Options Futures & Other Derivatives (John Hull) - Ch 1-3
Study online at https://quizlet.com/_34tmlj
1. Forward Contract A customized contract between two parties to buy or sell an asset at a specific price
on a future date
Commonly used to hedge foreign currency risk
2. Difference Be- Forwards:
tween a Forward 1.Can be customized to any commodity, amount and delivery date - not stan-
and a Futures darized
Contact 2. Can occur on a cash or delivery basis
3. Do not trade on a centralized exchange; they are (OTC) instruments -> higher
degree of default risk so not as easily available as future contracts
4. Only settled on settlement date
5. For hedging while futures are for speculating
3. Futures Contract A contractual agreement, generally made on the trading floor of a futures ex-
change, to buy or sell a particular commodity or financial instrument at a pre-de-
termined price in the future
4. Derivative A financial instrument whose value depends on the values of other, more basic
underlying values
5. Variables under- Prices of traded assets
lying derivatives
6. Spot Contract An agreement to buy or sell an asset today
7. Delivery Price Price in the forward contract
8. Forward Price Delivery Price that would apply if the contract was entered at that time
9. Payoff from For- S(t) is the spot price
ward Contracts K is the delivery price
1/6
, Options Futures & Other Derivatives (John Hull) - Ch 1-3
Study online at https://quizlet.com/_34tmlj
Long: S(t)-K
Short: K-S(t)
10. CBOT & CME Chicago Board of Trade & Chicago Mercantile Exchange
Largest exchanges on which future contracts are traded
11. Call Option Gives holder right to buy the underlying asset by a certain date and a certain price
Usually 1 option is the right to buy 100 shares
12. Put option Gives the holder the right to sell the underlying asset by a certain date for a certain
price
Usually 1 option is the right to sell 100 shares
13. Exercise Price or Price in the options contract
Strike Price
14. Expiration date Date in the options contract
or maturity
15. American Op- Exercised at any time up to the expiration date
tions
16. European Op- Exercised only on the expiration date itself
tions
17. Four basic option 1. A long position in a call option
positions 2. A long position in a put option
3. A short position in a call option
4. A short position in a put option
18. Payoff from a max(S(t)-X,0)
long European
2/6
Study online at https://quizlet.com/_34tmlj
1. Forward Contract A customized contract between two parties to buy or sell an asset at a specific price
on a future date
Commonly used to hedge foreign currency risk
2. Difference Be- Forwards:
tween a Forward 1.Can be customized to any commodity, amount and delivery date - not stan-
and a Futures darized
Contact 2. Can occur on a cash or delivery basis
3. Do not trade on a centralized exchange; they are (OTC) instruments -> higher
degree of default risk so not as easily available as future contracts
4. Only settled on settlement date
5. For hedging while futures are for speculating
3. Futures Contract A contractual agreement, generally made on the trading floor of a futures ex-
change, to buy or sell a particular commodity or financial instrument at a pre-de-
termined price in the future
4. Derivative A financial instrument whose value depends on the values of other, more basic
underlying values
5. Variables under- Prices of traded assets
lying derivatives
6. Spot Contract An agreement to buy or sell an asset today
7. Delivery Price Price in the forward contract
8. Forward Price Delivery Price that would apply if the contract was entered at that time
9. Payoff from For- S(t) is the spot price
ward Contracts K is the delivery price
1/6
, Options Futures & Other Derivatives (John Hull) - Ch 1-3
Study online at https://quizlet.com/_34tmlj
Long: S(t)-K
Short: K-S(t)
10. CBOT & CME Chicago Board of Trade & Chicago Mercantile Exchange
Largest exchanges on which future contracts are traded
11. Call Option Gives holder right to buy the underlying asset by a certain date and a certain price
Usually 1 option is the right to buy 100 shares
12. Put option Gives the holder the right to sell the underlying asset by a certain date for a certain
price
Usually 1 option is the right to sell 100 shares
13. Exercise Price or Price in the options contract
Strike Price
14. Expiration date Date in the options contract
or maturity
15. American Op- Exercised at any time up to the expiration date
tions
16. European Op- Exercised only on the expiration date itself
tions
17. Four basic option 1. A long position in a call option
positions 2. A long position in a put option
3. A short position in a call option
4. A short position in a put option
18. Payoff from a max(S(t)-X,0)
long European
2/6