Final Exam Flashcards
Most recent Derivative Security
Credit Derivatives, innovated in the 1990s
Two Fully Electronic Derivative Markets in US
- Eurex
2. CMEs Globex
European Options
Only can be exercised at maturity
American Style Options
May be exercise at any time until maturity
Define Forward Contract
A contract for future payment and delivery.
- Terms determined at initiation
- Negiotiated
- Non Standard
Define Credit Forward
A fwd agreement that hedges against an increase in default risk
Define Forward Rate Agreement
Contract where buyer agrees to pay a specified rate on a loan that will be settled in the future
To enter into a Future Contract
Buyer and seller must pay on inital margin requirment
Margin Call is issued when..
Funds in a margin account fall below the requirement in a Future Contract
Clearing House
Backs buyers and sellers position in a Future Contract
Marked to Market
Means gains or losses on a future contract are realized daily
Day Traders
Liquidate positions by the end of the day
Define Scalpers
Future or Option Exchange Members who take positions for only a few minutes
Buyer of a Call Option Benefits if..
- If stock prices rises
- if volatility of stock price increases
Gain and Loss for Writer of a Put Option
- Limited Gain
- Unlimited Loss
In Bear Markets, What option makes money
Buying a Put
Writing a Call