利率掉期(IRS-Interest Rate Swap)

Specification of Futures Contract
When developing a new contract, the exchange must specify in detail the exact nature of the agreement between the two parties.
Forward vs Futures Prices
Forward and futures prices are usually assumed to be the same. Therefore, we may use forward price as a good approximation to price futures. When interest rates are uncertain, in theory, these two prices are slightly different:
Hedging Strategies in Futures
Many of the participants in futures markets are hedgers. Their aim is to use futures markets to reduce a particular risk that they face.
It is impossible for exchanges to track all delivery prices for every individual futures they trade. To avoid the difficulty, the mechanism of margin account (保證金，孖展) is introduced:
Short Hedge
A short hedge is a hedge that involves a short position in futures contract. It is appropriate when you know you will sell an asset in the future and want to lock in the price.
The Operation of Margins: Maintenance Margin
Usually the exchanges will set a lower bound for each margin account, known as the maintenance margin to prevent the balance in the margin account from being negative. Once the balance is below the maintenance margin, the investor will receive a margin call to top up the account to the initial level. The extra funds deposited are known as variation margin. If the investor fails to do so, the broker close out the position.
Delivery
If a futures contract is not closed out before maturity, it is usually settled by delivering the assets underlying the contract. The short position issues a notice of intention to the exchange to state how many contracts will be delivered and also specifies where to deliver and what grade will be delivered. The exchange chooses a party with a long position to accept delivery. A few futures are settled in cash.
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Computational Finance
Lecture 4 Part II Futures and Swaps
Main Contents
Futures
Trading Mechanism Using Futures to Hedge
Swaps
Comparative Advantages Pricing
Forward Contracts vs Futures Contracts
FORWARDS Private contract between 2 parties Non-standard contract Usually 1 specified delivery date Settled at end of contract Delivery or final cash settlement usually occurs
The Operation of Margins: Daily Settlement and Marking to Market
On the next day, the March gold futures price drops down to $597 per ounce. The investor has a loss of 2 ($600-$597) 100 =$600. $600 is deducted from the margin of the investor and the total balance is reduced to $4,000$600=$3,400.
Some credit risk
FUTURES Exchange traded Standard contract Range of delivery dates Settled daily Contract usually closed out prior to maturity
Virtually no credit risk
The Operation of Margins: Margin Account and Initial Margins
An investor wants to buy two March gold futures contracts on the New York Commodity Exchange. Each contract size is 100 ounces. The current futures price is $600 per ounce and the initial margin is $2,000 per contract. Investor should deposit $4,000 in his margin account.
A strong positive correlation between interest rates and the asset price implies the futures price is slightly higher than the forward price A strong negative correlation implies the reverse
Futures
Futures can be regarded as forward contracts traded in the exchanges. The Chicago Board of Trade (CBOT) and the Chicago Mercantile Exchange (CME) used to be the two largest futures exchanges in the US. In 2007, the CBOT and the CME merged to form the Margins: Daily Settlement and Marking to Market
Similarly, the March gold futures price climbs up to $599 per ounce on the third day. The investor gains 2 ($599-$597) 100 =$400. $400 is added to the margin of the investor and the total balance is reduced to $3,400+$400=$3,800.
Futures
Exchanges provide standardized contracts and play the counterparty for both long and short traders. Convenience and security: No need to find an appropriate counterparty No need to face default risks
A margin is cash or marketable securities deposited by an investor with his or her broker The balance in the margin account is adjusted to reflect daily settlement Margins minimize the possibility of a loss through a default on a contract
The asset quality and the contract size Delivery arrangement and months Price limits and position limits
How to Trade Futures: Daily Settlement and Margins
Futures
The trading of forward contracts is usually overthe-counter. It involves risks. Sometimes one of the parties may not have enough financial resources, or may regret the deal, to honor the agreement. To avoid the risk, futures (期貨) contracts are introduced.
Assume an oil producer has just negotiated a contract to sell 1 million barrels of crude oil. It has been agreed that the price that will apply in the contract is the market price on Nov 20. The producer may short 1,000 1-month futures contract with 1,000 barrels each. Suppose that the futures price is $59 per barrel. The producer can lock in the price at $59 per barrel.