that interest rates are going to

decrease Consequently, she purchases a T-bill futures

contract for 94.20 in February On the March settlement

date, the T-bill futures contract has a price of 94.70

What is the investor’s nominal profit from this strategy

?

000 ,

5

$ 000

, 942

$ 000

, 947

$ Profit   

Speculating on Decreasing

Interest Rates

An investor anticipates that interest rates are going to

increase Consequently, she sells a T-bill futures

contract for 94.20 in February On the March settlement

date, the T-bill futures contract has a price of 93.50

What is the investor’s nominal profit from this strategy

?

000 ,

7

$ 000

, 935

$ 000

, 942

$ Profit   

Speculating with Interest Rate

Futures (cont’d)

 Impact of leverage

 The return is magnified substantially when

considering the relatively small margin maintained

by many investors

Closing Out the Futures Position

 Rather than making or accepting delivery, most buyers and sellers take offsetting positions to close out the

futures contract

 e.g., speculators who purchased T-bond futures contracts

would sell similar futures contracts by the settlement date

 If the futures price has risen over the holding period, speculators who purchased interest rate futures will realize a positive gain

 Only about 2 percent of all futures contracts actually involve

delivery

Closing Out the Futures Position

A speculator purchased a futures contract on T-bonds at a price of 90–12 Two months later, the speculator sells

the same futures contract in order to close out the

position At that time, the futures contract specifies 93–

14 of the par value as the price What is the nominal

profit from this futures transaction

?

50 062 ,

3

$ 00

375 ,

90

$ 50

437 ,

93

$ Profit   

Hedging with Interest Rate Futures

 The difference between a financial institution’s volume of rate-sensitive assets and rate-

sensitive liabilities represents its exposure to

interest rate risk

 In the long run, the institution could restructure its

assets or liabilities

 In the short run, the institution could use financial

futures to hedge its exposure to interest rate

movements

Hedging with Interest Rate Futures (cont’d)

 Using interest rate futures to create a short

hedge

 If an institution has more rate-sensitive liabilities

than assets, it will be adversely affected by rising

Hedging with Interest Rate Futures (cont’d)

 Using interest rate futures to create a short

hedge (cont’d)

 Tradeoff from using a short hedge

 Interest rate futures can hedge against both adverse and favorable events

 The probability distribution of returns is narrower with hedging than without hedging

 Institutions that frequently use interest rate futures may be able to reduce the variability of their earnings over time

Hedging with Interest Rate Futures (cont’d)

 Using interest rate futures to create a short hedge

(cont’d)

 Cross-hedging is the use of a futures contract on one financial

instrument to hedge a position in a different financial instrument

 The effectiveness depends on the degree of correlation between the market values of the two financial instruments

 e.g., a short position in Treasury bond futures to hedge interest rate risk of a portfolio of corporate bonds

 Even with a high correlation, the value of the futures contract may change by a higher or lower percentage than the portfolio’s market value

Hedging with Interest Rate Futures (cont’d)

 Using interest rate futures to create a long

Hedging with Interest Rate Futures (cont’d)

 Hedging net exposure

 Net exposure reflects the difference between asset

and liability positions

 e.g., a bank has both long-term fixed-rate liabilities and long-term assets

 If interest rates rise, the value of assets will decline, but the bank benefits from the fixed rate of long-term liabilities

Bond Index Futures

 A bond index futures contract allows for the

buying an selling of a bond index for a

specified price at a specified date

 The CBOT offers Municipal Bond Index (MBI)

futures

 Based on the Bond Buyer Index of 40 actively

traded general obligation and revenue bonds

Stock Index Futures

 A stock index futures contract allows for the buying and selling of a stock index for a specified price at a

specified date

 Available for various stock indexes (see next slide)

 Have four settlement dates on the third Friday in March, June, September, and December

 The securities underlying the stock index futures are not

deliverable; settlement occurs through a cash payment

 The net gain or loss is the difference between the futures price when the initial position was created and the value of the

contract on the settlement date

 Some speculators prefer to trade stock index futures rather

than actual stocks because of the smaller transaction costs

Stock Index Futures (cont’d)

Type of Stock Index Futures

Contract Contract Is Valued As:

Mini S&P 500 index $50 times index

S&P Midcap 400 index $500 times index

S&P Small Cap index $200 times index

Mini Nasdaq Composite index $20 times index

Stock Index Futures (cont’d)

 Valuing stock index futures contracts

 The value of a stock index futures contract is highly correlated with the value of the underlying stock index

 The value of a stock index futures contract commonly varies

from the value of the underlying index

 The price of index futures contracts is driven by the underlying asset and the cost of carry (the net financing cost to buy the index)

 In general, the underlying security changes by a much greater degree than the cost of carry, so changes in financial futures prices are primarily attributed to changes in the values of the underlying securities

Stock Index Futures (cont’d)

 Valuing stock index futures contracts (cont’d)

 Indicators monitored by participants in stock index futures

 Participants in the futures market monitor indicators that may signal changes in the stock indexes

 Speculating with stock index futures

 Stock index futures can be traded to capitalize on expectations about stock market movements

 If the market is expected to increase, buy stock index futures

 If the market is expected to decrease, sell stock index futures

Speculating with Stock Index

Futures

Jimmy Dean expects the S&P 500 index to increase in the near future Thus, Jimmy decides to purchase an S&P

500 futures contract with a December settlement date

The current futures price is 1,200 If the futures price

rises to 1,250 by the settlement date, what is Jimmy’s

nominal profit

?

500 ,

12

$ 000

, 300

$ 500

, 312

$ Profit   

Stock Index Futures (cont’d)

 Hedging with stock index futures

 Futures can be used to hedge the market risk of an existing stock portfolio

 Sell stock index futures if the existing portfolio is expected

Stock Index Futures (cont’d)

 Hedging with stock index futures (cont’d)

 Test of suitability of stock index futures

 Usefulness can be assessed by measuring the sensitivity of the portfolio’s performance to market movements

 Determine whether a hypothetical derivative position would have offset adverse market effects on the portfolio’s performance

 Determining the proportion of the portfolio to hedge

 Portfolio managers may be partially exposed in the event the stock price rises

 The higher the proportion of the portfolio that is hedged, the more insulated the manager’s performance is from market conditions

Stock Index Futures (cont’d)

 Dynamic asset allocation with stock index futures

 In dynamic asset allocation, investors switch between risky

and low-risk investment position in response to changing

expectations

 e.g., buy stock index futures if favorable market conditions are expected

 Prices of stock index futures versus stocks

 Prices of index futures and the index can differ to some degree

 Recent studies have found a high degree of correlation

between the stock index futures and the index itself

Stock Index Futures (cont’d)

 Arbitrage with stock index futures

 Program trading in conjunction with the trading of

stock index futures is known as index arbitrage

 Securities firms act as arbitrageurs and attempt to

capitalize on discrepancies between prices of index futures and stocks

 Index arbitrage involves the buying or selling of stock index futures with a simultaneous opposite position in the stocks that the index comprises

 Instigated when futures prices differ significantly from the stock represented by the index

Stock Index Futures (cont’d)

 Circuit breakers on stock index futures

 Circuit breakers are trading restrictions imposed

on specific stocks or stock indexes

 The CME imposes circuit bakers on the S&P 500

futures contract

 Circuit breakers allow investors to determine

whether circulating rumors are true and to work out credit arrangements if they have received a margin call

Single Stock Futures

 A single stock futures contract is an agreement to buy or sell a specified number of shares of a specified stock on a specified future date

 Nominal size of a contract is 100 shares

 Investors can buy or sell futures through their broker

 Settlement dates are on the third Friday of March, June, September, and December for the next 5 quarters, as well as the nearest two months

 Investors can buy single stock futures on margin

 Single stock futures are regulated by the Commodity Futures Trading

Commission (CFTC) and the SEC

 Investors can close out their position at any time by taking the opposite

position

 OneChicago is a joint venture between the CBOE and the CBOT which

serves as another market for trading single stock futures