衍生品市场基础04章.ppt
Chapter 4,Introduction to Risk Management,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-2,Basic Risk Management,Firms convert inputs into goods and services output input commodity producer buyerA firm is profitable if the cost of what it produces exceeds the cost of its inputsA firm that actively uses derivatives and other techniques to alter its risk and protect its profitability is engaging in risk management,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-3,The Producers Perspective,A producer selling a risky commodity has an inherent long position in this commodityWhen the price of the commodity,the firms profit(assuming costs are fixed)Some strategies to hedge profitSelling forwardBuying putsBuying collars,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-4,Producer:Hedging With a Forward Contract,A short forward contract allows a producer to lock in a price for his outputExample:a gold-mining firm enters into a short forward contract,agreeing to sell gold at a price of$420/oz.in 1 year,FIGURE 4.1 Producer profit in 1 year,assuming hedging with a short forward contract at a forward price of$420/oz.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-5,Producer:Hedging With a Put Option,Buying a put option allows a producer to have higher profits at high output prices,while providing a floor on the priceExample:a gold-mining firm purchases a 20-strike put at the premium of$8.77/oz,Figure 4.2 Comparison of unhedged position,420-strike put option,and unhedged position plus 420-strike put.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-6,Producer:Insuring by Selling a Call,A written call reduces losses through a premium,but limits possible profits by providing a cap on the priceExample:a gold-mining firm sells a 420-strike call and receives an$8.77 premium,Figure 4.4 Comparison of Golddiggers hedging with sale of420-strike call versus unhedged.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-7,Adjusting the Amount of Insurance,Insurance is not free!in fact,it is expensiveThere are several ways to reduce the cost of insuranceFor example,in the case of hedging against a price decline by purchasing a put option,one canReduce the insured amount by lowering the strike price of the put option.This permits some additional lossesSell some of the gain.This puts a cap on the potential gain,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-8,The Buyers Perspective,A buyer that faces price risk on an input has an inherent short position in this commodityWhen the price of the input,the firms profit Some strategies to hedge profitBuying forwardBuying callsSelling collars,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-9,Buyer:Hedging With a Forward Contract,A long forward contract allows a buyer to lock in a price for his inputExample:a firm,which uses gold as an input,purchases a forward contract,agreeing to buy gold at a price of$420/oz.in 1 year,Figure 4.6 Profit diagrams for unhedged buyer,long forward,and buyer hedged with long forward.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-10,Buyer:Hedging With a Call Option,Buying a call option allows a buyer to have higher profits at low input prices,while being protected against high pricesExample:a firm,which uses gold as an input,purchases a 420-strike call at the premium of$8.77/oz,Figure 4.7 Comparison of profit forunhedged gold buyer,gold buyer hedged with call,and stand-alone call.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-11,Why Do Firms Manage Risk?,Hedging can be optimal for a firm when an extra dollar of income received in times of high profits is worth less than an extra dollar of income received in times of low profitsProfits for such a firm are concave,sothat hedging(i.e.,reducing uncertainty)can increase expected cash flowConcave profits can arise fromTaxesBankruptcy and distress costsCostly external financingPreservation of debt capacityManagerial risk aversion,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-12,Aspects of the tax code:a loss is offset againsta profit from a different yearseparate taxation of capital and ordinary incomecapital gains taxationdifferential taxationacross countries,Reasons to Hedge:Taxes,Derivatives can be used to:equate present values of the effective rates applied to losses and profitsconvert one form of income to another defer taxation of capital gains income shift income from one country to another,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-13,Reasons to Hedge:Bankruptcy and Distress Costs,A large loss can threaten the survival of a firmA firm may be unable to meet fixed obligations(such as,debt payments and wages)Customers may be less willing to purchase goods of a firm in distressHedging allows a firm to reduce the probability of bankruptcy or financial distress,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-14,Reasons to Hedge:Costly External Financing,Raising funds externally can be costlyThere are explicit costs(such as,bank and underwriting fees)There are implicit costs due to asymmetric informationCostly external financing can lead a firm to forego investment projects it would have taken had cash been available to use for financingHedging can safeguard cash reserves and reduce the probability of raising funds externally,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-15,Reasons to Hedge:Increase Debt Capacity,The amount that a firm can borrow is its debt capacityWhen raising funds,a firm may prefer debt to equity because interest expense is tax-deductibleHowever,lenders may be unwilling to lend to a firm with a high level of debt due to a higher probability of bankruptcyHedging allows a firm to credibly reduce the riskiness of its cash flows,and thus increase its debt capacity,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-16,Reasons to Hedge:Managerial Risk Aversion,Firm managers are typically not well-diversifiedSalary,bonus,and compensation are tied to the performance of the firmPoor diversification makes managers risk-averse,i.e.,they are harmed by a dollar of loss more than they are helped by a dollar of gainManagers have incentives to reduce uncertainty through hedging,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-17,Nonfinancial Risk Management,Risk management is not a simple matter of hedging or not hedging using financial derivatives,but rather a series of decisions that start when the business is first conceivedSome nonfinancial risk-management decisions areEntering a particular line of businessChoosing a geographical location for a plantDeciding between leasing and buying equipment,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-18,Reasons Not to Hedge,Reasons why firms may elect not to hedgeTransaction costs of dealing in derivatives(such as,commissions and the bid-ask spread)The requirement for costly expertiseThe need to monitor and control the hedging processComplications from tax and accounting considerationsPotential collateral requirements,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-19,Empirical Evidence on Hedging,Half of nonfinancial firms report using derivativesAmong firms that do use derivatives,less than 25%of perceived risk is hedged,with firms likelier to hedge short-term riskFirms with more investment opportunities are more likelier to hedgeFirms that use derivatives have a higher market value and more leverage,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-20,Basis Risk,Basis risk:The possibility of unexpected changes in the difference between the price of an asset and the price of the contract hedging the asset Basis risk is a generic problem with commodities because of storage and transportation costs and quality differences.Basis risk can also arise with financial futures,as,for example,when a company hedges its own borrowing cost with the Eurodollar contract.,Chapter 4,Additional Art,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-22,Table 4.1 Golddiggers estimated net income 1 year from today,unhedged.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-23,Table 4.2 Golddiggers net income 1 year from today,hedged with a forward sale of gold.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-24,Table 4.3 Golddiggers net income 1 year from today,hedged with a 420-strike put option.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-25,Table 4.4 Auric estimated net income,unhedged,1 year from today.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-26,Figure 4.3 Comparison of payoffs for Golddiggers hedged with a forward contract and hedged with a put option.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-27,Figure 4.5 Comparison of profit forGolddiggers using three different put strikes.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-28,Table 4.5 Auric net income 1 year from today,hedged with 420-strike call option.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-29,Table 4.6 Call and put premiums for gold options.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-30,Figure 4.8 Net profit at expiration resulting from buying a 420-strike put with premium of$8.77 and selling a 440-strike call with premium of$2.49.The profit for gold prices between$420 and$440 is($2.49$8.77)1.05=$6.60.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-31,Figure 4.9 Comparison of Golddiggers hedged with 420-strike put versus hedged with 420-strike put and written 440-strike call(420440 collar).,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-32,Figure 4.10 Comparison of unhedged profit for Golddiggers versus zero-cost collar obtained by buying 400.78-strike put and selling 440.78-strike call.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-33,Figure 4.11 Depiction of paylater strategy,in which Golddiggers sells a 434.6-strike put and buys two 420-strike puts,compared to the conventional insurance strategy of buying a 420-strike put.,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-34,Equation 4.1,Copyright 2009 Pearson Prentice Hall.All rights reserved.,4-35,Equation 4.2,
